One of the UAE's most eminent bankers believes the supply of new credit to existing customers could nearly grind to a halt once the proposed UAE credit bureau becomes fully operational in 2015."
Once the credit bureau is applied there will be no lending to anybody for six to 12 months because the banks will find out who's really been borrowing and how much," said Abdul Aziz Al Ghurair, the head of the UAE Banking Federation (UBF) and the chairman of Mashreq.
"They will find out all those people who have four or five credit cards."
At an annual round-table briefing for journalists in Dubai, he later clarified his remarks to refer to existing bank customers.
"Most of them are over-borrowed and have lots of credit cards. Very few of them have discipline in financial matters," he said.
The UAE Central Bank since last year has been working with banking industry representatives, led by the UBF, to set up the Al Etihad Credit Bureau.
Mr Al Ghurair said the plans were proceeding well and the banks had already begun compiling information on account holders to assess their creditworthiness.
Mr Al Ghurair said that once the bureau was up and running, "short term there will be an impact, but long term it will be good. We need happy, regulated, disciplined people".
He also defended the current use of post-dated cheques in the UAE, which has been criticised by some observers for discouraging entrepreneurialism and for criminalising debtors.
"Post-dated cheques are part of the fabric of the economy of the UAE, and if there is a problem we need to deal with it in a holistic way.
"We need a solution for the whole of the economy, and not just for the banks. Once we have an alternative [to cheque usage] we'll do it. But it would do more harm to the economy to do it without being ready."
He said that proposals for direct debit systems should be ready next month, but added that the scheme would be optional. "It will only be for small payments. It cannot replace the post-dated cheque system."
He reported buoyant conditions for the banking industry in the UAE, and for his own bank. Mashreq said that net profits rose 39 per cent in the first half of the year, with non-interest income ahead by 23 per cent, mainly because of much lower provisions for bad and doubtful debts.
He said the bank was likely to report about 40 per cent profit growth for the full year, nearly double his forecast for the UAE banking industry as a whole.
The strong performance forecast for the year reflected a big improvement in the UAE's overall economic and trading situation, he said, highlighting the performance of the property, contracting and retail sectors.
"I'm feeling a little optimistic, so I'm worried. Maybe I'm getting too optimistic," he added.
Mr Al Ghurair played down threats to the regional economy from crises in Syria and Egypt. "All the troubles in the past didn't really affect the UAE.
"The biggest threat is internal. If banks go crazy and lend up to 150 per cent [of asset or income value] that scares me, if we go back to those days. The credit bureau will help. But all the banks are wiser and smarter now. They've got to go back to basics and do old-style banking."
He said that mortgage lending for residential properties had risen in the past six months. Plans to enact "mortgage caps" in conjunction with the Central Bank were proceeding according to plan, he added.