In the wake of the past global banking crisis the UAE brought in a series of laws to help to prevent people from getting into excessive debt.
One of those was the 50 per cent debt burden ratio, which means your repayments for all loans and credit cards must not exceed more than 50 per cent of your monthly salary.
It is a bank’s key consideration when assessing loan requests, and one of the main reasons why some applications to ADIB’s Al Khair scheme are rejected.
If a customer is approved for Al Khair loan from ADIB, they are asked to collect liability letters from all banks they owe money to. ADIB then asks those banks to cancel the card or loan and issues a guarantee saying it will cover the final outstanding balance. After cancellation, ADIB sends out the payment cheques to the banks.
“The critical thing here is where the customer’s salary is going and the salary usually goes to the bank where the customer has taken the big ticket personal loan,” said Jamal Alvi, chief credit officer at ADIB.
In order to borrow from ADIB under Al Khair, the new customer must transfer their salary to the bank. And the process is quite lengthy, potentially leaving the person time to take out more loans against their old salary account before it has been transferred.
“If the customer ends up taking another loan from a salary while we are still waiting for [the new salary account] to come in, then, effectively, what the customer has done is he has taken two loans and the repayments are more than [is allowed].” said Mr Alvi.
That not only pushes the customer past the 50 per cent debt burden ratio, it means ADIB – or any other bank, for that matter – can no longer offer them any loans to help.
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