UAE Central Bank – loans are now transferable

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UAE - Bank loan transfer ban removed
The UAE central bank has removed a ban on commercial banks, related to personal loan transfers. Photo: CBD

The UAE central bank has removed the ban on banks transferring the personal loans of citizens to other banks.

When the UAE central bank studied the practice in greater detail, it banned all such loan transfers for three months. The UAE Banks Federation is currently negotiating with the regulator to remove the ban.

Commercial banks in the UAE view local citizens as attractive customers because of the Emirates’ welfare system and financial support provided by the government. The banks had started a scheme to allow customers to pay off loans from competing institutions and transfer the business to them. However, this sparked an interest-rate war among the banks and mandated intervention by the central banks.

According to the UAE Banks Federation; “Such a decision limits the choices of the customer, and plays against the open-market and the free economy system adopted by the country…(It) gives rise to monopoly and harms and damages the banks’ reputation. It is the customers’ right today to gain from the current interest rates on personal loans, marking 2.8 percent in some banks, due to the strong competition which falls on the customer side.”

Even though the UAE banking system is highly liquid, loan growth in the Emirate remains in the low single digits. Buoyed by high oil prices and strong performance in diverse sectors of the economy, banks are hoping to improve loan growth and persuade customers to take bank loans. As corporate loans are still viewed as risky, these banks are on the hunt for UAE nationals and rich expatriates.

In a move earlier this year, the UAE central bank also limited mortgage loans for foreigners buying residential real estate in the country, to 50 percent of the property’s value. The rule was introduced to protect the UAE’s housing market from overheating and collapsing as occurred in the aftermath of the global financial crisis.

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