Wednesday, Sep 11, 2013
The UAE’s new credit bureau will put an end to borrowing sprees and slow down lending to individual customers for about six to 12 months once it goes into full swing in 2015, a top bank executive said yesterday.
Abdul Aziz Al Ghurair, CEO of Mashreq and chairman of the UAE Banks Federation (UBF) said that the bureau, which is being implemented in phases, will have long-term positive impact on the economy and the whole banking system, but both customers and financial institutions will undergo a brief period of adjustment.
One of the likely scenarios is that the banks will realize that the majority of their existing customers have over-borrowed and so they will stop lending for a while to unreliable borrowers. This “cost of adjustment” will ultimately put a drag on the banks’ consumer banking business.
However, in the long term, the new system will improve the country’s financial landscape and the positive impact will trickle down to all stakeholders.
The Al Etihad Credit Bureau will compile credit data of banking customers in the country to enable banks to measure borrower’s creditworthiness. It will provide comprehensive information such as customer’s loan or credit applications, payment behavior, among others.
“Once this credit bureau goes live, there will be consequences for a short period. The consequence is that banks will stop lending because they will discover every single customer has over-borrowed. They will get a shock in their lives,” Al Ghurair said in a media roundtable.
“Banks will apply a break on lending for the first six to 12 months. There will be nobody borrowing money from the consumer side because they will discover that they have over-lent to everybody-- that everybody has 10 cars in their pockets” Al Ghurair said at a media roundtable.
“This applies to existing customers. Those who haven’t borrowed can still access credit. However, among the retail customers, there are only very few people who are disciplined,” Al Ghurair said.
He recalled that back in the days when banks were still aggressively lending, consumers were borrowing money simultaneously from different banks and there was no unified system or mechanism in place to fully evaluate an individual’s credit history and capacity to repay. The practice of borrowing from another bank or credit card to pay off other outstanding balances was also rampant.
“Majority of the customers have enjoyed their free banking, but I think now they will not get what they used to get in the past. With the credit bureau, banks will discover how many customers have over-borrowed ,” Al Ghurair said.
“So, for the short period, you will see no growth in the consumer side. Banks will lose business for a while but it will be good for the economy, it will be good for the consumer and the consumer banking over a long period,” he added.
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By Cleofe Maceda Senior Reporter
Gulf News 2013. All rights reserved.
