Emirati Debt: Dh48b in 6 years

Central Bank says it is trying to classify those loans for settlement

UAE nationals are indebted by nearly Dh48 billion to local banks in the form of personal loans they had sought to fund the purchase of cars, property and other consumption purposes, Arabic language newspapers reported.

The loans have accumulated over the past six years and the central bank is trying to classify those loans to determine defaults, they said, quoting an unnamed central bank official.

“I believe the default level will not be very high…we are trying to classify all these loans,” the official said without specifying the number of borrowers. The papers quoted the official as saying a new fund for the settlement of those loans ordered by President His Highness Sheikh Khalifa bin Zayed Al Nahyan would be launched soon but did not elaborate on its operations.

“We have to wait and see the exact mechanism for the work of this fund….we still do not know which loan categories would be eligible for settlement by this fund, which targets low income borrowers.”

Bankers said Emirates are the heaviest personal borrowers from banks as it is easier for them to get loans.

Hundreds of national borrowers have defaulted on payment over the past years, resulting in the imprisonment of some of them. Official data showed personal loans owed by Emirates over the past five years accounted for more than a quarter of the total personal loans provided by the UAE’s 23 national banks and 28 foreign units although nationals account for less than 20 per cent of the total population.

Plans to classify those loans follow new rules introduced by the central bank in mid 2011 to control personal loans in the UAE, which has one of the world’s highest individual loan ratio. UAE banks have also emerged as the largest providers of personal loans in the Arab world after overtaking Saudi Arabia.

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 for consumption and business purposes jumped by nearly 39 per cent to Dh148 billion 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 Dh246 billion at the end of the year before peaking at more than Dh265 billion at the end of June.

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