Al Etihad Credit Bureau bylaws made official

The bureau intends to create a database of the credit history of all retail borrowers to enable banks to build an accurate picture of a potential borrower’s indebtedness. Silvia Razgova / The National

The UAE has given its seal of approval for a nationwide credit bureau to help banks assess the ability of their clients to pay back debt.

Sheikh Mohammed bin Rashid, Vice President of the UAE and Ruler of Dubai, ratified resolution No 16, which will pave the way for the bureau to officially start operating, The National's sister Arabic-language newspaper, Al Ittihad, reported.

Even before the official publication of the bylaws, Al Etihad Credit Bureau had already started to ask banks to submit financial data and is collecting information from lenders. The rules include limiting requests, collection, storage, analysis, using and exchanging credit information or issuing a credit report to the credit bureau, Al Ittihad reported.

Bankers say that the bureau is likely to be good for consumers, as the most creditworthy bank customers will get better interest rates.

“In the long run it is positive because banks will be able to see if their clients have other credit lines elsewhere,” said Jaap Meijer, a bank analyst at the Dubai-based investment bank Arqaam. “In the short term, however, it may lead to an increase in provisions banks set aside for bad loans if they see their clients have loans elsewhere. Banks, however, would be more willing to give better rates to good clients over time.”

The cost of financing in the UAE is hovering at lows of at least eight years. This has spurred a boom in borrowing, and authorities are keen to prevent credit growth from spiralling out of control from such initiatives.

The bureau intends to create a database of the credit history of all retail borrowers to enable banks to build an accurate picture of a potential borrower’s indebtedness, allowing them to assess his or her ability to honour the debt. At the moment, banks cannot check the credit history of customers relating to other lenders.

Experiences in other countries show credit bureaus can help to stop individuals with a poor credit history from amassing further debt, while easing the flow of credit to those able to repay loans. Banks benefit by generally not having to build such large provisions against the risk of defaults.

A federal law was passed in 2010 to establish the bureau, but moves to create the institution have only stepped up in recent months. The bureau’s chief executive, Marwan Lutfi, a former Dubai International Financial Centre official, has overseen a security audit of the system to ensure the efficient roll-out of the bureau’s services and the signing of agreements with all financial institutions requiring them to submit credit data to the bureau.

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