UAE | General

Banks 'lure residents into huge loans'

Banks are luring Emiratis and expats into taking out huge loans, regardless of their ability to repay and underscoring the need for a federal credit bureau.

  • By Samir Salama, Bureau Chief
  • Published: 00:00 April 14, 2007
  • Gulf News

  • "Though banks can't lose, customers may. Representatives ... rarely talk of the possible pitfalls involved in grouping all your debts together into one loan," says Mahmoud Fayed.
  • Image Credit: Gulf News
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Abu Dhabi: Many Emiratis and residents accused banks of scrambling for creative ways to entice customers into more loans.

"Banks do everything to lure young Emiratis into huge loans, which may land them in trouble or even behind bars," said Ali Nasser Ali Mohammad Al Hosani.

Al Hosani, a 22-year-old Emirati employee who draws a monthly salary of Dh6,000, claimed he was once offered a loan of Dh5 million, which he turned down "as the bank's representative did not even ask about my salary before offering this huge loan."

Al Hosani added that a relative of his had been jailed for three years after he defaulted on half a million dirhams.

The problem of loan defaulters has been worsening over the past years, prompting the Dubai Police Chief, Lieutenant General Dahi Khalfan Tamim, to threaten to name and shame certain banks for giving loans without guarantees and through big enticements.

Al Hosani said his brother also faced troubles repaying a Dh260,000 loan.

It is estimated that personal loans in the UAE amounted to Dh160 billion last year, while loans increased by 63.9 per cent from 2005 to 2006.

Hareb Al Mansouri, a 30-year-old Emirati, accused many banks in the UAE of being "predatory lenders which prey on customers after luring them by huge enticements."

Loans, Al Mansouri said, are a double-edged sword but people may not be able to live without taking them.

Allurements

Mahmoud Fayed, 29, an Egyptian cost controller, said many banks adopt aggressive marketing policies, luring customers into any loan to finance a car, a flat or even re-finance other debts or loans by using one new mega-loan.

"Though banks can't lose, customers may. Representatives and marketing agents of banks rarely talk of the possible pitfalls involved in grouping all your debts together into one loan," Fayed said.

Speaking of the enticements many banks use to lure customers, he said they offer up to 52 times the customer monthly salary with repayment over a long period or to re-finance other banks' loans or credit, sending the customer back to square one.

"Banks may also offer lower repayments or to replace high interest rate debts with a much lower one," he said.

Jamal Ahmad Al Shmaili, an Emirati employee, said he was offered a Dh720,000 loan but he turned it down after his two brothers faced loan-related difficulties.

Al Shmaili said that one of the big problems many people face is borrowing to repay debts.

"You needs to ask yourself what would happen if there was a sudden change in your circumstances. You should also ask yourself whether you really want to pay for a car or a holiday over a longer period and how much this will actually cost you in the long run," he said.

Some borrowers, he added, have got into huge difficulties by miscalculating the amounts they will need to borrow to settle their various loans.

Financial crimes rise

A study by Dubai Police's Decision Support Centre on some inmates from Dubai Central Jail revealed that 19 per cent of them were jailed for bounced cheque cases, while around 42 per cent of inmates were jailed for failing to pay back bank loans.

The study also revealed that 55.6 per cent of youngsters in jail were involved in bounced cheque cases, 40.3 per cent of them were university graduates, while 41.6 per cent of them were jailed for failing to pay back personal loans which they took for various reasons such as to get married, buy a car, or to buy shares.

More than 60 per cent of them had been jailed for the first time and did not previously have a criminal record.

Have your say
Do you know anyone who has taken a personal loan? Has it helped improve their financial situation or make it worse? How? Do you plan on taking a personal loan in the future? If you have not taken a personal loan and would like to get one, how much money will you take?


Your comments


I have been facing a similar problem for the past two years. I wouldn't say it's the bank's fault, but it is not easing its terms since I've given my car back. I still owe them twice as much as I've already paid them.
Shazad
Sharjah,UAE

We should not blame banks if we can't pay the loan amount every month. Anyone who is interested in taking a loan should plan first. I have taken a loan and I am paying monthly, on time and I have no complaints from the bank at all, for the reason that I planned first and then I took the loan from bank.
Saifoor
Abu Dhabi,UAE

Taking loans depends on the individual and if they can afford to pay or not. I have a loan but I used it for business and so far am doing well. Some people take a loan and use the money for nothing else but to show off. We have to spend our money wisely, then you will see the good results.
CG
Dubai,UAE

I had taken a personal loan allowing the bank to auto debit. This really helps me to calculate my expenditures after the deduction. The agents clearly specify the EMI. So, except the interest rate and there should not be any problem in taking and repaying the personal loans.
Jeyakumar
Dubai,UAE

The banking loans system traps people in a non-precedent manner, jointly with companies who by their turn trap many people with defective arrangements. Due to the relatively high pay here, loans are also high, but create great gaps for any mover away from the UAE, otherwise sentenced for harsh circumstances being forced to work and live in the UAE just to pay back the loan. This unjust fact is an outcome of increasing inflation and non-balanced economics especially when loans are spent on consumables rather than assets.
Charbel
Abu Dhabi,UAE

I know someone who is in deep trouble now because he can't pay his personal loan on time and bank officials have been calling him to pay his dues. Getting the loan did not improve his financial situation but made it worse.
Chloe
Dubai,UAE

We can not fully blame the bank for offering us loans. We should decide for ourselves whether we are capable of repaying the loan, and only avail of a loan that fits our budget. Loans are helpful, but only if utilised properly.
Nalini
Dubai,UAE

Many of my friends have taken personal loans and fell into a ditch. Some of them have ended in jail because they could not afford to pay up. I don't think I will ever take a personal loan because I don't want to end up like them.
Hamood
Abu Dhabi,UAE

I have taken a loan from one of the banks here and I pay my dues on time. I am due to finish paying up the loan in 2008 and I don't think I will take another one.
Darshan
Abu Dhabi,UAE

While I have seen some people are more cautious and manage the loan well, I have also seen many get into problems repaying their loans. Usually the problem starts when customers avail of loans in amounts beyond their repaying capacity. Most people also get in trouble when they take a loan to settle another loan.
Lawrence
Ernakulam,India

We can not blame banks for offering loans to Emiratis or expats. It is a business strategy in order for them to have more profits.
Jose
Dubai,UAE

I hope the UAE will also implement a rule on how banks and their representatives treat each customer whenever they are late in payment or have defaulted a few times within their period of payment but have continued to put up small amount of payments to cover incurring interest from the bank. Nowadays bank collector/agents resort to nasty verbal threat and harassment even though customers are just asking for leniency.
Albert
Abu Dhabi,UAE

Ideally the EMI per month should not be more than 10 to 15 per cent of your salary or else you are bound to go bankrupt, and my suggestion please do not fall for easy loans which are offered at 1 per cent per month as it amounts to 50 per cent of the loan amount as interest for huge amounts and longer term. Clients should also understand the difference between flat interest rate and reducing balance interest rate, to be precise multiply the flat rate by 1.8 and you get the rate of reducing balance interest, if it is more than 12 to 13 per cent than it is big burden on your pocket.
Rahul
Dubai,UAE

My friend has taken a personal loan for his marriage and could not pay back regularly as his family was also there. He used to get threatening calls from the bank that they will put travel ban and they will put him in jail. He finally decided to send his family back to his home country and now he is struggling to come back home to see his family.
Narayan
Chennai,India

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