Abu Dhabi: The UAE Central Bank is considering tough measures - including setting up a Dispute Resolution Committee to look into cases - against loan defaulters, in a bid to help lenders ride out the current economic situation in which cash is hard to come by.
The measures could include black-listing defaulters, among other punishments.
A blacklisted person could face a number of difficulties in either working, doing business in the UAE, seeking finance or leaving the country.
The news comes as the number of bounced cheque offences rises in various sectors of the economy amid payment delays, which are hampering cashflow.
Many small and medium businesses see their running capital drying up as bank deposits shrink. Some are already facing difficulty paying their workers.
The situation, if it deteriorates, could result in bankruptcies. Many individuals are facing insolvency as their credit card limits are being lowered by banks - a sign that the banks are becoming more cautious with their customers.
However, bankers welcomed the Central Bank's initiative to establish a Dispute Resolution Committee which would study defaults by bank borrowers on a case-to-case basis.
Bankers agreed that in many cases, jailing loan defaulters isn't the solution because then the recovery of their money becomes almost impossible.
They acknowledged that a large percentage of borrowers haven't intentionally defaulted, but are victims of the current global financial crisis which has hampered their ability to pay back their bank loans on time.
In these cases, they said the defaulters must be given more time to repay their loans and that the proposed Central Bank mechanism would be of help as it would enable defaulters to explain their exact financial position and allow them to give banks a timeframe within which they would repay their debts.
"It's a proactive measure from the UAE Central Bank to pre-empt any conflict that may arise due to potential non-performing assets [NPAs] in the system," EmiratesNBD Group Chief Financial Officer Sanjay Uppal told Gulf News.
EmiratesNBD is the largest bank by assets in the Middle East.
Uppal said in the past decade the banks had operated in a benign environment, but now the market conditions are tougher.
"Expectations of emergence of NPAs may give rise to disputes. The Central Bank is putting a mechanism in place to address such issues," he added.
The chief executive of Bank of Baroda, an Indian multinational bank, said the banks' ultimate purpose is to recover their money and not to send defaulters to jail.
"If some customers have a genuine problem and we are aware of their circumstances, it's better to give them more time to repay their loans than having them jailed. In the bank's interest, it's a better proposition to get the money back later than never ever," said Ashok K. Gupta.
Commenting on the UAE Central Bank initiative, Jeremy Parrish, chief executive of Standard Chartered Bank for Abu Dhabi and Al Ain, said that "as long as the bank's position is not compromised and as long as the law of the land is upheld, it seems to be a good move."
He said as far Standard Chartered Bank's Abu Dhabi loan portfolio is concerned, "it's in good shape and in line with our expectations".
Mousa Haddad, Head Trader, Discretionary Mandates at the National Bank of Abu Dhabi, said the reaction to the Central Bank initiative is positive and can be seen in Thursday's financial market sentiments.
The Abu Dhabi Securities Exchange general index rose 1.17 per cent during the day, while the Dubai Financial Market index rose 1.64 per cent.
Will this help businesses build trust and confidence when dealing with clients? What other measures do you think would be successful in decreasing loan defaults?
The honest and faithful customers are suffering. After termination from jobs, they approached the banks to settle their debts. Unfortunately, they were threatened to file a lawsuit against them. In this time of crisis, banks should understand the situation better. People must not be forced to abscond but banks find solutions to their situations. Everybody is willing to pay their debts. Banks should protect their customers they are making money from them. They should bring absconders to justice and not to the loyal bank clients.
Posted: March 21, 2009, 14:49
This is a good move from central bank but on the other hand banks should make a mechanism to create a difference between willfull defaulters and other people who are the victims of present circumstances. Putting people behind bars will take banks no where.
Posted: March 21, 2009, 13:55
Mr. Gupta has made the right suggestion. Sending a person to jail will not help the bank recover their money from that person. Banks should consider the situation and discuss with the individuals as to how much can they pay per month and I am sure the person will pay it continuously. That way the bank doesn't have a defaulter. Even putting a block on the person from getting a job in UAE will not help too. Because if the person cannot get a job how will he or she pay back? Everyone wants to be happy and debt free. Please, I think the banks should do this. They will recover all their money and have the cash flow coming in every month.
From A Reader
Posted: March 21, 2009, 13:19
The Banks should reschedule the loans of the individuals. Moreover the banks should stop interest on the loans or credit cards to enable individuals to pay off their liabilities.
Posted: March 21, 2009, 13:10
Whats happening was bound to happen as you go into the past you will find that how forcefully banks were giving loans and credit cards to the people they are more responsible for what is happenig. It is an islamic country and we all should avoid encouraging these banks thats the only way out.
