Is easy credit back in the UAE?

Dubai: UAE banks appear to be back in the lending game, with a number of them now offering customers with freebies to get them to sign up for a personal loan.

According to industry sources, the personal borrowing uptake has increased on the back of renewed consumer confidence in the economy, while banks have upped their lending strategy.

Borrowers are being enticed with free air travel, holidays and delayed repayments. Customers whose companies are not in the banks’ “approved list” also have more chances of getting a loan.

The amount of credit extended to customers fell in the aftermath of the global recession, as banks tightened lending terms amid a surge in bad loans and dropping liquidity. At that time, banks were picky when handing out loans and it was common to see financial institutions rejecting applications of employees who work for blacklisted firms. However, since the economy started to show signs of recovery and banks have achieved more liquidity, things have changed.

“Banks seem to have relaxed some norms such as lending to individuals who are not employed with companies in the approved list. Many banks were running special promotions during Ramadan for instalment postponement and free gifts,” noted Preeti Bhambri, managing director and founder of MoneyCamel.com, a personal finance site.

At one bank, borrowers get a Dh500 voucher for air travel with every loan. Other banks offer two payment holidays in a year. The latest financial institution to launch a special loan offer, Commercial Bank of Dubai (CBD) announced recently that personal loan customers will enjoy free travel to destinations of their choice and have a chance to start their loan repayments next year.

“With this promotion, our customers will not only have a chance to reach their dream destinations for free, but can apply now and only start repayment next year,” said Murray Sims, CBD general manager for personal banking.

Unlike other banks, however, Emirates NBD does not offer gifts to attract borrowers. A few years back, the bank launched a “Borrow Wisely” campaign highlighting that customers should not be enticed with freebies for credit purpose. But its loan product offers extra features, such as dual credit protection benefit and seven-day loan return option.

Rana Zeeshan Saleem, head of assets and Saudi Arabia retail banking, retail banking group, Emirates NBD, said they have noticed an increase in the take-up of personal loans since consumers are upbeat again about the economy and spending is on the rise.

“Post global economic crisis, there was an erosion in consumer confidence and people became cautious about debt, consequently the dominant trend was a cut in spending and focus on savings,” she said.

“In recent years, confidence has returned and consumer spending is on the rise. As a result, we have seen an increase in personal loans uptake,” Saleem added.

Although financial institutions appear to be back in the business to lend, analysts said excessive lending is far from happening. “The number of loans has increased. But overall, banks are operating within the strict guidelines mandated by the central bank,” Bhambri pointed out.

The central bank earlier issued a set of rules to put a lid on bank fees and curb excessive lending. Income thresholds, a borrower’s ability to pay, among other criteria, are now being considered prior to loan approval.

“All banks in the market today are following the lending policies within the guidelines of the central bank. If a person does not meet the credit criteria, he does not get a loan,” a top bank executive told Gulf News. The source said it is not fair to say that excessive lending is back, although consumers are now feeling positive about the economy and much more open to borrow and spend.

“People are now open to explore opportunities to take out loans which are always linked to an end use such as buying a property or having some commitments,” the source said.

“This is just natural. When things are looking better, people feel more confident and they’re willing to incur some expenditures. Perhaps they want to do some furnishing, make some changes in their home or look at renovation. Banks are simply offering an extra incentive,” said the source.