New personal loan system on radar in UAE

Banks being surveyed for universal application

Image Credit: Gulf News
Every person seeking a loan in the UAE would have to be credit checked under a new draft law.
11 Gulf News

Abu Dhabi: Banks operating in the UAE are currently being surveyed over a new personal loan system including a uniform application for these loans, Obaid Humaid Al Tayer, Minister of State for Financial Affairs, told the Federal national Council (FNC) yesterday.

"Once the survey is completed, results will be presented to the board of the Central Bank for approval," Al Tayer said in a statement submitted to the House.

The minister was responding to a question raised by Khalifa Bin Howaidin, an FNC member from Sharjah.

Bin Howaidin told the House despite the growing problem of personal loans, a uniform personal loan application has not yet been introduced.

"The uniform personal loan application was part of recommendations approved by the House more than 18 months ago and yet it's not ready so far," he said. Bin Howaidin noted that personal loans totalled Dh424 billion last year, compared to Dh146 billion in 2007.

The House approved in April last year several recommendations to solve the growing problem of personal loans.

The FNC personal loan committee's report then noted a massive growth in loans, from Dh155.2 billion in 2000 to Dh695 billion in 2007. About 10,000 people are in court or jail because of loan defaults, according to the report.

Cases of default increased substantially from 3,149 cases in 1998 to 5,710 cases in 2006 from a total of 562,000 loans.

The committee noted that laws are not effective in reducing the problem, and the Ministry of Fin-ance, the Central Bank, and the community are not capable of putting an end to this problem.

Credit bureau

The House debated the idea of establishing an independent federal credit bureau designed to provide a centralised data-base and index on the risk of loans.

Members of the FNC had asked the Central Bank to strengthen its regulatory authority through techniques providing the necessary technological expertise and human resources.

Every person seeking a loan in the UAE would have to be credit checked under a new draft law.

Credit checks would be carried out on every person in the UAE seeking a loan under a new draft law, which has been approved by the FNC.

Court clears customer

In a recent ruling, the Federal Supreme Court has rejected a bank's bid to recover a personal loan of Dh500,000 from a customer. A man earning less than Dh10,000 per month was granted a loan with monthly instalments that consumed 60 per cent of his salary.

The FNC said banks should not grant loans without adequate guarantees and look into each case .

Arup Mukhopadhyay, Executive Vice-President, Head — Consumer Banking of Abu Dhabi Commercial Bank, said: "I cannot specifically comment on this decision as I do not have all the information relating to this case at this point of time.

"However, in general, I can only say that ADCB has always been prudent in extending credit to customers and takes into account several factors while assessing the creditworthiness of a customer, viz. salary, company, length of service, etc. and above all the debt service ratio, i.e. the ability of the customer to repay the loan."

Emirates NBD declined to comment on the issue.

Do you know anyone who is burdened by a loan? How will this help people in debt? Tell us

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Latest Comment

Establishing a credit bureau is beneficial to the banking industry. However, in cases of highly-leveraged borrowers accessing loans way beyond their capacity to pay, is definitely NOT his fault. The burden lies on the bank's sales people who failed to determine the borrower's 4 C's of credit. But then again, the bank's sales people have targets to meet. Whiletrying to reach their targets, the quality of the loan suffered because, maybe, the credit process has been shortened.

Tisha

9 December 2009 18:26jump to comments
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