New rules will make many bank fees less of a burden, and eliminate some of them altogether.
In the News: New rules force banks to back off service fees
Regulations will cap the charges for many services, including cashing cheques at the counter, and make opening an account and getting an ATM card free for customers.Neil Parmar reports
Relief is on the way for many of the country's banking customers, who have been weighed down with high account fees in recent years.
New rules recently passed down by the Central Bank will limit many of the commissions consumers have to pay. The sweeping changes will affect, among other fees, the costs for opening an account and getting an ATM card, which will now be free. The cashing of cheques at the counter, as well as issuing a bank cheque or obtaining an account balance letter will also cost less, from Dh30 to Dh50.
Previously, there were few limits on these kinds of service fees and banks ranged widely in the kinds of charges they applied. These changes are largely expected to help consumers.
The Dubai Chamber of Commerce and Industry agrees that the changes will help consumers.
"In a nutshell, the new regulations by the Central Bank will help sustain the process of UAE economic recovery and boost confidence in the banking sector," the organisation says.
But not everyone is happy with the tighter regulations.
Individual banks have been tight-lipped about the changes thus far, with some saying it is still too early to comment. Yet some industry officials warn that not all consumers will see fees fall. "Banks who used to charge Dh500 for [certain letters and] certificates now have to charge Dh100," says one official, who asked not to be named, from the Emirates Banks Association, an industry group that represents the interests of its member banks. "This is negative for [some of] us. But those banks that were not charging any charge now have the right to charge Dh100," he adds.
Some banks that derived a significant portion of their income from fees, rather than money earned from the interest of loans or other means, are expected to see their earnings reduced, analysts say.
However, this may affect customers, who could be pushed to new kinds of products and services that come with an entirely new scheme of fees. "Banks continue to diversify sources of revenue streams, so it is possible that reductions in fees and commissions are offset by new sources of income," says Salmann Jaffery, the retail banking sector leader at Ernst & Young for the Mena region.
Banks in the US have been steadily trying to offset lost revenue from fees ever since the Obama administration passed the Credit Card Accountability Responsibility and Disclosure Act of 2009. This piece of legislation put a lid on many of the fees and interest-rate hikes that banks had levied against consumers, although to recoup their losses, some banks have since rolled out new kinds of fees and tried to take advantage of loopholes in the law.
Some experts say a similar scenario could play out in the UAE, where 65 per cent to 75 per cent of residents are already in debt. One spokesperson for a large bank in the region, who also asked not to be named, says rival banks that relied largely on fee revenues for business "will be losing a big chunk of operating income, but slowly they will recover that".
"They will try to venture into more profitable projects and focus on customer relationship management," the spokesperson says.
The new rules will also mean that banks will have to limit how much they dole out in personal and car loans, to 20 times the borrower's income for the former and no more than 80 per cent of the value of a financed vehicle for the latter. These restrictions may not only help customers, but also banks when it comes to cleaning toxic loans off their books.
Provisions for bad loans in the UAE hit a record high of Dh44.3 billion in December, which was up more than 35 per cent from a year earlier, according to the Central Bank's latest data.
In the long run, says the Dubai Chamber of Commerce and Industry, "the regulations will reduce the burden of loan installments for individuals by lowering interest rates on personal loans in line with the declining outstanding balance".
"Such a step will put more money back in a customer's pocket to spend elsewhere, which is good for the economy and the business community in general."