The United Arab Emirates’ central bank has told lenders to extend maturities on certain personal loans held by UAE citizens by more than four years, the latest initiative aimed at reducing their debt burdens.
In a circular sent to banks earlier this week, the regulator told banks to reschedule citizens’ loans by more than 48 months if the repayment exceeds 50 per cent of gross salary and other income.
The loans can be rescheduled provided no fresh money is borrowed, the circular added.
Banks were also told to segregate personal loans used to buy real estate, with the borrower’s consent, and set them up as separate loans. Payments on those should also not exceed 50 per cent of the total salary.
The UAE has taken a raft of steps to help citizens carrying high debt burdens. In May, it announced plans to settle defaulted loans owed by its citizens – up to $1.36 million each – after a presidential decree, in the second such move this year.
UAE citizens took out massive personal loans during the boom years between 2003 to 2008 but found themselves struggling to repay debt after the global financial crisis and property downturn across much of the country.
The central bank has brought in new regulations on personal lending by banks in the UAE, fuelled by concerns over the debts individuals were taking on.
In May 2011, the central bank capped personal borrowing at 20-times an individual’s monthly salary, with monthly repayments also capped at 50 per cent of an individual’s salary and regular income. Personal loans could have a maximum tenor of four years.
This year, it also capped the interest rate banks charge on credit cards at 18 per cent annually. Banks in the UAE previously charged between 27 per cent and 36 per cent a year, much higher than many other Gulf Arab states.