Using credit reports to make lending decisions may result in fairer and more individualistic lending policies, experts say. As the Al Etihad Credit Bureau (AECB) begins issuing these reports, lending criteria in the UAE may change from being company-focused to customer-focused.
Waleed Barhaji, Head of Distribution Channels and Unsecured Assets, Noor Bank, tells GN Focus, “Today we have no information about you from a credit history perspective. What we have is who your employer is and whether yours is a category A-, B-, or C-listed company. These decide how much you are eligible for.
“Tomorrow it may not be necessary to have the company listed. If we can get the whole credit history of the client, we are lending to the individual. So the credit bureau may result in a change in lending criteria.”
He says that in the absence of credit reports, banks have traditionally relied on their relationship with consumers and the statements they volunteer. “Since usage of credit reports is not mandatory yet, customers with three to six months of satisfactory repayment behaviour is the common basis for lending across banks in the UAE,” Barhaji adds.
According to the guidelines issued by the Central Bank of the UAE, an ideal customer debt burden ratio is 50 per cent — meaning an individual should be able to service all their debts using half their salary.
An unhealthy debt-income ratio leads to non-repayment of loans, which results in those liabilities being categorised as bad debts, thus negatively impacting the economic system.
Sharif Mohammad Rafei, Head of Retail Banking and Fujairah Region, National Bank of Fujairah (NBF), says, “Credit reports will protect us against possible bad debts in the future. Until recently, the bank had to
rely on the customers’ bank statements and self-declarations to calculate their debt burden ratio.
This approach does not always generate a comprehensive overview.” Having all the credit data in one place
may act as a wake-up call for individuals with bad credit habits. AECB officials say social responsibility is built into the system and comes into play once past data is in hand.
“When you have easy access to lending you don’t generally consider the repercussions,” says Marwan Ahmad Lutfi, CEO, AECB. “What we are hoping to do is to make people aware of the content of the report. Our future products might focus on developing tools that help decision-making in day-to-day activities.”
While consumers are generally displaying more responsible credit behaviour in the recovery years following the global financial crisis, Barhaji says they still tend to rely on credit. “Customers, apart from having multiple credit cards, usually avail of two to three personal loan facilities from different banks. Keeping at least one or two auto finance provisions is another common practice in the regional market.
“These factors would affect eligibility when requesting loans and advances.”
A few financial institutions, including Noor Bank, have been contacting the Dubai-based Emirates Credit Information Company, or EmCredit, the first credit bureau in the UAE, to access credit reports, whose data is collated from 14 subscriber banks to be made available.
With the help of credit reports, individuals with good credit histories can expect to be treated on a par with existing consumers who probably enjoy at least a two per cent difference in preferential rates at heir banks.
Barhaji says, “Currently, lending rates depend on the length of [a consumer’s] relationship with us. A part of the loan rate is the risk factor as well. The income level, kind of company, designation, how long has the applicant been in the UAE and so on [determine one’s credit worthiness] and are factors that we incorporate into our policies or in our offerings to customers.”
