The MO scheme has been agreed by the chief executives of all UAE banks and approved by the Central Bank.
“This has been discussed by the full board of the UBF and the Central Bank governor, and they have all blessed it. All banks are morally committed to support the initiative,” Mr Al Ghurair said.
The MO scheme could open the door for changes to the way the UAE uses cheques as security guarantees for loans. “This is a test. It is a voluntary arrangement and a self-imposed regulation is always a better solution that an outside regulation. This is a voluntary arrangement,” Mr Al Ghurair said.
Asked whether arrangements similar to the MO initiative might be extended to personal banking, he said: “Ask in a couple of months. That would involve millions of people”.
Most cases of SMEs getting into financial difficulty occurred in the wholesale food and oil services sectors, he said.
The MO arrangements involve a seven-step process over 15 days in which a “remedial credit co-ordinator” will receive a request for action, followed by meetings of debtor and creditors’ banks to assess the extent of stress.
A 75 per cent majority acceptance by creditors is required to adopt the measures of the MO, after which creditors will sign a “standstill agreement” on any further legal action against the debtor. Creditors must agree that there are “genuine commercial challenges which led to the request for restructuring”, according to an outline of the MO process.
Mr Al Ghurair said that the continued appetite of the banks for further lending depended on the condition of the potential borrower and the economy.
“We will lend as long as the economy is in good shape and the customer is in good shape. If the economy slows and the customer slows the bank will also slow its lending,” he added.
