Customers delaying bank loan repayments to face lawsuits

The UAE banks are drafting a comprehensive classification system under which the customers will face legal action for non-payment of loan installments for three consecutive months or non-payment for six months during the repayment period.

Sources told Emarat Al Youm newspaper that the new classification system – which will record customers’ credit status in all its aspects – will be linked with the Central Bank and Etihad Credit Bureau later this year.

The high-level source said customers who’ll delay payments for three consecutive months or six months over his/her repayment period will raise their classification to the dangerous mark, allowing the banks to take legal action against the customers.

He urged bank customers to be cautious and pay installments on time to avoid any problem arising from delaying or non-payment because the customers who fail to pay installments on time will not be able to conduct transactions or have funding with other banks.

The banking sources said lenders will not update defaulters’ data between six months and a year and a half once the lawsuit has been filed against the customer.

The UAE Central Bank is closely monitoring banks’ risk to ensure the safety of the financial system and prevents banks’ exposure to large proportions of defaulting clients.

The banks will internally classify customers in line with the Central Bank’s five classification system. It is worth mentioning that the apex bank’s system has the following loan classification:

Unclassified loans and advances, which includes:

-          Normal risks, i.e. those accounts relating to which sufficiently favourable credit and financial information is available to assure repayment as agreed, and also

-          Accounts which show some weaknesses in the borrower’s financial condition or credit worthiness justifying more than normal attention to the credit but not requiring any provision so far.

Classified loans and advances which include:

-          Sub-standard (high risk) - This category should comprise accounts which may lead to a loss, due to adverse factors (either financial, economic, political or managerial) or due to weakening of security. Normally, an account in which payment of principal or interest is in arrears beyond 180 days should qualify at least for this grading.

-          Doubtful - those accounts, the full recovery of which appears doubtful on the basis of information available, and therefore a certain amount of loss is likely (e.g. customer has a negative net worth and the bank is not protected in full by securities).

-          Loss - the category will comprise those accounts where all possible courses of action available have been taken for recovery, but little or not results have been produced.

Follow Emirates 24|7 on Google News.