Consumers unhappy at UAE Central Bank rule changes
Angry bank customers have complained to the Central Bank as new caps on retail lending curtail their ability to take out big loans and extend overdrafts.
The rules brought an end to the preferential personal loan deals and other attractive lending products secured by some bank consumers, particularly Emiratis.
"Some customers are not happy, especially where they want to increase their overdraft or reschedule a loan but don't have as much room as they once did," says a Central Bank official, who wished to remain anonymous.
"But after some time it will be better for them as their level of debt will be reduced."
Introduced at the start of this month, the regulations cap the amount banks can lend to customers at 20 times their salary and set the period of loan repayment at 48 months.
Previously, some customers were able to take out bigger loans they were able to repay over a longer time, say analysts.
The practice was particularly common among Emiratis as many lenders considered them less of a credit risk due to better job security and their longer-term residency in the country.
But the regulator and analysts say the new rules are needed to curb the lending-fuelled consumerism that made the financial system vulnerable to a credit crunch once the global downturn struck.
The Central Bank hopes the new rules will protect both customers and lenders from a repeat of the wave of consumer debt that soured during the downturn.
"Ultimately, it does not make sense to provide enough rope for people to hang themselves with," says Raj Madha, a regional banking analyst at Rasmala Investment Bank.
"If customers are complaining about discretionary spending on luxury items then that's exactly the target of the Central Bank. If it's people that don't have enough liquidity to pay for the basics then that may reflect a need for a transitional arrangement."
One of the greatest challenges of implementing the new retail banking regulations has been "meeting customer expectations", particularly of those used to greater access to credit but who are now barred from new borrowing, according to Suvo Sarkar, the general manager of consumer and elite banking at the National Bank of Abu Dhabi.
"Not all customers are fully aware of the circular," he says.
"No customers will be unhappy with what new regulations are there because they will tend to benefit, [but] it'll take us a few months to educate all our customers."
After the downturn an increasing number of banks tried to capture a bigger segment of the Emirati market by offering preferential personal loan deals and credit cards at special rates.
"It's apparent that Emiratis, particularly those with a household income in excess of Dh250,000 (US$68,065), are a lower credit risk compared to other major non-national groups," says Richard Adams, a consulting analyst at the consultancy Datamonitor in Dubai. Research completed last year by Datamonitor suggested Emiratis posed less of a risk than expatriates of missing a repayment on loans or credit cards.
Banks were first informed about the proposed new rules in February but the regulator rejected a bid by some lenders last month to extend the deadline for the introduction of the legislation to give them more time to prepare.
Excessive consumer borrowing played its part in swelling banks' loan-to-deposit ratios before the downturn beyond 100 per cent and far above other emerging economies such as Brazil and China. Banks' attempts to cut such ratios have been blamed for the slow credit growth over the past year.
In a bid to help banks better manage their retail lending risk, a law was approved earlier this year to launch a national credit bureau to offer ratings on every consumers' credit history.