Banks and borrowers urged to be more responsible when it comes to personal debt

Call from experts comes after the UAE Central Bank announced that total personal loans hit Dh349.9 billion in February.

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DUBAI // Banks and individuals alike have been urged to be more responsible in approving and taking out personal credit.

The appeal came after the UAE Central Bank announced that total personal loans hit Dh349.9 billion in February, a three per cent increase from January.

Keren Bobker, senior partner at Holborn Assets, said many borrowers were taking out more credit than they could repay.

“People have always borrowed to meet annual rent payments and to buy cars but there are also those who build up debts to meet daily outgoings, as well as to fund holidays and unnecessary spending,” she said.

“It doesn’t help that banks seem to regularly increase credit limits without even being asked to and promote loans and card as lifestyle choices.”

Credit was too easy to access for many in the UAE, Ms Bobker said.

“Even the setting up of the Etihad Credit Bureau is not preventing people from taking out excessive loans and exceeding sensible limits on credit cards,” she said.

The Debt Burden Ration – the ratio of total monthly instalments of credit cards and loans to the total income of an individual – is set at 50 per cent by the UAE Central Bank but it is breached far too often, she said.

High personal debt can become a major concern when people begin to struggle to repay the credit they have taken out.

“It is very stressful as once a person misses a payment, most banks start calling regularly and put a lot of pressure on people to repay,” said Ms Bobker.

“I am told that people often feel threatened. Sadly, some people bury their heads in the sand rather than face the problem, which obviously does not help.”

As the cost of living increases in the UAE, many people are tempted to take out loans because salaries have not kept pace with inflation.

“I know that there are a great many people with levels of debt that are virtually unmanageable,” she said.

Many fall into the trap that taking out credit is “normal” and having loans and large outstanding balances on credit cards is the way things are done, she said.

“When banks advertise loans so people can buy gifts for Mother’s Day, it is clear that things are not as they should be,” Ms Bobker said.

“As well as banks taking more responsibility in their lending, individuals need to as well. The fact that non-payment of debt is a criminal offence doesn’t seem to put some people off. Anyone borrowing money needs to factor in how they will be able to repay it.”

She urged people with unmanageable personal debt to be realistic in how much they can repay per month.

Restructuring credit card debit into a personal loan at a reduced rate of interest can lower monthly payments.

Banks should also be more amenable to people seeking a solution to debt issues.

Ambareen Musa, founder of comparison website, said expatriates tend to accumulate debt faster than Emiratis in their pursuit of a more lavish lifestyle, which in many cases is funded with loans and credit cards.

Data from her website reveals that personal loans were the most-visited product category on the site last year, with 40 per cent of all visits. Credit cards came second, with just over 30 per cent of all visits.

“We advise borrowers to come up with a financial austerity plan to cope with debt - cut all unnecessary expenses and then aim to repay the debt with the highest interest rate first, especially credit card debt,” said Ms Musa.

“Borrowers can also speak to their bank about restructuring the terms of their loans. This could involve extending the tenure to help lower the instalments.

“For temporary relief, it may also be worthwhile to check about a penalty-free payment holiday for two to three months.”