Abu Dhabi: The Ministry of Finance (MOF) is preparing legislation to establish the country's first centralised credit bureau for individuals and corporates, the ministry announced on Sunday.
"A federal corporation is being envisaged to provide comprehensive services and solutions related to credit information," the ministry said in a statement. "It will be tasked with preparing reports, statements and credit ratings to help the financial institutions take appropriate lending decisions."
A spokesman for the ministry said the subject is still under study and no timeline has been set for sending an official proposal to the Cabinet.
Lenders now rely on various factors to determine the creditworthiness of borrowers including the financial standing and reputation of the sponsor or employers.
Credit bureaus in the West have traditionally relied on a scoring model called Fico. The model, established in the 1950s by an American engineer and a mathematician, uses ratios such as credit balances to availability, length of established credit in addition to the number of late and missed payments to determine creditworthiness of individuals.
"It's an extremely positive move because we need that to avoid the broad brushstrokes banks put on borrowers," said Deepak Tolani, interim head of research at Al Mal Capital in Dubai.
"Right now there's no separation on good and bad credit which is why we're paying high interest rates for everything from mortgages to car loans and credit cards. The banks are pricing in the credit risk they are taking," Tolani added.
In late 2006, Emcredit became the UAE's first and so far only credit bureau. It is unclear whether the agency will be involved in the creation of the federal bureau.
The company initially met some resistance from the banking sector but has since grown to hold 30 per cent of the country's mortgage data and 5.6 million individual identification records, according to the company's website.
Lending grew by just 2.4 per cent in 2009, compared with 30-plus per cent growth in the five previous years, according to Central Bank data. Non-performing loans, which now represent 4.4 per cent of total loans, are set to grow to 6.4 per cent by the end of the year, according to the Central Bank estimate.
