DUBAI UAE households are sitting on a debt time bomb after being lured into a spending splurge by banks and credit card companies.
A staggering 3.15 million people in the country (nearly one of out three) are living in debt and almost all of them have more than one loan.
These are the latest findings of Al Etihad Credit Bureau (AECB), a federal government body mandated to implement and operate a new credit reporting system across the country.
Besides individual borrowers, 115,000 companies also have loans in the UAE, official figures have revealed.
Yet the borrowing spree continues unabated. Between March 2014 and March 2015 alone, consumers in the UAE pocketed Dh1.3 trillion in personal loans, a 6.5 per cent increase over the previous year.
“As of now, there are about 6.75 million active loans in the country. From a ratio perspective this means that every borrower has at least two loans,” said Marwan Ahmad Lutfi, chief executive officer of the Al Etihad Credit Bureau.
Last year a survey by a UAE-based finance comparison website found that residents are struggling with repayments with nearly 25 per cent missing a payment or making a late payment.
To curb over-lending, the Al Etihad Credit Bureau is helping banks check the backgrounds of borrowers before granting them credit facilities.
It’s now mandatory for banks and financial institutions to share the credit history of borrowers with the bureau.
“Until recently we relied on bank statements of applicants to assess their credit worthiness,” said Mohsin Aikal, head of consumer finance, Noor Bank. “This has limitations as bank statements do not show payment history beyond three months. They have no details of other debts either. But now that we have the complete credit history of an individual, we are able to take a more informed decision.”
Jaydeep Gupta, regional head of retail clients, Standard Chartered Bank said: “Having full access to a creditor’s borrowing history helps banks lend to the right customers.”
Tooran Asif, head of personal banking at Mashreq said they are among the first ones to align with the new system.
Lutfi said they hope to cover all banks in the UAE by early 2016.
WHAT IS YOUR CREDIT WORTHINESS
Not sure whether you are eligible for a bank loan? Check your credit worthiness at Al Etihad Credit
Bureau’s headquarters next to Finance Ministry in Abu Dhabi. Charges are Dh70 for a short report and Dh110 for a detailed credit summary. By 2015 end, you will be able to get the online report too.
YOUSPEAK: Why do UAE residents succumb to the loan trap?