Dubai: Banks operating in the UAE are preparing to implement the new Central Bank regulations on personal lending from May 1, bankers told Gulf News yesterday.

"We have received the communication from central bank and are instructing our branches on the new regulatory requirements," said the retail banking head of a Dubai-based bank.

The new rules were published in the official Gazette on March 31 and the banks were given one month to implement the regulatory changes.

The new lending regulations have capped personal loans at 20 times a borrower's monthly salary and the maximum tenure of personal loans has been fixed at 48 months.

Limit on installments

Overall monthly installments for all loans, including personal, car, housing loans and credit cards, must not exceed 50 per cent of a customer's gross salary and any regular income, the Central Bank said.

Bankers said the regulations could reduce the volume of retail lending, resulting in reduced interest income.

Following the financial crisis, the UAE experienced a sharp decline in credit growth from 35 per cent in 2008 to about one per cent in 2010.

Last year the loan growth in the country was a mere 1.3 per cent, down from 2.4 per cent in 2009.

According to the latest data from the UAE Central Bank, total bank loans and advances, net of provisions and interest in suspense, rose a slight 0.6 per cent to Dh1.066 trillion at the end of February compared with the same period last year.

The slow rate of loan growth indicates a persistent caution towards new lending as most banks preferred to preserve comfortable liquidity to meet any additional requirements for provisions.

UAE retail loans jumped nearly 39 per cent to Dh148 billion at the end of 2007 and by about 54 per cent to Dh228 billion at the end of 2008.

Major impact

Growth plunged to around 3.9 per cent in 2009. In 2010, it slowed further to nearly 3.7 per cent, according to Central Bank data.

Analysts say the new regulations are likely to curtail the loan growth and adversely impact the profitability of retail banking business.