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Dubai: The Central Bank of the UAE (CBUAE) on Monday issued a circular instructing banks to assess the credit worthiness of customers prior to issuing chequebooks.

The move is part of central bank’s efforts to improve responsible lending by banks operating in the country.

During the first quarter of this year, according to the central bank data, more than seven million cheques changed hands in various transactions in the UAE during the first three months of the year, and at least 310,000 of them bounced. From January to March, the total amount of cheques that were returned stood at more than Dh15.7 billion.

Before issuing customers with chequebooks, banks are now required to carry out checks with the Al Etihad Credit Bureau (AECB) to ensure the creditworthiness of their customers.

The AECB collects credit history and data from banks, financial institutions, telecom companies, etc and make it available to banks and other institutions involved in financial lending. Individuals can now access their credit report and credit score from the AECB through their offices or through their app.

A credit report is a document that includes one’s personal identity information, details of credit cards, loans and other credit facilities, along with a payment and bounced cheque history.

The credit score is a three-digit number that ranges from 300 to 900 and measures how likely a consumer is to default within 12 months. The credit score changes according to credit payment behaviour and total credit exposure of individuals.

New customers

The CBUAE has also instructed banks to issue chequebook containing not more than 10 cheque leaves to new customers. After a period of six months and providing no cheques are returned (unpaid), further chequebooks may be issued to customers, as per the approved procedures.

The central bank has urged banks to advise their customers that returned cheques due to insufficient funds on the account will be recorded with the AECB and will negatively affect the creditworthiness of customers.

Banks have been asked to advise their customers to minimise the use of cheques and encourage consider other payment methods such as direct debits and bank transfer where possible.

The AECB started operations in late 2014. Today, 70 entities provide credit information in a recurrent manner and 95 entities subscribe to the AECB’s services, which feature a robust database of 4.5 million individuals.