New loan rules take effect

UAE banks began enforcing new retail loan regulations on Sunday after the Central Bank turned down a request by some of them to extend the deadline.

Bankers said the new personal law system announced by the central bank early this year to regulate lending activity took effect on schedule on Sunday.

The enforcement of the new system followed the publication of the central bank decision in the official gazette a month ago.

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 Dh148 billion at the end of 2007 and by about 54 per cent to Dh228 billion 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.

Despite a massive increase in total loans in the first two months of 2011, personal loans did not match that increase, according to the central bank.

From around Dh1,031 billion at the end of December, total domestic credit surged to nearly Dh1,059 billion at the end of February. But personal loans gained only about Dh600 million to reach Dh247.7 billion at the end of February.

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