Regulations hinder loan recovery: Mashreq

A bank would be "exceptionally" fortunate to recover even Dh20 for every Dh100 loaned to a customer who has left the country, said a senior banker, adding that this struggle, fuelled by the kind of regulations the UAE has, will remain a hindrance for recovery.

"The regulations are not good enough for a customer who is in distress to have a very positive conversation with his bank," said Vimal Kumar, Senior Vice-President and Cards Business Manager at Mashreq bank.

Credit card defaults cause two-thirds of 'skips', according to Orion Analytics' Skip Report, which gauges skipping between 2000 and Q3 2009. And in this country, banks usually refer the cases of default to the police rather than opting to try and settle the issues through negotiations.

"Therefore, genuine customers are scared and they pack their bags and leave. This created this situation, which we are still struggling to come out of," Kumar said.

Can you talk about asset impairments last year and your expectations this year?

We saw an increase of 60 per cent in 2009 over 2008, which is in line with the industry or perhaps lower than our competitors in the same period.

This is of no one's doing. Between 2008 and 2009, [the] population actually shrank and this is due largely to redundancy and people leaving the country.

People skipped and ran away – that's a hard reality. The regulations are not good enough for a customer who is in distress to have a very positive conversation with his bank. For example, if I lose my job and I am a genuine customer and I still want to pay back my debts, I will not have the courage to talk to my banker and tell him that I've lost my job and ask him to help me restructure my debts. The bank will usually block such a person's accounts, file a case and throw him behind the bars. That's how the regulation here works.

It is not a positive environment for a customer to have a conversation with the bank and, therefore, genuine customers are scared and they pack their bags and leave. This created this situation, which we are still struggling to come out of. Last year, the water was under the nose, now we still have water up to our neck. It's going to take a while before things get back to 2007 or 2008 comfort levels.

What's the recovery rate of non-performing advances?

There are two kinds of recoveries. There is a recovery [process] where a customer is in the country and you're having a conversation with them – that's easier. Then you have a customer who has run away, not contactable, is smart enough to fly to his own country and from there quickly moved address. That's a long drawn out process, because you have to deal with him depending on the law of his country. It is a very painful process of recovery.

You will be exceptionally lucky if you can recover Dh20 for every Dh100 that has left the country. The challenge really is to catch the person before he leaves or engage that person in a conversation so he's comfortable and does not run away.

What have you done to address this issue?

We set up a programme called Mashreq Assist during the heat of the crisis. We told our customers that if you are in any kind of financial difficulty and you feel that you are unable to service your obligation to the bank, come to us and we will help you restructure your loans. We actually

helped more than 6,000 customers through their difficult period. This programme helped a lot of credit-sensible customers [to] come out of the crisis. But there are those who are perpetual defaulters – no matter what you do to them, they still don't have the discipline or the ability to pay back. The only programme you can run is to write off the debt.

Does this programme guarantee that the customer will stay out of jail?

Yes, we do that – once he signs on this programme, until he continues to pay. If he signs up on the programme and then become wobbly in his commitment, then we will be forced to take action on it.

What if he does not find a job and his residency visa is terminated?

The other good thing that we did on the cards programme is we have a credit insurance policy. If you apply for that insurance policy and you lose your job, then the insurance company gives you a certain amount of money for 12 months and that money helps you repay your debts that you have with the banks. If you are unable to find a job in 12 months then you are really unlikely to find a job in this country.

PROFILE: Vimal Kumar Senior Vice-President and Cards Business Manager, Mashreq

Kumar joined Mashreq in 2002 as the head of credit cards marketing division. In 2006, he had a one-year stint in Qatar as the head of consumer banking for Mashreq. In his current role, he manages profit and loss for the cards business.

Kumar has been working as a banker for the past 15 years. He started his banking career in 1994 as a trainee with Standard Chartered in India. In 1997, he moved to ANZ Grindlays Bank, where he was responsible for the re-launch of the card programme in India. In 2002, he moved to ABN Amro and set up a team to launch the bank's credit card business in India. Kumar has a post-graduate degree in business management from India, with a concentration in marketing

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