The UAE Central Bank will be issuing a circular for all banks and conventional and Islamic finance companies, regulating personal loans and services.
“The new system of submitting loans will include auto loans and homes as well as credit cards,” said Saif Al Shamsi, Director of Treasury Department of the Central Bank, according to Al Bayan newspaper.
Al Shamsi said he expected that the central bank will issue the new rules on personal loans and services by the end of this year.
The new system is designed mainly to identify and regulate the relationship between banks, Islamic and traditional finance companieson the one side and customers on the other. It also aims to provide more transparency and clarity in the services provided by banks to individuals.
Al Shamsi said the officials of the Central Bank have already discussed the draft of the new system with representatives of banks and finance companies.
The new system will determine the general controls for the grant of loans and credit cards to individuals and would be stating the number of allowable multipliers of income for lending by the categories of income groups and levels.
The new system will explain the rules of style of repayment periods in accordance with different cases, as well as how to calculate interest rates and ratios, both with regard to personal loans or auto loans or loans of houses.
Al Shamsi said earlier it was possible to grant large amounts of loans to persons of limited incomes, which could result in numerous problems for banks and customers. The new system that will organise and legalise these things”.
He said the new system will include interest rates and fees applicable to personal loans.
Under the current system, taking of private homes or personal guarantees as collateral when granting such loans to non-UAE nationals, is prohibited.
He added banks and finance companies should make sure the principal amount and the monthly payments are according to a reasonable income for the client.
He explained that the interest rate applicable to personal loans by each bank and reported to the customer in advance that the interest rate is fixed throughout the loan period and any changes to be applicable on new loans only.
The banks must also discount the amount of payment on an ongoing basis at the end of each month (or three months or six months or 12 months depending on the preference of each bank) and the beginning of the month following the month in which the client received the loan.
Meanwhile, bankers stressed the importance of expediting the issuance of the new system for personal loans and services to achieve greater stability and balance in lending operations.