UAE loan transfer ban ‘conditionally’ lifted

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In a fresh development, the central bank of United Arab Emirates has agreed to conditionally remove a UAE loan transfer ban on personal loan transfers between the various UAE banks.

UAE Central Bank
UAE Central Bank. Image courtesy.

The central bank imposed a three month ban on the transfer of loans from one institution to the other. However, the association of banks had aggressively lobbied for a relaxation of the ban. The ban has now been conditionally relaxed, relating to the extension of personal loans, the size of each loan relative to the borrower’s income, and a maximum 48-month maturity for loans. The conditions are aimed at curbing abuse of the loan transfer facility and to better regulate loan transfers.

The move by central bank highlights the growing influence of the UAE Banks Federation, the representative body for banks in the UAE. During the past 18 months, the body has successfully lobbied the central bank to suspend or modify several plans to regulate the Emirate’s banking sector. It has been able to influence central bank decisions on planned caps on mortgage lending and bank exposure to government-linked debt.

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. This sparked an interest rate war among the banks which required intervention by the central banks.

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 on 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 wealthy expatriates.

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