4.33 PM Thursday, 28 March 2024
  • City Fajr Shuruq Duhr Asr Magrib Isha
  • Dubai 04:57 06:11 12:27 15:53 18:37 19:51
28 March 2024

Mashreq pins faith on Dubai World solution

NPLs in the card business ranged from 12-14 per cent in 2009 compared to the five to seven per cent in 2008. (EB FILE)

Published
By Karen Remo-Listana

A positive outcome of the Dubai World debt restructuring process will give the economy a boost and lower card loan defaults, said a senior official at Mashreq bank, the largest issuer of credit cards in the UAE.

"Hopefully, they will resolve the Dubai World proposal. If that doesn't derail the economy, then 2010 will definitely be better," Vimal Kumar, Head of Cards Business at Mashreq, told Emirates Business.

Stating that the bank expects to see card NPLs drop by 30-40 per cent this year, "provided there is no more bad news on government debt", Kumar added that revenue would nevertheless remain flat as the bank continues to clean up bad debts from its book.

"We're still washing out. Card is a revolving business – once it flows into the delinquent bucket then you have to wash it out, you have no choice. And washing out does take a bit of time," he said.

Kumar said NPLs in the card business ranged from 12-14 per cent in 2009 compared to the five to seven per cent seen in 2008. To put things in perspective, Mashreq's credit cards business (advances) in 2009 was Dh2.1bn, up seven per cent from 2008's Dh1.97bn figure.

He said the bank's credit card NPL rates seem high because the bank's retail risk charge-offs have been more aggressive than that recommended by the UAE Central Bank. But the NPL rates, in reality, are much lower than that of other banks, he said.

Under the bank's policy, retail loans, with the exception of personal loans to UAE nationals and SME auto loans, are charged off when installments are due for more than 150 days. Personal loans to UAE nationals and SME auto loans are charged off if installments are due for more than 180 days.

"One of the biggest issues is there really isn't a consistent methodology among banks to recognise loss," Kumar said. "There are international best practices wherein [the loan is written off] if the customer has not paid his debt for 180 days. There are banks that do write off up to 360 days. The banks here are not consistent.

"Some banks follow what the Central Bank says and some, like us, follow what the international practices say, which is 180 days. There is a big gap. The Central Bank says you can write off [a loan] in 360 days."

The card portfolio forms a significant chunk of the bank's retail division, which contributes 32 per cent of Mashreq's total operating income. Kumar said the card division comprises 40 per cent and 50 per cent of the retail segment's revenues and profits, respectively. A decline in bad debts is thus a boost to the bank's profitability, which still managed to hold up last year.

Revenues from cards rose by 37 per cent in 2009 over 2008. The revenue hike helped offset the 60 per cent rise in asset impairments, Kumar said.

This year, however, is expected to be slower than last year. "We grew about three per cent of our balance sheet last year over 2008. But that was commendable given the scale of the problem that the UAE faced with the job losses and unemployment that we saw, the slow down in real estate, financial services and tourism," Kumar said.