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SMEs in UAE at high risk of default

The United Arab Emitrates (UAE) banking sector is bracing itself for a surge in defaults from small and medium sized businesses (SMEs) this year, AbdulAziz Al Ghurair, chairman of the UAE Banks Federation told Gulf News18 Nov 2015

UAE banks have seen higher defaults, known as loan impairments, since the start of 2015, and the Federation expects the total impairment from SMEs to reach between Dh5 million (US$1.4 million) and Dh7m for the year, Al Ghurair said.

"Many of these firms over borrowed from multiple banks. Banks [have come] to know the actual exposure levels of these firms, resulting in restrictions on access to more loans. Some customers panicked and ran away," Al Ghurair told Gulf News.

Many UAE banks are now reviewing their loan portfolios and tightening lending rules, Al Ghurair told the news site.

"I think there will be some rethinking on SME lending. The changes will be qualitative in nature with high performing SMEs getting easy access to bank funding at attractive rates while riskier ones will face higher interest rates," Al Ghurair told Gulf News.

The impairments are on a total asset size of Dh2.4 trillion (US$654 billion), which accounts for only 0.4% of the total banking assets of the UAE, Al Ghurair said.

The United Arab Emirates' cabinet was reported in July to have approved a draft financial regulation law that it said would help bail out companies at risk of bankruptcy.

The UAE is also looking at new laws bringing in corporate tax and value-added tax.