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U.A.E. Central Bank Issues Guidelines for Personal Loans, Fees

The United Arab Emirates central bank issued new guidelines on retail loans and fees as well as capped personal loans at 20 times a borrower’s monthly salary in a bid to control lending and curb excessive charges.

The repayment period for personal loans can’t exceed 48 months, the regulator said in a circular posted on its website. Overall installments for all loans, including personal, car, housing loans and credit cards, must not exceed 50 percent of a borrowers’ gross salary and any regular income, the bank said.

“In terms of limiting how much you can lend to an individual client, it’s probably a good thing for the system as a whole,” Raj Madha, an analyst at Rasmala Investment Bank Ltd. in Dubai, said in a telephone interview. “It is difficult to say what this means on the fees front for banks, but certainly in Qatar, which announced similar regulations, it made a small but not insignificant impact on banks’ fee and commission income.”

Bank lending in the U.A.E., the second-biggest Arab economy, grew 1.3 percent in 2010 following a 2.4 percent rise in 2009, according to central bank data. Lending expanded by more than 30 percent annually from 2005 to 2008 as high oil prices and a construction and housing boom spurred lending.

The U.A.E. has 51 operating banks, 23 local and 28 foreign, including the local units of Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc. Their combined personal loans increased 3.9 percent in 2010 to 247.1 billion dirhams ($67.3 billion). Personal loans made up 24 percent of overall loans.

Fee Schedule

Car loans given out by banks will not exceed 80 percent of the value of the vehicle and not be for longer than five years, according to the circular. Banks may also not issue credit cards to those with a monthly salary of less than 5,000 dirhams.

The central bank also prescribed maximum fees for banking transactions, including 50 dirhams for setting up standing instructions and 25 dirhams to get an additional check book. The central bank said it would review fees annually.

Loan defaults in the U.A.E. have risen since the onset of the global credit crisis and as the economy slowed. Bank provisions for problem loans in the country surged 36 percent in December from a year earlier to 44.3 billion dirhams, according to central bank data.

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