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Dubai: The UAE Central Bank is considering new regulations to curb personal loans and bank lending to small businesses, according to banking industry sources.
"The central bank is concerned about the reports of use of leverage by individuals and small businesses in real estate transactions. There are talks of a tightening of regulations," said the retail banking head of a local bank.
Under the existing rules, UAE nationals and expatriates can obtain a personal loan of up to Dh250,000 while UAE nationals can avail themselves of loans up to Dh2 million if they own a business. Besides these, there are a number of retail credit channels such as credit cards, overdraft facilities and short-term cash advances.
According to data from the UAE Central Bank, consumer loans have soared more than 55 per cent since the end of 2006. Loans to individuals rose to Dh49 billion at the end of last March, compared with Dh31 billion in Dec-ember 2006. Strong appreciation in real estate prices has encouraged the practice of using personal loans for real estate investments, according to a report by Al Mal Capital, a regional investment bank.
"There could be cases where individuals are over-leveraging. We support initiatives such as a credit bureau and finer regulations to curb such eventualities," Yousuf Nasr, CEO of HSBC Bank Middle East, told Gulf News in a recent interview.
Apart from checking delinquencies, the central bank is keen to curb surging money supply and inflation. "We expect a further acceleration in the UAE's money supply growth in 2008 as real interest rates remain strongly negative," said a recent report from EFG Hermes.
Analysts said Kuwait's success in controlling money supply through control on lending could be emulated by other central banks. Kuwait in March restricted companies from trading in residential properties.
These measures pushed money supply growth down to 18 per cent in June from 23 per cent in May.
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