UAE: Loan defaulters could face the music |
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Abu Dhabi: The UAE Central BankUAE Central Bank
is considering tough measures including setting up a Dispute Resolution Committee to look into cases against loan defaulters, in a bid to help lenders ride out the current economic situation in which cash is hard to come by.The measures could include black-listing defaulters, among other punishments.
A blacklisted person could face a number of difficulties in either working, doing business in the UAE, seeking finance or leaving the country.
The news comes as the number of bounced cheque offences rises in various sectors of the economy amid payment delays, which are hampering cashflow. Many small and medium businesses see their running capital drying up as bank deposits shrink. Some are already facing difficulty paying their workers.
The situation, if it deteriorates, could result in bankruptcies. Many individuals are facing insolvency as their credit card limits are being lowered by banks - a sign that the banks are becoming more cautious with their customers.
However, bankers welcomed the Central BankCentral Bank's initiative to establish a Dispute Resolution Committee which would study defaults by bank borrowers on a case-to-case basis.
Bankers agreed that in many cases, jailing loan defaulters isn't the solution because then the recovery of their money becomes almost impossible.
They acknowledged that a large percentage of borrowers haven't intentionally defaulted, but are victims of the current global financial crisis which has hampered their ability to pay back their bank loans on time.
In these cases, they said the defaulters must be given more time to repay their loans and that the proposed Central BankCentral Bank mechanism would be of help as it would enable defaulters to explain their exact financial position and allow them to give banks a timeframe within which they would repay their debts.
"It's a proactive measure from the UAE Central BankUAE Central Bank to pre-empt any conflict that may arise due to potential non-performing assets [NPAs] in the system," EmiratesNBDEmiratesNBD Group Chief Financial Officer Sanjay Uppal told Gulf News.
EmiratesNBDEmiratesNBD is the largest bank by assets in the Middle East.
Uppal said in the past decade the banks had operated in a benign environment, but now the market conditions are tougher.
"Expectations of emergence of NPAs may give rise to disputes. The Central BankCentral Bank is putting a mechanism in place to address such issues," he added.
The chief executive of Bank of BarodaBank of Baroda, an Indian multinational bank, said the banks' ultimate purpose is to recover their money and not to send defaulters to jail.
"If some customers have a genuine problem and we are aware of their circumstances, it's better to give them more time to repay their loans than having them jailed. In the bank's interest, it's a better proposition to get the money back later than never ever," said Ashok K. Gupta.
Commenting on the UAE Central BankUAE Central Bank initiative, Jeremy Parrish, chief executive of Standard Chartered Bank for Abu Dhabi and Al Ain, said that "as long as the bank's position is not compromised and as long as the law of the land is upheld, it seems to be a good move."
He said as far Standard Chartered Bank's Abu Dhabi loan portfolio is concerned, "it's in good shape and in line with our expectations".
Mousa Haddad, Head Trader, Discretionary Mandates at the National Bank of Abu Dhabi, said the reaction to the Central BankCentral Bank initiative is positive and can be seen in Thursday's financial market sentiments.
The Abu Dhabi Securities Exchange general index rose 1.17 per cent during the day, while the Dubai Financial Market index rose 1.64 per cent.
By Himendra Mohan Kumar
© Gulf News 2009
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I happened to borrow a loan from EB and I could not repay as lost my job due to recession. Now, sir I am receiving threatening call from some sort agency associated EB. I want repay the loan if given chance provided the money invested in real estate returns. I don’t need any profit except I am getting free of all hurdles [Report Abuse | Email to a Friend | Reply to this Comment]
The UAE Central Bank has been a model of calm in this crisis and has done all the right things. It helps being a net creditor nation with big reserves in a world of debts and deficits. Anything that can be done to help people through this difficult time in the UAE makes sense. It should also help silence the critics, see:
http://arabianmoney.net/2009/03/24/ignorance-rules-among-the-uk-critics-of-dubai/ [Report Abuse | Email to a Friend | Reply to this Comment]
I have received a notice from CBI (Commercial Bank International) that they are increasing the auto loan interest to 8% p.a. for existing loans effective 01/03/2009. Does the bank has the rights or permitted by UAE Central Bank to increase as they wish? A lot of people are losing their jobs and with this uncalled actions from CBI, it will make matters worse. [Report Abuse | Email to a Friend | Reply to this Comment]
The Bank need to write off these Loans instead of trying to Jail people, it's like any other business sometimes you win some tiyou loose some. Most civilized countries do that in credit crisis or an economic downturn NPA's are sold at a distressed price. [Report Abuse | Email to a Friend | Reply to this Comment]