An Emirates NBD branch at Al Barsha. Bankers at the Middle East Retail Banking Conference 2010 have coined the term skippers to define normal people who lose their jobs and end up leaving the country before paying their debts, a few willingly, and the majority unwillingly. Image Credit: Hadrian Hernandez/Gulf News

Abu Dhabi: The UAE Central Bank and government authorities must look into consumer protection regulation to protect both borrowers/customers and lenders/banks from loan defaults and other delinquencies, banking experts said on Monday.

Addressing the three-day Middle East Retail Banking Conference 2010 that began on Monday, Louis A. Scotto, Head of Retail Banking for Doha Bank, coined the term skippers to define "normal guys who lose their jobs and end up leaving the country before paying their debts, a few willingly, and the majority unwillingly."

According to Suvo Sarkar, General Manager of Consumer and Elite Banking at National Bank of Abu Dhabi (NBAD), 15 to 20 per cent of credit card holders in the UAE were delinquent last year.

In 2007, there were 1.5 to 2 per cent losses on personal loans across the UAE, and that number tripled during the crunch. However 2009-10 looks brighter for the banking industry, Sarkar said.

"With a reasonable 10 to 12 per cent credit card delinquency levels in the first quarter of this year, banks in the UAE are back to reasonable loss rates and things will definitely look better in the years to come," he said.

Panelists such as Sarkar, Scotto and Sanjoy Sen, Head of Consumer Banking at Citibank, all agreed on the importance of implementing consumer protection regulations that can help avoid what they called a "loss-loss" market situation for both lenders and borrowers.

The present practice involves lenders filing a court case against defaulters, which results in a ban. The borrower's inability to find another job to pay off his/her debts results in the borrower serving jail time, and the bank losing its money.

The banking experts described this as a legislative issue that they hoped would change soon.

Changing trend

Consumers, however, said Richard Musty, Head of Retail Banking at Lloyds TSB, are more cautious now. "There were tens and thousands of skippers during and after the crisis, resulting in many going behind bars. However in the past 12 months, banks have witnessed a major behavioural shift among consumers, who are looking to create wealth and save money for the future."

Agreeing to the shift, head of Citibank's consumer banking explained that previously 25 to 30 per cent of consumers in the region were aggressive investors looking for market shares. "Now people are happy with capital guarantee returns, and there's an evident shift from just borrowing to saving, which has lessened risk returns banks," Sen said.

With 52 banks in the UAE, the regulatory structure is not helpful, Fergus McDonald, Managing Director and Country Head for Barclays Corporate, said.

"We need to shift to an integrated model, especially since we consider the UAE an important banking hub."

Simon Cooper, Deputy Chairman and CEO of HSBC, said delinquency levels came down by 50 per cent this year from 2009. "The best policy is to work with customers from the beginning, and find the best possible solution that works for both sides," he said.