Debts no longer borderline in the UAE

The Life: Banks are more carefully scrutinizing the credit histories of small- and medium-sized business owners in this new era of lending - with video.

Zaid Kamhawi, the chief business officer for Emcredit, says information on borrowers can be found in public sources.

Banks in the UAE are increasingly looking beyond the country's borders when checking the credit histories of potential borrowers.

Now that lending is picking up again, banks are going to great lengths to ensure they are giving loans only to those business owners who are most likely to pay them back.

"Increasingly what's happening is the world is becoming smaller because of the technology" banks use, says Vikas Thapar, the head of the small and medium enterprise division for Emirates NBD. "More likely in today's world, [one] country will know what you did in the other. Cross-border information sharing is happening, and will happen more," he says.

Many banks already access financial information from their sister branches around the world, which assist them in offering the right kinds of loans, credit cards and account services within the UAE, banking executives say.

Yet more banks are also trying to determine what a business owner's total debt exposure is before they even offer a loan.

It is sometimes difficult for a bank in the UAE to determine what debts a business owner has with non-affiliated lenders elsewhere in the world.

One reason: data access rules in different countries might prevent the sharing of a business owner's financial information.

That is why some banks are increasingly asking customers to provide account statements from other lenders to get a full picture of their financial history.

Others tap into a vast network of international credit agencies to get what they need, subject to the business owner's consent. While individual banks differ on how they collect financial data, and which pieces they ask for, they all seem to be on the lookout for a common keyword: bankruptcy.

At the moment, Emcredit, the country's first private credit information agency, collects information about companies that operate in the UAE but does not include bankruptcy filings from other countries.

"However, that type of information can still be sourced from international credit information providers or directly from the company registrar in these countries, as it is considered public information," says Zaid Kamhawi, the chief business officer for Emcredit.

Bankruptcy filings originating from places such as North America and the UK are being scrutinised by banks, experts warn, and they could very well require a company to recreate itself if it moves to the UAE and needs banking services.

Haitham al Refaie, the head of the business banking group at the National Bank of Abu Dhabi, says a new business in the UAE that previously filed for bankruptcy elsewhere "must dissolve the existing bankrupt business fully and start a new concern with re-branding of the business and reposition[ing] their activities".

"You will have to start from scratch," says Mr Thapar. "Build up a good credit history, perform for two or three years, get audited financials and ensure you're not getting into too much debt or defaulting on any credit."

Business owners can rest a little easy knowing that nothing on a credit report remains there permanently. But they should keep in mind that delinquencies on existing loans, as well as the amount of debt they carry, are the two most important factors affecting their credit score, says Mr Kamhawi.

Some of the best methods for cleaning up a poor score are to reduce a company's overall debt burden by closing some accounts and utilise not more than 30 per cent of their revolving credit.

"If the business needs the loan immediately, and does not have the time to improve its credit report, it would be expected to pay a higher interest rate or provide additional security and collateral," says Mr Kamhawi.