Credit Crunch To Hit UAE

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Today's press carry the comments of His Excellency Abdulaziz Al Ghurair, the Chairman of successful local bank Mashreq and also the head of the UAE Banking Federation. This is someone who speaks with remarkable authority on banking and his comments are, indeed remarkable.

Al Ghurair told local media at a roundtable yesterday he believed the UAE retail market was over-borrowed and that the planned introduction of a credit bureau in 2015 would halt lending to consumers.

"Once the credit bureau is applied there will be no lending to anybody for six to 12 months because the banks will find out who's really been borrowing and how much," He's quoted as saying in The National. "They will find out all those people who have four or five credit cards."

That's a remarkable statement - as the country staggers out of the recession and money starts to flow around the economy once again, we're seeing a clear prediction of a massive consumer credit crunch to come. And yet the need for a unified approach to lending in a country where it's commonplace to borrow from several banks because none of them share data is clear. Only with a credit bureau in place could you contemplate replacing the post dated cheque system - a system that desperately needs to be replaced.

For those not living in the UAE - a cheque here is as good as gold. If you bounce one, the bouncee can call the police - it's a criminal offence. In an odd coincidental quirk, The National today also reports on the growing number of bounced cheque offenders in Dubai jail refusing food in order to have their confinement reviewed. One bloke's inside for 25 years for bouncing cheques, which makes 15 years for murder look a bit daft, doesn't it? While that may seem a good thing (the bouncing cheque being taken seriously, not the hunger strike), it's actually a pain.

Taking out a car loan here means writing a cheque for the full amount of the loan so your creditor has the right to have you imprisoned if you default. Rentals of houses are paid in, typically, one to four cheques per annum (four being depressingly rare these days). Post-dated cheques in the UAE remain a common form of payment in a world where many banking systems are no longer using cheques at all - or phasing them out. A credit bureau would effectively remove the need for securitising loans by holding a criminal offence over people's heads.

I suppose what's most surprising about Al Ghurair's remarks is their candour. Everyone has known for years that there are no controls on bank lending. Any discussion on lending in the UAE has always carried a distinctive whiff of elephant. He makes a valid point - when banks find out how much they're all lending to the same people, there's going to be a lot of howling and gnashing of teeth - and a consequent howl of pain from those used to getting easy money from banks.

But in the long run, there would seem to be little choice. Luckily, given he's a banker, Al Ghurair seems to be on the money...