Mashreq CEO – ‘Credit Bureau Will Stop Banks Lending For 6-12 Months’

The UAE’s upcoming Al Etihad Credit Bureau will present a number of challenges for the country, said Abdul Aziz Al Ghurair, CEO of Dubai lender Mashreq and chairman of the UAE banking federation, on Wednesday.

“Once the credit bureau goes live, there will be consequences for a short period. Banks will stop lending because they will discover every single customer has over-borrowed,” he said.

Banks will stop lending because they will discover every single customer has over-borrowed

“When banks discover this, there will be six to 12 months of almost zero lending to existing customers who have borrowed up to the limit. Everybody will now have to really save money to repay the banks.”

The CEO said that the Al Etihad Credit Bureau is set to launch in four stages with a completion date of 2015.

Currently 12 banks are in the implementation stages, he said, adding that the 12 banks represent “80 per cent of the economy”.

Al Ghurair said: “It is great news for the economy to have this credit bureau come up, it’s a missing link in the UAE infrastructure. The first challenge is to get banks up and running with it. We are looking at getting more and more information on borrowers and it will really help banks determine customer borrowing capacity.

“It will dramatically minimise default rates, improve pricing for the customer and improve the risk charge on personal loans. So it’s a really healthy scenario.”

Total household debt in the UAE reached $114 billion last year, with the country amassing around 67 per cent of all household debt in the GCC region, found a survey by research firm Strategic Analysis.

The survey also found that 60 per cent of UAE citizens spend a quarter or more of their monthly income on debt payments, while 48 per cent of respondents have loan payment obligations that exceed their income.

Al Ghurair said: “On the consumption side, people will not be able to borrow money to buy things and do all the stuff they used to enjoy in the past. There will be a cost of adjustment to the new system.

“On the existing consumer side, things will slow down. There will only be growth in fresh customers, from people who have never borrowed before.

“People who have overleveraged themselves will just have no channels of additional leverage. At least, now we’ll know. This is a good thing for everybody: for the economy, for the regulators and for the banks.”

Mashreq expects to post a 40 per cent increase in 2013 profits, significantly higher than its earlier forecast, mainly thanks to lower provisions, the CEO added.

The country’s top banks posted strong second-quarter earnings due to an economic recovery in key sectors and lower provisions as the UAE heals from debt troubles at Dubai’s state-linked entities.

“There is generally a good upswing in bank profit overall in the UAE. On average, banks have grown by 20 per cent in the first six months of this year. We have outgrown the market. The economy is doing well and there is more international and regional concentration on the emirate as the only hub to do business in the region.”

Al Ghurair said profit growth for banks in the country last year was 15 per cent.

Total assets of UAE banks grew eight per cent to Dhs1.9 trillion ($517 billion) in the first six months of this year, while net profit during the period was Dhs13.6 billion, the CEO said.