Mashreq Bank said on Sunday that the introduction of the credit bureau to keep personal debt in check in the UAE initially led to a drop of up to 30 per cent in the issuance of credit cards at the lender.
And while that led to some declines in business, on the flip side it has helped to make the bank more efficient, requiring fewer staff to approve requests for debt at a time when a slowdown in profitability has made lenders more cost-conscious.
“People love credit cards but because of the credit bureau, issuances have been reduced,” said Pankaj Kundra, the head of payments at the Dubai-based bank.
“The credit bureau makes sure that people who are at the edge, who are overleveraged, are not given more. It’s a healthy thing to do, otherwise we would have lent to people who are on the verge of being overleveraged, which would have increased our provisions. It’s a good thing.”
The bank executive said that between the fourth quarter of 2015, when the bank started using the credit bureau, and the second quarter of last year, credit card approvals went down by 25 to 30 per cent.
From that point, the pace of issuances remained stable until the beginning of this year, when issuances started to pick up again, he said.
Al Etihad Credit Bureau, designed to help keep credit growth in check and prevent consumers and corporations from overstretching themselves, officially started operations in 2014.
The UAE has one of the world’s highest rates of indebtedness at US$95,000 per household, banking executives say. The country also has one of the world’s highest incomes per capita.
At the same time, Mr Kundra said that the bank was forging ahead with a number of initiatives to allow customers to do more banking online without the aid of a banker, such as a Facebook app the lender has that lets customers check balances and transactions without the need to talk to a bank employee. Those efforts to go digital have made the bank more nimble when it comes to hiring, and so more profitable.
The banker also said that Mashreq customers had become more cautious when using credit and are keener to pay off credit card debt at the end of each month rather than carrying over costs and paying interest. Such practices are common during an economic downturn, when individuals become less willing to make extravagant purchases, he said.
Mashreq’s first-quarter net profit rose by 2.7 per cent to Dh546.2 million compared with Dh531.8m a year earlier, thanks to a 15 per cent drop in impairment charges to Dh310.7m.
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