Business | Banking

New unified banking rules take effect from Sunday

Central Bank move to encourage responsible borrowing

  • By Deena Kamel Yousef, Staff Reporter
  • Published: 00:00 April 29, 2011
  • Gulf News

  • Image Credit: Megan Hirons Mahon/Gulf News archive
  • A bank teller counts banknotes. The move is expected to lead to more transparency between banks and customers.

Dubai: Starting Sunday, bank customers cannot obtain car and personal loans exceeding 20 times their monthly salary and only those with an annual salary of Dh60,000 or more will be considered for a credit card following the new Central Bank regulations meant to protect customers from borrowing beyond their means.

"This is the beauty of this regulation. It protects consumer rights so borrowers don't load themselves with extra loans that they can't repay — unless they have another income and can prove it," said Jasem Al Beloushi, Head of Retail Banking at Sharjah Islamic Bank (SIB).

However, banks are still unable to confirm if customers have taken loans at other institutions without declaring them, bankers and industry experts say.

The regulations provide customers with clear and consistent information on bank fees, which have now been fixed across all banks, Al Beloushi said.

"Now fees are uniform and reduced. Consumers know their salary, how much they can borrow and can plan accordingly. It's not just by trying their luck at different banks."

This should lead to more transparency between banks and customers, he added.

Uniform bank fees and charges will force banks to compete based on better service to attract and retain customers, bankers say.

"This will level the playing ground for everybody so banks will be depending on the quality of services they provide. Customers will be comparing service quality because charges will be the same for everybody," said a senior banker at SIB.

While the regulations are considered "progressive" steps to ensure customers' earning and repayment abilities are linked, they may not be enough.

"The question is whether or not banks can immediately know if someone has borrowed at another bank… are banks actively sharing that data? That's a huge issue. It's an example of ambiguity," said Salman Jaffery, Head of Mena Retail Banking at Ernst and Young.

There is no central bank-endorsed credit bureau to gather information on customer debt that banks can use to check if clients have exceeded the new loan capacity, said Sanjoy Sen, consumer bank head for Mena Citibank, adding that there is no informal arrangement between banks to check customer credit backgrounds.

Typically customers qualify for a loan from the bank to which their salary is paid, but that is not always the case, he said.

A Central Bank-backed credit agency is necessary for the regulations to be effective, bankers said.

In the long term, the regulations may mean fewer bounced cheques and fewer provisions for bad debts as far as banks are concerned, said Al Beloushi.

Interest rates may also be affected, analysts and bankers say. "There will be less lending, our work will be less, and it has its limitations for us. Interest rate may drop," Al Beloushi said, adding that the growth of retail banking will be affected.

But the scale of retail banking regulations, limited mainly to personal loans and bank fees, may not be large enough to impact interest rates, said Jaffery.

The move by the Central Bank is intended to encourage more responsible borrowing, experts agreed.

This means banks can nurture an entire generation of youth who, free from debts they cannot repay, can mature into borrowers of long-term loans for cars and housing, said Jaffery.

This cultivates a future generation of customers who are profitable to the bank, he added.

Comments (13)

  1. Added 17:50 April 29, 2011

    I've most welcomed & appreciated of the Rules & Regulations from Central Bank to all banks to come unify. But, I can't understand and asked one question, how can they are deciding that who is getting salary 60000 AED or more per year and they are only eligible for personal / car loans ? Because, mostly of who is getting 60000 or more, they no need loans, and company provide all to them. But,below 60000 salaried people only beleiving loans for completing their achivements. So,kindly I request the Central Bank to provide personal loans to all according to their salary. And I've asked another one question also,If one person will get loan from one bank and the same person will get loan from another bank also, after his full salary have finished, so, please make link in between all banks in UAE and avoid this things also. And lastly, my opinion is who should get loans from the bank which one provide their salary and that bank only authorized for loans, because of every month they cut loan amount and balance salary only provide to their customers.

    M.Syed Barakath, Dubai, United Arab Emirates

  2. Added 17:36 April 29, 2011

    A good decision from the Central Bank. Should introduce preferences for prompt payers too. Well done!!

    Rajeev, Sharjah, United Arab Emirates

  3. Added 13:39 April 29, 2011

    Dears,, I am looking 4 a credit card from long but because of the salary regulations I am not able to get one

    Faizan, Dubai, United Arab Emirates

  4. Added 13:34 April 29, 2011

    It is very good move by Central Bank. People will learn to spend acording to their limit and wont end up in multiple debts. You dont need credit card if you cant afford to repay.

    Mohammad Esmail , Sharjah , United Arab Emirates

  5. Added 13:06 April 29, 2011

    Great !!!! it was needed.

    Abdullah mohammad, Dubai, India

  6. Added 12:59 April 29, 2011

    The new regulations will have huge impact for the customers and the banks; it has both advantages and disadvantages. Over the period the customers will have responsible borrowing habit but in the short term the customer’s already on the huge outstanding will not have access for the further credit at least for next few years. Other hand customers will get the services at very reasonable cost and the uniformity on the lending criteria bring the best of customer service as the banks can differentiate them self from others the banks by customer service and innovation on the additional products and services. What it mean for the banks? It obvious that the banks will have quality assets over the period at the cost of huge offset in the fees income and to some extent loss in the interest income lowered loan growth. The bank will bringing new innovative investment products, selling third party products to offset the loss in the fees income, expand to the retail loan non lending segment.

    Suresh , ., United Arab Emirates

  7. Added 12:46 April 29, 2011

    I do welcome this decision to save borrowers and also this nation from sub-prime crises.

    Arifeen, Abu Dhabi, United Arab Emirates

  8. Added 12:40 April 29, 2011

    I think no worries for banks, its a good decision by central bank, there wil be less cases in police for cheque returns, and also the banks are not paying loans to every body, as they have already enlisted companies who has alraedy a good reputation according to their records. Now a days only the inlisted companies staff can get loans. In this case they have to increase the base .

    saim, sharjah, United Arab Emirates

  9. Added 11:50 April 29, 2011

    An excellent move...should have been implemented long back.

    Nilofar Nazim, Sharjah, United Arab Emirates

  10. Added 11:45 April 29, 2011

    dear A from sharjah, govt is doing right thing....i know what it means to borrow and unable to pay...UAE is tempting place to spend....this law is needed to save people from disaster by not offering them extra cash so they spend with in their limit.

    c d patel, dubai, United Arab Emirates

  11. View more comments

Gulf News
Retail Gold Rate
Business Editor's choice