Posted: March 21, 2009, 13:00
I definitely agree with the proposition, and also if Banks would put Defaulters to jail, it would create fear amongst them and they will be forced to go back to their home countries instead of finding ways on how to repay their loans here in the UAE. It is just rightful for Banks and other financial institutions to restructure their repayment schemes for the advantage of defaulters as well as the intermediaries themselves.
Posted: March 21, 2009, 12:58
Black listing is Ok, only blocking from getting a job is not Ok. Most of defaulters are those who lost their jobs, if they are blacklisted not to get another job, how they can continue paying their debts?
Sinan Al Alawy
Posted: March 21, 2009, 12:49
The initiative taken by the Central Bank is good keeping in view the overall situation and its impact in the UAE where the worst has not effected as in other countries and yet we expect more as the pace of development in UAE was exceptionally fast and the many people has entered in various activities to make quick money some of them enjoyed and some are victims. They may not be defaluters but will become defaulter as they dont have the capacity to repay and the assets which they are holding are not enough to settle the liabilities. Under the circumstances banks initially stop the interest on those accounts and settle the debt giving some rebate to the customers to reduce the Non performing Assets and also relaease the person from its debt. Basically the banks has created the situation by financing the peoples on a very minimal margins/collaterals and has financed without properly assessing the repayment capacity of the borrowers. I hope that they will be more vigilant in financing to avoid such situation. The real estate Financing is the worst example where the finacing was @ 5% down payment and 95% Financed by bank this has put the developer and the bank in very difficut situation. The prices of the property falls more than 30% and the person has given up his 5% and the rest of the losses to be bear by the developer or the bank if it is finaced. In my opinion if the person does not have the funds to pay 30% he should not be provided finance to create the healthy enviorment.
Posted: March 21, 2009, 12:47
Yes, banks should give some time to their costumers to repay their loan amount, as again the same question arises the global financial crisis is something people never suffered from in their life and if such unexpected things happen, it is shocking to the person as he may have lost his job or faced salary cuts. There are many other reasons and, according to me, all these factors should be taken into the consideration to cooperate with the costumers.
Posted: March 21, 2009, 12:24
We pay a small amount towards credit sheild insurance in case of any default or loss of job. But these charges don't seem to help us during crisis.
From A Reader
Posted: March 21, 2009, 12:23
It's really surprising to put those in jail who were taken off from their jobs in no time to wind up their liabilities as salary was the only income source. Should we blame them for not paying back the advanced credits?
Posted: March 21, 2009, 12:22
The proposition suits best in these times of crisis. If the debtors agreed to be jailed, after serving the sentence, he is free from any obligations already. Let the person work to repay otherwise, none will be retrieved after all.
Posted: March 21, 2009, 12:19
Banks could help people not to fall prey to debts by being more careful about market segmentation. People, especially those without much purchasing power, are more inclined to spend beyond their means.
Posted: March 21, 2009, 11:53
Its not a good idea to put a travel ban on the borrowers, because its been very difficult to get a new job in the UAE for the redundant employees, in case they get a new job in any one of the GCC countries, banks and authorities should allow the employees to travel and the banks can obtain necessary guarantees from the same borrower. The bank's ultimate aim is to recover the money from the borrower, so they should give helpful options to recover the same amount
Posted: March 21, 2009, 11:35
1 - By reducing interest on loans.
2 ? Percentage of interest should remain same through out the installments i.e. interest should be deducted on flat rate basis and not how the banks are doing it, they are recovering their interest first then the principal
3- Allowing maximum re-payment of loan amount instead of fixed installment amount and the interest should be calculated on reducing balance method
4- No late payment / compound interest on delayed installments should be charged.
Posted: March 21, 2009, 11:17
Yes, it's true that loan seekers can easily pay their balances if they get a little more time to pay. Its better than loosing. Get something. Finally, banks will also not loose their customers when they have a good time.
Posted: March 21, 2009, 10:51
As per Mr. Gupta, what he said is right. At least give some time to debtors. If you give a chance to them, at least he/she would be in a position to pay in the future. However, if you people put them in jail, you will not be able to get anything.
Posted: March 21, 2009, 10:39
Banks have to adopt Islamic way of banking, discouraging customers to take cash advance through credit cards, which will force customers to contain their expenses within their income.
Posted: March 21, 2009, 10:37
The best way is to give time to defaulters. Sending them to jail is not a good option as in that case money can not be recovered because if he is in jail he can not source the money. Also sourcing money is not easy again in present situations so what is other option?
Posted: March 21, 2009, 10:24
Banks need to help the individuals who have taken personal loans. Both the parties should meet and re-structure the loan repayments schedules. There are a few who have not lost jobs but are still facing 30 to 40% cuts in their earnings. If they have taken a personal loan, the above step needs to be taken. Major portion of earnings goes in rents. The right solution suitable to both parties is the need of the hour.
Posted: March 21, 2009, 09:56