Not locked out of personal loans

Dubai: Gone are the days when major banks were after you to take a loan.

But it's not all bleak.

Several are still providing personal loans, although some of them have tightened their lending criteria. A more cautious approach in terms of banks being convinced of the customer's ability to repay the loan in the changing financial scenario is being adopted.

"In line with the current market conditions, HSBC has further tightened its lending criteria in order to ensure customers who do receive loans can afford to repay them back&" says Venkatesh Srikantan, regional head of assets and liabilities, HSBC Middle East.

He says that the minimum salary requirement to obtain a personal loan is now Dh20,000. This requirement has changed drastically compared to just a few months ago when the economy was in better shape.

"This was at Dh10,000 in November 2008 and much before that it stood at Dh5,000," Srikantan says.

So how does this scenario make things tougher for a person seeking a loan?

"The customer now has to have more liquid cash for a down payment," Srikantan says.

An official from Citibank says that despite the slight alterations that have come into effect on lending criteria following the worldwide recession, the "strategy and focus" on which a loan is provided remain the same - whereby a customer's ability to pay the money back is determined.

"It's about income, where they work, how much time they have spent here - all determine whether we will lend them money," says Sanjoy Sen, UAE country business manager and head of Gulf consumer banking for Citibank.

Citibank has raised its income criterion for lending for personal loans from Dh3,000 to Dh5,000. And the bank typically provides loans of between multiples of four and eight of the applicant's monthly salary. Interest rates are 13 per cent to 24 per cent annually, depending on the risk profile of the customer.

The bank has a 65 per cent to 70 per cent approval rate on personal loans, Sen says.

"The larger potion of our [personal loan] portfolio is those who do not have salary transfer accounts with us."

In the changed economic environment, Citibank has been reassessing the approved list of companies.

He adds these regulations are aimed at helping not just the banks from getting their money back but also the customers from defaulting.

Citibank also requires a customer's loan to be covered by life insurance, which will repay the outstanding balance on the loan in case of the borrower's death.

The customer pays a group insurance premium, a one-time payment, at the time of obtaining the loan. The insurance shield does not cover job loss.

Job continuity has become an important factor in deciding on loans. As some sectors have witnessed job cuts in recent months, the risk profiles of customers are undergoing continuous reassessment, though that does not necessarily mean targeting a particular sector.

"The economic slowdown and the recent announcements by various industries about retrenchment of employees have resulted in uncertainty in the market which erodes customer confidence and the ability to repay outstanding loans," Douglas Beckett, head of retail banking at Mashreq Bank, says.

Beckett says that in today's environment job stability plays a major role in whether individuals are able to access funds from banks.

A greater number of years of experience and a higher salary also act in favour of the applicant.

"Customers with higher incomes are assumed to be more capable to service their debts as there is sufficient income to pay off their loans and live comfortably.

"Similarly customers with a longer length of service are assumed to be more stable," Beckett adds.

The ability to repay the loan back is a criterion Emirates NBD looks at very closely.

"Only after we are fully convinced about the repayment capacity of the applicant, will a personal loan be disbursed," says Suvo Sarkar, general manager of retail banking at Emirates NBD.

"All creditworthy individuals irrespective of nationality continue to obtain personal loans from the bank."

The maximum personal loan that a salaried individual can obtain from Emirates NBD is Dh250,000.

In addition to the usual criteria of income, employer, duration of service, the debt-burden ratio, which is the total of all the debts that the customer is carrying, is an important determining factor for all banks.

"If you have overstretched yourself and you already have a debt burden ratio of 50 per cent, then it is unlikely that you will be able to access additional funds," said Vikram Krishna, head of retail loans at Emirates NBD.

As an example, if your monthly income is Dh10,000, the aggregate debt you can carry is "typically" up to Dh5,000 of EMI payments. So if you have an existing debt burden of Dh5,000 on an income of Dh10,000, the chances are Emirates NBD won't provide you with a personal loan.

"The situation hasn't changed much. If you had been eligible for a loan in the past, accessing a personal loan is really not an issue unless you are overleveraged," Krishna said.

And for Emirates NBD, the minimum salary to be eligible is a function of the arrangement that the bank has with the employer.

"Personal loans are secured by the assignment of the end-of-service employment benefits to the bank. Hence the role of the employer is critical in determining the minimum income eligibility," Krishna says.