Abu Dhabi Commercial Bank says it will blacklist any dealership that circumvents payment requirements on car purchases imposed by the Central Bank.
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The move puts ADCB on a collision course with showrooms that allow customers to pay for the mandatory deposit on credit.
Back in May, the bank introduced a mandatory 20 per cent deposit for vehicle purchases as well as a cap on repayments at 50 per cent of a buyer's monthly income.
The rules were part of a raft of caps on retail lending brought in by the regulator in a bid to guard both customers and lenders from a repeat of the wave of consumer debt that soured during the downturn.
Amr Al Menhali, the head of ADCB's Islamic banking division, says car dealers that try to bend the Central Bank's rules on financing contravene both the bank's ethics and Sharia principles.
"If we find that any dealer is doing this, we won't deal with them," he said.
"If they find out that a dealer is trying to play around with the Central Bank regulations, I'm quite confident that ADCB would avoid dealing with them."
ADCB's move comes amid increasing signs that consumers' debt levels are slowly starting to mount.
More shoppers are using credit and debit cards to pay for their goods, retailers say. Finance schemes, where shoppers pay for a purchase in instalments over a number of months, are also becoming more popular as banks promote marketing for such products.
Jacky's Electronics reports a 12 per cent rise in the use of credit cards this year compared with the same period last year. Credit-card use at Jacky's mall-based outlets has been running at 62 per cent so far this year. Other retailers tell a similar story. Total loans and advances rose by 0.7 per cent in June from May, with loans to residents rising by 1 per cent over the same period, Central Bank data show.
The figures are still far from the credit boom of the pre-recession era. Then credit growth soared, reaching an estimated 37 per cent in 2008.
The Central Bank, however, is still closely monitoring credit trends.
"When people take out a loan they need to be able to pay it back adequately and within a suitable time," said Saleh Al Tenaiji, the senior manager at the Central Bank's banking supervision and examination department.
While the regulator's rules may help to curtail excessive retail lending, other areas of borrowing are likely to prove trickier to regulate.
Bad debts linked to struggling big businesses provided the largest headache to banks and weighed down the economy during the past two years.
A US$24.9 billion (Dh91.5bn) restructuring of Dubai World's debt created the most significant hit to banks' balance sheets.
The resulting non-performing loans facing banks has been one of the reasons for the sluggish loan growth since the global downturn. Still, the pain may not be over for lenders.
"Clearly, the rules are not going to stop big corporations who run themselves into trouble," said Raj Madha, a regional banking analyst at Rasmala Investment Bank. "That would be a difficult and far bigger problem to solve."
Instead, any squeeze from the retail lending rules on businesses is likely to be felt by smaller companies. Historically, many startups and small-and-medium-enterprises have used retail loans to support their growth. Considered a higher credit risk, many banks have carefully managed their exposure to smaller firms since the global financial crisis and economic downturn.
"Startups normally have to have their own funding," says Akram Khan, the senior vice president and group head of corporate banking for Ajman Bank. "Bank financing will only come in after there is a track record."
ghunter@thenational.ae
