No more rescheduling of loans for over 48 months: UAE Central Bank

Abu Dhabi: The UAE Central Bank has issued a circular to banks in the country to cease giving income-based consolidation loans with repayment schedules that extend beyond 48 months.

The now-illegal loans were aimed at Emiratis and limited the monthly payments to no more than 50 per cent of monthly salaries. Due to the size of the loans in relation to salaries, payment schedules sometimes stretched into decades.

“The banks have to abide by the banking laws and circulars and to adhere to the regulations that the amount to be deduced shall not exceed 50 per cent of the income of UAE citizens to be paid in a period no more than 48 months,” the circular read.

“The banks targeted the citizens who were willing to reschedule their debts which are huge compared to their income and whose loans were for long terms exceeding 20 years,” said one banker who wished to remain anonymous.

The Central Bank said in its circular number 13/207/2013 that all banks “shall be prohibited from rescheduling loans of [UAE citizens] with other banks. Previously, consolidation loans could be used to pay off loans from multiple banks.”

Sultan Bin Nasser Al Suwaidi, the Central Bank Governor, called on all banks to “instantly stop any arrangements in this regard,” warning that if banks do not adhere to these regulations, they will face disciplinary action.

“These regulations and instructions will be valid for three months as of the date of issuance of the circular,” Al Suwaidi said.

The Central Bank had previously set March 31, 2013 as the deadline for the banks to cease issuing these loans; however, the banks had continued to reschedule and takeover loans from other banks.

Mohammad Al Asoomi, a UAE based economist, told Gulf News that banks in the UAE have high capital adequacy levels, which means banks could cover the loans in the case of default, and the Central Bank’s decision will confuse the market.

“We have been recently witnessing many circulars and regulations by the Central Bank which are contradictory. This shows a kind of chaos or unclear vision of how to deal with loans and the policy to handle personal loans as well,” Al Asoomi said.

He pointed out that the rescheduling process is very useful to help the borrowers and the decision by the Central Bank to limit the payment to 48 months will negatively affect [many people’s] ability to pay.