Dubai, UAE- The UAE since January 2, 2023 has embarked on a transformative journey in its Dubai Banking Sector with the unveiling of Decree-Law No. 23 of 2022.
This decree has sent ripples through the financial community, impacting how banks operate and provide financial services . Let’s delve into the key aspects of this pivotal change and its implications.
Stricter Security Measures:
One of the most noteworthy changes brought about by Decree 23 is the requirement for financial institutions to obtain “adequate securities” when extending loans to natural persons and sole proprietorships. While the decree doesn’t explicitly define “adequate securities,” it places the onus on licensed financial institutions to assess a client’s income, the type of facility, and the security provided. The underlying rationale is to safeguard borrowers from potential financial distress in case of defaults.
Cheques as Security:
Decree 23 also clarifies the use of cheques as a means of payment and security. The Commercial Transactions Law, in conjunction with this decree, states that a bounced cheque can constitute a writ of execution. This means that individuals and businesses must be cautious when issuing cheques as a form of guarantee, as they may be held liable under the law.
Uncertainty and the Need for Clarity:
While Decree 23 introduces crucial changes, some aspects remain ambiguous. Questions arise about what constitutes “sufficient” security and the extent of Central Bank involvement in determining these criteria. Official guidance on these matters is yet to be published, leaving market participants in a state of uncertainty.
Market Reality vs. Regulations:
Despite the concerns, unsecured financing remains a common practice under UAE law. It is important to note that the interpretation that Decree 23 entirely prohibits unsecured financing seems unlikely. Various provisions within UAE law grant financiers the right to offer loans, charge interest, set repayment terms, and impose obligations on borrowers.
Decree 23 of 2022 has undoubtedly introduced pivotal changes to the Dubai banking sector. While some uncertainties persist, Dubai Banking Sector community must adapt to these new regulations and await further guidance.