By David French

DUBAI, May 23 (Reuters) - The problem of small business owners in the United Arab Emirates "skipping" the country over unpaid debts has been contained, although it is set to remain an issue well into next year, the head of the Gulf state's banking federation said on Monday.

Small and medium-sized enterprises (SMEs) have come under pressure in recent months as low oil prices have resulted in slowing economic growth and a tightening up on lending by banks.

For those struggling to make payments in a nation where bouncing a cheque risks landing the issuer in jail, many choose to "skip" the country instead. Estimates put the total figure for deserted debts in the year to November 2015 at around 5 billion dirhams ($1.36 billion).

With opaque and ineffective bankruptcy laws in the UAE, the country's banking federation agreed in March to a voluntary system whereby indebted businesses could work with their lenders to put new payment schedules in place.

This system has been well received by customers, according to Abdul Aziz al-Ghurair, chairman of the UAE Banks Federation, noting that while some business owners continue to leave others were negotiating with lenders.

"I think it's been contained and it's under control," said Ghurair when asked whether the 5 billion-dirham figure for desertions had increased since he gave it in November.

"It's a work in progress and we'll have to continue working this year and next year to tackle this issue but, overall, the size of the issue is very small compared to the 1 trillion dirhams of lending," he added on the sidelines of an event to launch an initiative aimed at improving governance at Gulf family businesses.



EIBOR

Meanwhile a new system for calculating the Emirates interbank offered lending rate (EIBOR) was now in place and would help provide a better and more transparent quotation, Ghurair confirmed on Monday.

Banking sources said in April the UAE's central bank was reforming the way in which banks quote indicative money market rates, used to price financial instruments in the Gulf's top banking centre.

Within the new system, which will be audited on a quarterly basis to ensure its effectiveness, was a component which would reflect the cost of a bank going to the market for funding, as opposed to the past in which only bank-to-bank lending was included.

"It should reflect the true cost of funding for the bank, it's not just bank-to-bank," said Ghurair.

Gulf banks are increasingly turning to international debt markets for funding after years of bountiful liquidity provided by governments placing oil revenues on deposit, cash which is now being withdrawn to bridge budget shortfalls. ($1 = 3.6726 UAE dirham)

(Editing by Greg Mahlich) ((davidj.french@thomsonreuters.com; +971 4 362 5864; Reuters Messaging: davidj.french.thomsonreuters.com@reuters.net))