Banks in the UAE have agreed a plan to help small-and medium-sized businesses (SMEs)

Banks in the UAE have agreed a plan to help small-and medium-sized businesses (SMEs) struggling with debt, including suspending payments and restructuring loans.

Falling oil prices and a slowing economy has seen many businesses finding it difficult to repay debts on schedule. Now, the UAE Banks Federation proposed on Wednesday that companies owing debt to more than one bank will be allowed to restructure future payments. While businesses reach a deal on such debt with banks, the banks could put a moratorium on such payments, the association of banks said.

Several banks had in fact reduced lending to SMEs after a spate of defaults. Some struggling business people opted to depart the country, leaving behind unpaid debts. According to the newspaper, a senior banking official in November had estimated the amount owed by those fleeing reached around 5 billion dirhams ($1.4 billion) last year.

Although the SME sector contributes more than 60% to the UAE’s economy, this sector obtains a mere 3% of lending. This drives some SMEs to borrow money at high rates from private lenders raising the cost of running a SME to prohibitive levels.

The step has been welcomed by the SME sector.