e0261d28cda49210VgnVCM200000e66411acRCRDapproved/thenational/Articles/Migration/2008-Q2Personal borrowing surges to Dh43bnd0261d28cda49210VgnVCM200000e66411ac____Personal borrowing surges to Dh43bnA special report finds lenders are extending excessive credit without adequate risk-management strategies.A special report finds lenders are extending excessive credit without adequate risk-management strategies.<p>ABU DHABI // Personal debt levels are rising quickly in the country, spurred on by a flood of oil revenues, falling interest rates and increasingly active credit card and mortgage industries.
A Federal National Council (FNC) report released yesterday said total personal debt reached Dh43 billion (US$16bn) at the end of 2007. In 2006, personal debt levels were Dh28bn.
Although the latest figure is high by historic standards in the UAE, and reflects a rapid increase in the past few years, it is still relatively low compared with developed economies. It amounts to only nine per cent of gross domestic product (GDP). In contrast, Monica Malik, the director of economic research at EFG-Hermes, said the ratio of debt to GDP in the UK and most developed markets was closer to 40 per cent.</p>
<p>"The ratio is lower compared to a developed market because the mortgage market is underdeveloped here," Ms Malik said. "But as the mortgage levels begin to build, we expect an acceleration in personal debt here."
Borrowing has snowballed as oil revenues have vastly expanded the amount of money banks have to lend. Simultaneously, falling interest rates have encouraged consumers to borrow and lenders to offer a barrage of credit cards and car and home loans. The regulatory framework has only begun to catch up.</p>
<p>The FNC report said 5,710 debtors failed to make their repayments in 2006, up from 3,149 in 1998.
Some 10,000 people were going through the courts and prisons for failing to repay loans and credit card balances, it added.
Sultan al Suwaidi, the Central Bank Governor, played down the severity of the personal debt burden.
"Ninety-five per cent of debtors achieve their goals, they improve their houses, for instance. The problem is with a very marginal percentage," he said.</p>
<p>The ease of falling into debt was made all too clear during the FNC session.
One case cited showed that a debtor earning less than Dh5,000 a month accrued 11 credit cards with average limits of Dh50,000.
The FNC report, prepared by a special committee set up to address the personal debt issue, said that banks and financial institutions gave credit without sufficient guarantees of repayment.
Emirates Bank International is offering credit of 30 times the salary of expatriates earning Dh5,000 a month or more, with a 72-month repayment deadline.</p>
<p>Borrowers are also given a free credit card, increasing the risk of going further in debt. A spokesman for the bank declined to comment.
At HSBC, a customer opening a current account a few days after arriving in the country was offered two Mastercards and two VISA cards before receiving any salary.
The bank said it tried to ensure customers did not borrow beyond their means and had a special department to help those who had difficulty in repaying loans.</p>
<p>A spokesman for HSBC said the bank took "our responsibilities to prudent lending very seriously, for the sake of our customers, and for the long-term sustainability of our business. Credit approval is based on the borrower's ability to repay, the loan product and the customer's credit profile." HSBC also offers loans of up to 27 times a borrower's monthly salary on top of credit cards, which can each have an average limit of around Dh50,000.</p>
<p>The emirate with the most personal debt is Dubai, which owes about 70 per cent of the Dh43bn. In contrast, Fujairah has the least personal debt.
The credit card provider VISA is backing a campaign for the country to set up a Federal Credit Bureau to combat the rising tide of personal debt. Legislation setting up a credit bureau was due to be passed last year. Despite the delay, it is firmly on the political agenda to ensure that the country's financial security is maintained.</p>
<p>"Managing risk is an important part of the industry," said Kamran Siddiqi, a VISA spokesman. "Institutions issuing cards can make better decisions based on accurate information accessible through the information database of credit bureaus.
"Visa supports the launch of a federal credit bureau in the UAE and believes it will contribute to the development of a more secure lending environment, benefiting the entire financial sector," he added.</p>
<p>Jeremy Parish, the chief executive of Standard Chartered Bank for Abu Dhabi and Al Ain, is also campaigning for a credit bureau to regulate lending.
"The central credit bureau seems to be the most appropriate solution for banks' aggressive lending, as it will result in streamlining credit activities for both banks and consumers," Mr Parish said.