x Abu Dhabi, UAEWednesday 26 July 2017

UAE credit bureau to be up and running in early 2014

Bringing the credit information of individuals and businesses into a central database is expected to help cut the risk of a credit bubble forming in the economy.

The Central Bank of the UAE. The new Al Etihad Credit Bureau is expected to strengthen the financial infrastructure in the country. Ryan Carter / The National
The Central Bank of the UAE. The new Al Etihad Credit Bureau is expected to strengthen the financial infrastructure in the country. Ryan Carter / The National

Al Etihad Credit Bureau will begin operations this quarter, a move intended to reduce the risk of another wave of bad loans hitting the banking industry.

Analysts say the federal credit bureau will also help to reduce borrowing costs for companies and consumers with a clean banking record.

“Effectively run credit bureaus are internationally proven to support responsible lending, enhance payment behaviour and reduce credit losses from bad or non-performing debts,” said Marwan Lutfi, the chief executive of the bureau, in a statement released yesterday.

“Al Etihad Credit Bureau will help to strengthen the UAE’s financial infrastructure and add demonstrable value to the banking sector.

“To do this, we are forming solid partnerships with the banks and other financial institutions in the country to ensure the efficient and accurate transfer of information between both sides.”

The new body said it was in the final stages of signing agreements with UAE-based banks to provide them with credit information. That process should be complete by the end of this month, the statement said.

The credit bureau is also completing the installation of an electronic link with banks and financial institutions in the UAE in order to create a database of individuals’ and businesses’ credit information.

Officials drew up plans for the federal bureau in a bid to help to cut the risk of another credit bubble forming in the local economy. A drying up of liquidity and a slump in property prices brought double-digit lending to an abrupt halt after the global financial crisis.

Loan growth this year is expected to reach 10 per cent or slightly more, according to Standard & Poor’s, up from 9.6 per cent last year. Low interest rates and returning confidence in the property market and wider economy is helping to support borrowing levels.

Timucin Engin, the associate director, financial services ratings at Standard & Poor’s, called the launch of the bureau a “positive development”.

“When you have a borrower, the bank will look at their salary or income but they don’t really have a borrowing history available from other institutions. This means part of the picture is missing,” he said. “The credit bureau will solve this problem but its effectiveness all depends on how banks share the data.”

Officials have expressed confidence the bureau will help to reduce borrowing costs by giving banks more data about their customers’ borrowing history.

“More transparency in terms of the credit bureau industry will give banks more transparency and will help reduce lending costs,” said Shady Shaher, the senior economist at Standard Chartered.

Mr Engin said the bureau would help banks “identify better risk customers so they can price their lending costs accordingly”.

The credit bureau said the pilot phase of testing had been successful, with the agency in the last stage of finalising remaining agreements with “industry partners”, as well as testing the technology that would transfer the data between it and banks.

“As soon as this is achieved, along with receiving formal approval of the bureau’s regulations and credit report charges from the UAE Cabinet, the Al Etihad Credit Bureau will commence operations,” said Mr Lutfi.

A former senior official at Dubai International Financial Centre, Mr Lutfi was appointed chief executive in October to help to oversee the agency’s transition to launch. The Ministry of Finance established the Al Etihad Credit Bureau in 2012 as a stand-alone entity with a paid-up capital of Dh200 million.

Initially the bureau will compile a comprehensive credit information database of individual borrowers.

In the second stage, the bureau will compile records of all commercial companies operating in the local marketplace, including joint-stock companies. Finally it will be able to provide a rating for customers, individuals and companies, according to an in-house risk-weighting system. Full operations would begin in 2015, the bureau said in October.

Abu Dhabi Islamic Bank, Emirates NBD and RAKBank are among the lenders who confirmed they will be signing up when contacted yesterday.

“We are looking forward to the launch of the process at the end of this month,” said RAKBank’s chief executive Peter England.

Suvo Sarkar, general manager of retail banking at Emirates NBD said: “Emirates NBD is fully supportive of the Bureau and will sign the agreement shortly.

“We are one of the first set of banks to test the Bureau’s system and will provide our full support to this initiative which we believe will improve credit decisions and risk management across the banking industry.”

Other lenders, including Abu Dhabi Commercial Bank and HSBC, were not immediately available for comment.

* With additional reporting by Mahmoud Kassem

tarnold@thenational.ae