A new retail loan system announced by the Central Bank early this year to regulate personal lending will be enforced on May 1 after it was published in the official 'Gazette', a newspaper reported on Saturday.

The central bank has notified the country’s 23 national banks and 28 foreign units that the new system had been published in the official Gazette on March 31, which means they must adhere to the new rules on May 1.

“When it announced the new loan regulations, the central bank gave the country’s banks one month to enforce them after they are published in the official Gazette,” 'Emarat Al Youm' Arabic language daily reported. “The new rules were published on March 31 and this means banks must enforce them on May 1.”

The new lending regulations capped personal loans at 20 times a borrower’s monthly salary and stipulated the loan must be repaid within 48 months.

The regulations cover all retail loans including personal, car, housing loans and credit credits. They are intended to control lending activity and excessive charges by banks following public complaints about a surge in bank fees.

Personal loans in the UAE, which has the largest Arab banking sector, had surged by at least 35 per cent during 2006-2008 before they sharply slowed down over the past two years following the 2008 global fiscal crisis and regional debt default problems, according to the Central Bank.

From around Dh109 billion at the end of 2006, personal loans jumped by nearly 39 per cent to Dh148bn at the end of 2007 and by about 54 per cent to Dh228bn at the end of 2008. Growth plunged to only around 3.9 per cent through 2009, when personal loans ended the year at 237bn.

In 2010, personal loan growth slowed down further to nearly 3.7 per cent as they stood at around Dh246bn at the end of the year.

Total credit also slackened to just around one-three per cent through 2009-2010 compared with more than 30 per cent during 2007-2008 because of those crises and poor borrowing appetite by the private sector.

The figures showed credit to the private sector in the first 10 months of 2010 dipped by four per cent to extend a downward trend since the onset of the crisis.

While loans to the government and other public sector establishments continued to grow slightly, those to he private sector remained dormant as both sides appeared less enthusiastic to engage in lending activity.

The private business and industrial sector was hit hardest by the credit slowdown, plunging by nearly 8.1 per cent in the first 10 months of last year.

From around Dh607bn at the end of 2009, total bank credit to the private sector receded to nearly Dh582.9bn at the end of October.