Abu Dhabi court dismisses bank claim over Dh629,200 loan default

The Abu Dhabi Commercial Court (First Instance) has rejected a lawsuit filed by a bank against a customer who defaulted on a personal loan worth Dh629,223, ruling that the bank violated lending regulations by approving a loan more than 20 times the borrower’s salary and failing to secure sufficient guarantees, Emarat Al Youm reported.

The bank had asked the court to compel the borrower to repay Dh629,223, along with 12 per cent default interest, 5.14 per cent contractual interest from the date of the loan, and legal fees. It stated that the defendant had taken out the loan in January 2024 but stopped paying the instalments as agreed. The lender submitted a copy of the loan agreement, account statements, a cheque and a salary certificate as evidence.

In its reasoning, the court cited the Central Bank’s system for personal loans and retail banking services, which stipulates that the value of a personal loan must not exceed 20 times the borrower’s salary or total monthly income. The regulations also require banks and finance companies to ensure this threshold is not breached and to obtain adequate guarantees.

Crucially, the court noted that under these rules, any case brought by a licensed financial institution regarding a credit facility will not be accepted if the loan was granted without sufficient guarantees or if lending regulations were breached.

Court documents showed that the borrower received a personal loan of Dh650,000, guaranteed only by his salary. The salary certificate submitted by the bank indicated his net monthly income was Dh16,947, meaning the legal maximum loan he could receive was Dh338,940, exactly 20 times his salary.

By lending Dh650,000, the bank more than doubled the legal limit, and failed to obtain multiple post-dated cheques as additional security.

As a result, the court concluded the bank had violated mandatory lending rules, and therefore its claim could not be admitted.