Banks to tighten lending further

Dubai: A number of banks are set to further tighten their retail lending rules to cope with the rising risk of defaults by their salaried customers.

Over the past two months, banks in the UAE have become extremely cautious in their retail lending due to tight liquidity and the growing prospect of job losses in the private sector.

Bankers admit that it is the growing risk of default by retail customers that has compelled them to further streamline all types of retail loans.

"Several of our customers have extremely good credit histories. However, we are forced to make our loan criteria stringent to avoid any difficulties for our customers due to the current financial situation," said an official with Emirates NBD, the region's largest lender.

The bank recently revised its minimum salary requirement for personal loans for expatriate salaried employees twice from Dh2,500 to Dh5,000 in early November and to Dh10,000 late last week.

Earlier this month, the UAE Central Bank said credit growth in the country would shrink from close to 50 per cent in the first half of this year to less than 10 per cent in 2009.

Several banks have either suspended or stopped loans to construction and real estate companies and the hospitality sector in the context of job losses in these sectors.

"Clearly there is a sector bias against real estate, construction and the hospitality sector in our lending operations as these sectors are likely to have maximum job losses," said the chief executive of a leading foreign bank operating in the country.

"Today job losses are a reality we all have to deal with. Considering the large number of expatriates employed in the UAE, it is in the interests of both banks and their customers to reduce lending until the situation improves," he said.

Apart from personal loans, banks are also reducing their exposure to other retail loan products. Loan limits on some of the asset-backed loans such as car financing and mortgages also have been significantly reduced.

While most banks demand 20 to 50 per cent down payment on car fin-ance and mortgages, many banks have introduced minimum salary requirements and upper ceilings on car loans.

Minimum salary

Emirates NBD has fixed Dh7,000 as the minimum salary requirement for car loans, restricted to eight times the total salary.

Last month, Lloyds TSB stopped loans for the purchase of apartments, and it dropped its loan-to-value ratio on villas to 50 per cent.

HSBC doubled its minimum salary requirement for a personal loan from Dh10,000 to Dh20,000.

Several foreign and local banks have also stopped retail products such as salary overdrafts, loan installment deferrals, student loans, pre-approved cash advances and pre-approved credit cards.

Bankers said liquidity is not a big concern for banks as the government has injected Dh70 billion into the system and the central bank has introduced measures such as Dh50 billion liquidity support and local currency swap against the dollar.

Analysts expect the liquidity situation to improve in 2009.

In a report, Marios Maratheftis, Regional Head of Research for the Middle East, Pakistan and North Africa at Standard Chartered Bank, UAE, said: "Given the financial strength and willingness of the authorities, we expect liquidity in the UAE to begin to normalise in the first quarter of 2009."

The report has forecast the UAE's growth to slow from 4.8 per cent in 2008 to 2.7 per cent in 2009.

Have you faced problems in getting a loan approval recently? Will the tightening of retail lending help banks secure themselves during the economic slowdown?

Although it is a good decision by banks to safeguard itself and make them secure, they must not forget that if they do not lend the retail products, there will be a slowdown in the buying power of people. We must not forget the mass and majority of the population is middle class. In this case, there will be obvious increase in defaults, and that may again affect the banks' defaulter ratio.
Purshotam
Dubai,UAE
Posted: December 28, 2008, 13:14

Banks have entered into unchartered economic waters, which calls for creative and collaborative strategies generally. By segregating non-performing toxicity, recapitalising and assisting their customers to steer through these unprecedented crisis into stability and reinvigorating economic growth.
M. Chatur
Dubai,UAE
Posted: December 28, 2008, 11:05

I work in real estate and I have to say that I am sweating like a pig that knows it is going to have its last dinner.
Stephen Obrien
Dubai,AUE
Posted: December 28, 2008, 08:58

I am looking for a 50 per cent loan to value loan for my Dh8 million villa in Sports City. I am unable to find any loan and a reasonable rate.
Dave
Dubai,UAE
Posted: December 28, 2008, 08:55