UAE To Cap Credit Card Interest Rate

The UAE’s central bank is reportedly planning to limit credit card interest rate at 18 per cent annually.

The UAE central bank is finalising rules that would cap the interest rate banks charge on credit cards at 18 per cent annually to curb bad loans, Al Khaleej newspaper reported on Tuesday, citing a senior central bank official. The paper said the new rules would be published in February. The central bank officials were not immediately available to comment when Reuters tried to reach them.

Banks in the UAE charge between 27 and 36 per cent a year, much higher than many other Gulf countries, the paper said.

The rate stands at 18 per cent in nearby Qatar and Kuwait, while lenders in Saudi Arabia charge between 19 and 24 per cent.

The global credit crunch of 2008-2009 exposed lending excesses in the UAE where many enjoy lavish lifestyles, splurging on luxury cars and villas.

In November, provisions for non-performing loans at UAE banks reached a record high of Dhs53.2 billion ($14.5 billion), up 20 per cent since the start of 2011, the latest central bank data shows.

The UAE economy shrank 1.6 per cent due to the global financial turmoil in 2009, its worst performance in two decades. Bank lending has remained in low single digits since then with banks hit by a $25 billion debt restructuring of the state-owned Dubai World conglomerate in 2010.

Last December, the central bank said it had approved amendments to liquidity rules for UAE lenders but did not give details.

The exposure of UAE banks to sovereign and private sector debt in crisis-hit Europe is small and their capital adequacy ratio was around 11 per cent, central bank governor Sultan Nasser al-Suweidi said in October.

Foreign bank claims in the Gulf region stood at $323 billion in June 2011, or about 29 per cent of the regional economic output with the UAE showing the highest levels, Deutsche Bank said in a report earlier this month.