UAE bank customers, among the most indebted in the world, will soon be able to get hold of their credit reports, the head of the nation’s nascent credit bureau said.
Al Etihad Credit Bureau has collected 98 per cent of two years’ worth of customer data from the 70 financial institutions that lend to individuals in the UAE. The task will be completed before the end of the year, said Marwan Ahmed Lutfi. For a fee, clients would be able before the end of the year to start accessing their credit reports, he said.
“We have a major role to play in bringing awareness to the borrowers,” he said. “A lot of the borrowers have carte blanche in accessing easy money, whether it was through a credit card or a personal loan.”
A federal law was passed in 2010 to establish the bureau, which requires all banks to participate, but it has gained traction only in recent months.
The bureau is creating a database of the credit history of all retail borrowers, enabling banks to build an accurate picture of a potential borrower’s indebtedness, allowing them to assess his or her ability to honour the debt. Currently, banks cannot check the credit history of customers relating to other lenders.
Experience in other countries shows credit bureaux can help to stop individuals with a poor credit history from amassing further debt, while easing the flow of credit to those able to repay loans. Banks benefit by generally not having to build such large provisions, or money put aside to cover bad debts, against the risk of defaults. A credit bureau has become especially urgent in the country, where debt per capita stands at about US$95,000 per head, higher than global norms, industry executives say.
Mr Lutfi said he was not concerned about rising credit growth and pointed to measures apart from the credit bureau, such as higher down payments for mortgages, as evidence the authorities were making sure that loans don’t spiral out of control as happened before the country’s 2009 debt crisis. Last year, loans grew 9 per cent and analysts expect that figure to reach 10 per cent this year. Credit grew 41 per cent in 2008, according to figures from the central bank.
As well as helping to prevent another boom-and-bust cycle, Mr Lutfi said that he was also keen to promote financial responsibility among Emiratis. He said consumers must become savvier when taking on debt to see how it can be most efficiently done. While personal loans are available with interest rates of about 5 per cent, credit card debt can cost six times as much to maintain. Often, banks will offer Emiratis better interest rates because the risk of flight is much less than for expatriates.
“The easy money is specifically targeted at UAE nationals,” said Mr Lutfi. “What happens with UAE nationals is that the system has to deal with it. That’s why you’ve seen a lot of intervention, whether from the government or the central bank to alleviate a lot of the debt from UAE nationals. One of the major focuses is to make sure we don’t indebt the UAE national population.”
Eventually the credit bureau will add to its reports other forms of consumer obligations, such as telephone bills and other utilities and may even one day expand to the bank accounts that expatriates hold abroad, Mr Lutfi said.
“Exchanging data cross borders involves a lot of legalities, especially when you are dealing with more developed countries in Europe and the US,” said Mr Lutfi. “These things always run in the back of our minds, but I think we need to take the first step and start walking before running.”
mkassem@thenational.ae
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