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Heavy handling—UAE’s new lending rules pit banks against dealers

Heavy handling—UAE’s new lending rules pit banks against dealers

Even the most well-intentioned regulation can still have its drawback. When it comes to the new loan regulations, Precious de Leon thinks it’s time for a rethink.

August 21, 2011 3:35 by

Last week, Kipp was in an interesting conversation with an acquaintance who works in the banking sector. Over an Iftar spread, he said that while the Central Bank’s intentions are in the right place when it came to implementing the new lending regulations, it isn’t doing as much good now as it would have done three years ago when everything was just about to blow over.

Kipp recalled this conversation when we read an article in The National about ADCB planning to blacklist car dealers that try to find their way around the Central Bank’s new loan rules.

While the centre of our banker-friend’s argument is rooted on the fact that the new regulations are hindering the much-needed circulation of money through loan interest and profits, Kipp is reminded of this conversation mostly for two things: (1) the lack of financial awareness and education in the community and (2) that, the although the regulations have been put in place to protect consumers, in some cases, it has unintentionally aided in getting consumers even deeper in debt.

It seems like there’s a growing number of car buyers who are either opting to avail of a personal loan or maxing out their credit cards to pay for the newly-implemented 20 percent down payment to purchase a vehicle. Add this down payment/credit to that the car loan to actually buy the car and you’ve got an extremely lethal financial combination.

This deepening hole of debt is one of the reasons, Al Futtaim Motors, says it has come up with their ‘innovative’ payment schemes. The car dealer staunchly defends its payment scheme that enables customers to buy the car without the newly mandatory 20 percent down payment, allowing them instead to pay in 24-month installments.

According to the article, Al Futtaim Motors sees this scheme as a way to prevent buyers from incurring further debt.

Anyway, Kipp is sure that the Central Bank would have spoken to the local and regional banks, financial services, brand owners and retailers about the new regulations before it was implemented, of course. And that’s way why everyone is in agreement that it is the best way forward, right? Right?

In our humble opinion, while we agree that the companies need to follow the Central Bank’s guidelines, we wonder what the Central Bank will do to banks that continue to irresponsibly give out personal loans. We also wonder if there will be any action towards getting people to understand that two wrongs (in this case getting multiple loans for a set of wheels) can’t possibly be right.

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  1. Ashok Kapur on October 9, 2011 8:13 am

    Reference the above excellent and tinely article by Kipp. Their last paragraph is very apt indeed. Such lending activities in Dubai, UAE continues unabated and thus the observation below stills holds good. Shareholders certainly need to wake up.

    ashok kapur
    Saturday, 30 July 2011 10:16 AM – UAE
    While it is a good and timely strategy to relocate the African business, the matter of fact is that the Barclays franchise has suffered a lot in their UAE operations since the last 18 months. The bank continues to extend loans, undertake restructuring, extending repayment dates, etc to various business groups in Dubai and thereby aiding in increasing in the banks’ non performing assets month on month. It is high time that the shareholders in London take a deep dive into the operations and business mechanism of their UAE corporate book. It is a well known fact in Dubai business circles that the Barclays lenders will accommodate any business request (for a consideration) not withstanding the poor loan servicing and repayment capacity of the borrower. This has led to a huge credibility issue of the bank and the franchise is suffering. The lenders sitting in Dubai (top to bottom) follow a hidden agenda and do not worry about the franchise.

  2. abc on October 9, 2011 8:18 am

    Nice wake up call.

  3. mukesh on November 26, 2011 8:08 pm

    Loan change and rates are important to change with changing times. One must do complete analysis of different banks and offers before taking up any instrument. A wrong move can ruin life savings


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