The Central Bank has lifted a three-month ban on loan transfers for UAE nationals but has tightened conditions for how much debt may be transferred, raising the threat of penalties for lenders that do not comply.
The Central Bank capped loan transfers at half of a borrower's regular income with a 48-month repayment period in a circular distributed last week. The circular warned of "strict sanctions" if the rules were not followed, saying the Government "will cease any financial transactions with them".
The Central Bank confirmed the circular was sent last week but declined to comment further.
In May, the financial regulator told banks to halt loan transfers to Emiratis for a period of three months so that it could study market conditions. The ban was understood to have been originally implemented as a means of stopping UAE nationals from taking advantage of interest-free loan transfers as a means of effectively refinancing their debt payments when they could not make payments.
It is the latest in a string of consumer finance regulations intended to protect bank customers from predatory lending practices, but the first in which the Central Bank has explicitly mentioned sanctions against banks that do not comply.
The UAE Banks Federation, the industry lobby group, had previously decried the measure, saying in June that the Central Bank's move "limits the choices of the customer, and plays against the open-market and the free economy system adopted by the country".
The 51 banks in the UAE extended as much new credit to retail customers during the first five months of 2013 as in all of last year, according to data from the Central Bank.
A survey carried out in June by compareit4me.com, a price comparison website, found that hundreds of UAE residents had made a loan payment using a credit card within the previous six months, potentially exposing them to sharply higher interest rates if the debt is not paid off.
The Ministry of Finance hopes that the establishment of the Al Etihad Credit Bureau will help banks assess the total indebtedness of bank customers. Currently, financial firms have no means of assessing an individual's total debts, meaning that individuals can spread debts across multiple banks.