Relationships matter. One of the lessons that the banking industry appears to have learnt really well post the global economic crisis is that personal is geopolitical.
In a first, almost knee-jerk reaction to the crisis, all lending activity was frowned upon. Business has now resumed with regulators, institutions and consumers exercising great caution.
Since then, customisation and extreme personalisation, trending across industries, have worked to benefit both the consumer and the lender. The institution can maximise the benefits from a relationship that carefully balances your credit profile against the money it loans you. The prudent consumer who pays on time, in turn, feels rewarded for good behaviour.
“Enhanced regulatory guidelines have helped develop the UAE banking sector and encourage prudent lending among banks,” Raman Muralidharan, Regional Head of Customer Value Management, Retail Banking and Wealth Management, HSBC, tells GN Focus. “Customers undoubtedly are more aware today of the merits of careful financial planning and managing their debts sensibly. We see more and more customers discussing their needs with us and sitting down for financial planning sessions than before. Often it is about balancing out your short-term financial needs and long-term aspirations with the right solution.”
A regulatory move that will aid this further was announced in April. The pilot programme for the new Federal Credit Bureau, called Al Etihad Credit Bureau, begins in July and aims to have a centralised database to track the history of borrowers, determine the quality of cash and monitor the creditworthiness of individuals and organisations. About a dozen major lenders have signed up to participate in the programme. The credit bureau will collect information and data from various sources such as credit-card companies, banks, financial institutions, mortgage companies, private organisations and utility firms, among others. It will help assign a credit score to individuals as well as groups and companies.
With interest rates dropping from 10-11 per cent to 5-6 per cent, customers have been demanding approvals for loan transfers from their old banks to new ones. Last year, the Central Bank of the UAE allowed debtors to transfer their loans to another bank for an interest rate of 1 per cent of the remaining loan or Dh10,000, whichever was lower.
The banking sector has already returned to good health. According to the Central Bank, the UAE’s total bank assets increased by Dh129.5 billion to reach Dh1.79 trillion at the end of December last year, up from Dh1.66 trillion over the same period of 2011.
Loans and advances were up by Dh30 billion, from Dh1.06 trillion to Dh1.099 trillion in the same period. Of this, personal loans were at around Dh260.9 billion at the end of December.
In one example, executives from Emirates NBD, Dubai’s biggest bank, told newspeople that personal and auto loans were growing at a 25-40 per cent pace this year compared to the last.
The world view
Personal loans, by their very nature, are the first ones to be touched by this new spotlight on the individual. In India, banks have focused on retail lending to offset the muted credit demand from corporates due to slow economic growth. In personal loans all segments grew except education. In Australia personal finance loans were up 2.8 per cent in February. In the UK, financial advisors are recommending consumers look to personal loans to cover unexpected medical expenses.
“These personal loans are short-term investments that can help the consumer pay for all urgent medical expenses for him or his family,” says a statement from lending website Personal-loans.com. “At the same time, personal loans can provide safety for the consumer in terms of credit score rates. Making such a short-term loan will not require a lot of documentations from a consumer…”
It makes sense for banks to reward good behaviour and rely on relationships, and this is no longer limited to a complimentary diary at the start of the year. If you have a good credit record, a long-term relationship with your bank and dealings with the bank at multiple levels, chances are you may pay less interest than a new walk-in customer.
Rewards for loans
“We always look at the overall relationship the customer has with HSBC. Our Premier and Advance customers typically get lower lending rates and higher reward points,” says Muralidharan. “With us a customer not only gets the various benefits of our personal loan, they also receive customer-centric account benefits such as Global View and Global Transfer, free travel insurance and free credit cards,” says Muralidharan.
In another example, Emirates NBD offers automatic top-up loans to those with an existing personal loan with the bank, provided the customer has been regular with his payments.
The days when personal loans, home finance, savings and retail banking accounts worked as airtight compartments are long gone. Programmes such as ADCB Touchpoints or Mashreq Bank’s Salaam are examples of banks moving into that direction, where you earn reward points for not just credit-card use but for the mortgage, car loan, the balance you keep, etc.
“Banks as an industry are going to work towards getting a single view of customers,” says Dion Maritz, General Manager Middle East of ICLP, a loyalty marketing and customer relationship management company. “You have a personal loan, a car loan or a savings account. Earlier, rewards were only in the form of a loyalty currency in credit cards. All else was kept separate. Now banks are working to ensure that they have a single view of their customer.”