Habib Bank Zurich (HBZ) is set to derive a new rate benchmark in the consumer loan market by offering a low interest rate of 5 per cent to personal loan customers.
According to banking sources, this could be the lowest rate for personal loans offered by any bank in the history.
The new consumer loan package to be unveiled soon by Habib Bank AG Zurich will offer this record low rate for a one-year loan ranging in size from Dh200,001 to Dh250,000.
While the package offers a 6 per cent rate for loans of Dh100,001 to Dh200,00, the rate offered for loans of Dh50,000 to Dh100,000 will be 7 per cent.
The rate will be up by one per cent for each incremental year for the corresponding amount.
According to HBZ sources, this loan scheme will be open to expatriates as well as UAE nationals. However, the bank has stipulated the standard conditions such as compulsory salary transfer to the HBZ account and the norm that the applicant should be an employee of an HBZ-approved company.
"In a competitive market, banks have to weigh the challenges and the return accrued from their innovative product programmes," said Arif Lakhani, CEO of HBZ.
Though the UAE banking system has shifted its main focus from corporate lending to retail following the Madhav Patel scam in 1999, it was during the last two years that the competition led to a rate war in the personal loan market.
It has been the practice in the market that banks buy out loans from other banks whereby customers are offered lower interest rate compared with what they paid to their former banks. A few months back, First Gulf Bank (FGB) bought out the personal loan portfolio of a section of UAE government departments staff at 8.5 per cent.
There were reports that rates had fallen to around 6 per cent in the loan takeover market. The sources confirmed that the youngest bank in the country - Dubai Bank - has lent to certain Dubal staff at around 6 per cent.
A foreign bank is said to be trying its best to retain its personal loan customers with this corporate giant by offering a 4.5 per cent flat rate, which will be around eight per cent, at reducing balance.
There are banks in the same market which never bother to talk about their rate and silently charge rates as high as 13 and 14 per cent.