UAE banking law amendments and their impact

Category: Asia Fintech GCC

The United Arab Emirates (UAE) introduced new federal consumer protection laws. These laws were designed to enhance responsible lending practices and reduce “name-only” lending in the banking sector. One particular aspect of these laws, known as Article 121 bis, has been creating challenges for lenders.

The amendments necessitate that banks lending to individuals and sole proprietors must now take “sufficient” security, moving away from the historical reliance on personal guarantees as the primary means of securing loans. This change is significant in the UAE’s banking landscape.

The rationale behind these amendments is twofold. Firstly, they aim to promote responsible lending by ensuring that banks take adequate measures to secure their loans, preventing loans from being granted based solely on the borrower’s reputation or name without sufficient security. Secondly, the amendments aim to tackle the issue of undisclosed debts and personal guarantees, which have been a common problem in the region.

However, the application and interpretation of the new rule differ among the various Emirates. The Abu Dhabi judiciary has adopted a broad approach by applying Article 121 bis both retrospectively and extending its scope to corporate loans, not just personal loans. This expansive interpretation means that Abu Dhabi-based consumers with debts backed by personal guarantees can now be largely relieved of their debt obligations, regardless of when the loans were issued. This has far-reaching implications for financial institutions in the UAE.

Enforcement implications of article 121

Under Article 121 bis, the execution court in Abu Dhabi has chosen to cancel the enforcement of final judgments against customers, even if the judgments are already two or three years old. This means that banks may no longer be able to collect on UAE based assets on judgments that were previously considered enforceable. This development has raised concerns among financial institutions and creditors that rely on these judgments to recover outstanding debts.

Banks or investors that have acquired a significant portion of non-performing loans based on the expectation of making recoveries from personal guarantees may face challenges due to Article 121 bis. The execution file normally has to be open where the customer is based; this interpretation of the Federal law is not affecting execution procedures in Dubai and other Emirates. The provision’s limitations on enforceability could potentially undermine the recovery prospects for these investors, leading to financial losses.

However, it remains to be seen how courts in other parts of the world apply Article 121. A recent decision by the High Court of England and Wales sheds light on the enforceability of Abu Dhabi judgments in other jurisdictions. In the case of Invest Bank PSC v El-Husseini [2023] EWHC 2302 (Comm), the court ruled that Abu Dhabi judgments for amounts due under two guarantees remained enforceable in England, despite the cancelling of the execution procedures underway in Abu Dhabi due to the retrospective application of Article 121. This ruling provides a glimmer of hope for financial institutions seeking to enforce their judgments outside the UAE. However, the full impact of these amendments on the global banking sector remains to be seen.

The history of banking in the United Arab Emirates (UAE) is rich and has evolved significantly over the years.

Beginnings as trading hub

The UAE’s banking sector was already well-established before the formation of the country. The Imperial Bank, which later became part of HSBC, played a significant role in the early history of banking in the region. In 1946, Frank Johnson opened Dubai’s first bank, the Imperial Bank. Johnson had started his banking career in the United Kingdom and joined the Imperial Bank initiative in 1921.

Dubai, one of the seven sheikhdoms that formed the UAE in 1971, emerged as a major trading hub in the early 20th century. Sheikh Maktoum Bin Hasher Al Maktoum, who came to power in Dubai in 1894, sought to make Dubai the most commercially attractive port on the Trucial Coast1. By 1901, Dubai had practically replaced Lingah as the main trading hub for most sheikhdoms.

The first UAE national bank, the National Bank of Dubai, now known as Emirates NBD, was launched in 1963. The bank was founded by then Dubai’s ruler His Highness Sheikh Rashid bin Saeed Al Maktoum. The National Bank of Dubai merged with Emirates Bank International on March 6, 2007, to form Emirates NBD.

The history of banking in the UAE is a testament to the country’s rapid economic development and its status as a global financial hub. The sector continues to evolve, adapting to new technologies and changing market conditions.


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