Dubai: The launch of Etihad Credit Bureau and the access to individual credit data has come as an effective tool to check excess leverage and potential asset quality issues, according to bankers.
One year since its launch, the credit bureau has data on close to 6 million individual credit facilities which are now available to banks to assess the credit standing of individuals when they seek a new credit facility.
The bureau collates information on credit histories for consumers and companies dating back to October 2012. It aims to give lenders a window on each borrower’s total exposure across the financial system and a better picture of whether they are likely to be able to manage their debt. For many years, consumers have been able to take out multiple credit cards or loans with several banks without the knowledge of other lenders.
Credit reports on individual borrowers and all registered business establishments in the UAE are expected to be fully automated and available to banks online from next year bringing more transparency in lending to businesses, especially the small and medium enterprises (SMEs) that are facing some surge in asset quality deterioration.
Rapid expansion
The UAE Banks Federation, an association of 49 banks operating in the country estimates a total loan impairment in the range of Dh5 billion and Dh7 billion in the SME sector this year.
The SME sector, which witnessed rapid expansion supported by liberal bank funding in the post-financial crisis years, is finding the going tough as excess leverage and a difficult business environment are resulting in delays and/or defaults in loan repayments.
“In the past, many of these firms over borrowed from multiple banks. After the launch of the credit bureau, banks came to know the actual exposure levels of the owners of these firms, resulting in restrictions on access to more loans. Some customers panicked and ran away resulting in credit losses to some institutions,” said Abdul Aziz Al Ghurair Chairman of UBF.
Bankers say the dividing line between the personal loan liabilities and the liabilities of the companies one owns are very thin. “In many cases, SMEs are run by single owners and thus the difference between company and the individual is blurred and this where there are chances of some of the business loans finding [their] way into consumption,” said Nilanjan Ray, managing director, Global Commercial Banking of NBAD.
The availability of credit data from the credit bureau has to some extent brought about some transparency. Based on the available credit data, deleveraging and consolidation is already underway in the SME sector as banks are tightening lending norms.
“I think there will be some rethinking on SME lending in the context of rising NPLs. The changes will be qualitative in nature with high performing SMEs getting easy access to bank funding at attractive rates while riskier ones will face higher interest rates. We are working closely with central bank other relevant agencies to make credit report on commercial borrowers available to banks,” Al Ghurair said.
