Abu Dhabi: The UAE Central Bank has lifted the three-month ban imposed on banks that prohibit them from purchasing and transferring the loans of Emiratis, provided the banks abide by three conditions.
The ban was lifted on August 6.
The Central Bank “will implement strict sanctions against banks that would not abide by its instructions”, the Central Bank said in a circular.
“These conditions set in notice number 77 of 2012 states that banks would purchase Emiratis’ loans from other banks or transfer their loans based on three basic conditions in alignment with: the provisions of the bank loans and other services extended to individual customers, the premium shall not be more than 50 per cent of Emiratis’ regular income transferred to the bank by any means and the third condition is the repayment period shall not exceed 48 months, excluding those approved by the Central Bank,” the Central Bank said.
“The move aims to control borrowing and purchase procedures and to monitor any failures to decrease financial risks,” said Nasser Al Suwaidi, Central Bank governor.
Al Suwaidi warned: “Banks which do not comply with these regulations and instructions will be subject to severe penalties and the government will cease any financial transaction with them.”
Last month, commercial bankers in the UAE had asked the central bank to remove a ban on transfers between banks of personal loans to Emiratis.
“Such a notice is a must after the very great abuse by some banks, exploiting customers with regard to their personal loan transfers and purchases as they force borrowers to pay 1 per cent as a commission fee as early payment for the remaining balance of the loan or Dh10,000, whichever is less, for the transfer of loan or financing from any bank or finance company,” said Numan Ashour, an senior analyst and economist at CNBC Arabia.
“Emiratis are viewed as attractive customers, so banks have been competing aggressively to persuade them to pay off loans from rival institutions and transfer the business to them,” Ashour said.
Trad Al Mahmoud, Abu Dhabi Islamic Bank CEO, said that the circular aims to prevent banks from rescheduling loans of other banks’ clients.
“The circular has come at the right time to form a regulatory framework to stop the transfer of debts which end up in chaos. The goal of this step is to ensure that the borrowers would not be further exploited by these banks by giving them more loans which will add further burdens on them,” Al Mahmoud said.
Ashour pointed out the circular is a roadmap for the banks after talks were held by the Central Bank and the UAE Banks Federation last July.
Abu Dhabi Department of Economic Development (ADDED) had announced early that up to 58.4 per cent of Emirati families in Abu Dhabi took loans from financial institutions during the first quarter of 2013.
“It was found that 60 per cent of borrowing families spent their loans on buying cars, 25 per cent of respondents obtained loans to buy houses for their families, while 12 per cent of respondents revealed that they borrowed to meet the expenses of marriage. Those who borrowed for travelling purposes comprised 3 per cent of respondents,” ADDED said.
The Central Bank had earlier issued six news forms, covering details about loan size and interest rates to be used for personal loans, overdrafts and auto loans authorising banks to ask borrowers to ensure their borrowings and that they should be covered by a life or disability insurance policy in order to guarantee that the loans are paid back.
