People in the UAE are known for their exuberant lifestyles, catching up with latest trends, buying new phones, cars, or designer clothes. Living within the means is something unheard of. But a recent survey has shown that behaviour is changing, and people are becoming more conscious about how they spend their money.
SURVEY OF CHANGE
On average, residents of the country carry more than two cell phones and nearly two credit cards. But changes are seeping into how consumers prioritize their expenses. People are, now borrowing money to meet basic needs, rather than to cater to their glamorous lifestyles.
According to a recent survey by Dunia Finance, 58,000 borrowers showed that emergency cash requirements of UAE consumers tripled in the last three years. Bankruptcy and personal insolvency are on the rise and people are falling into a debt trap by only paying the minimum monthly amount due while interest payments rise on their outstanding credit card balance. “Consumers are more cautious now with less being spent on discretionary items and more money being set aside for emergency needs,” the findings revealed.
Emergency cash loans rose to 15% this year from 5% in 2008. Home loans have declined from 20% in 2008 to just 10% in 2008.
There was an 11% fall on retail spend on clothing, accessories, etc over the last 3 years.? While education loans remain stable at 20 per cent of the credit portfolio of Dunia, loans for new cars declined from 15% to 10%. Used cars, on the other hand were being borrowed more.
“Consumer borrowing has shifted more and more towards basic critical needs. There has been a sharp increase in emergency cash loans as consumers try to meet sudden situations owing to the global financial crisis,” stated Rajeev Kakar, Chief Executive of Dunia Finance.
The lower consumer confidence levels may be due to factors such as job uncertainty, macro stress and economic downturns.”Most financial institutions have stopped long-term lending due to the increased risks involved. This can be evidenced clearly in the sharp decline of home loans over the past three years and the trend is shifting now towards flexible facilities such as credit card, involving loans, overdraft facilities, etc.,” Kakar said.
“At 199.4 cards per 100 people, the UAE has one of the highest penetration of credit cards anywhere on the planet,” Lafferty Group, a UK-based research and advisory firm said in a recent report.
“Unlike the rest of the world, the UAE went through an extended period of crisis ? first with the global crisis, followed by Dubai crisis. The UAE, with a predominantly fragmented expatriate population, is still in early stages of customer sophistication and institutional framework,” Kakar says.
An estimated $7.7 billion (Dh28.27billion) in outstanding credit card debt is owed by GCC consumers, according to new figures from Lafferty. It also added that this is a small amount if compared to their debt exposure. GCC consumers owe an estimated $139 billion in outstanding personal debt, Lafferty data revealed.
“Following contraction in the number of credit cards and billed volume during 2009, the UAE market registered slight growth during 2010. However, credit card receivables continued to decline during 2010,” World Cards Intelligence said in a report.
After the financial crisis, the credit limits and rules under which credit cards are being issued have been tightened resulting in a steep decline in the number of cards being put out there. “However, tougher credit policies have also led to a considerable decline in rollover rates in the UAE and will significantly reduce revenues generated from interest,” it said.
Furthermore, the growth rates in credit cards businesses will be much lower than those leading up to the 2008 financial crisis, the report added.
More than $48.5 billion of the outstanding consumer credit, which includes money owed on mortgages, personal loans and credit cards is accumulated by Saudi Arabia. Saudi Arabian youth are the most indebted in the Middle East, at a figure of 52%. Two thirds of Saudi respondents’ debt was in shape of credit cards.
The latest report by Barclays Wealth Insights showed that 41 % of high networth individuals (HNWIs) wish they had more self-control over their financial behaviour. Greg Davies, Head of Behavioural Finance at Barclays Wealth says: “Many people will be surprised to see that wealthy individuals have a desire for greater financial discipline, however with increased wealth comes an increased complexity of investment decisions. The key thing that investors need to consider is how these decisions might fit in with their overall investment strategy, and importantly, how they fit in with their individual requirements, both financial and emotional.”
The report suggests that there is a need for increased financial discipline among the wealthiest people, where 45 per cent of respondents wish they had more self-control.
Soha Nashaat, CEO of Barclays Wealth, Middle East and North Africa says, “When it comes to financial discipline, there is a desire for greater control when compared with other markets. Clearly, more needs to be done to help clients understand their financial personality and the benefits of using financial self-control strategies.”
Sources: Gulf News