Clampdown on bank charges

Banking customers to see major changes as Central Bank issues new rules on everything from account fees to personal loan limits.

Using a credit card or cashing a cheque is expected to become cheaper under new Central Bank rules designed to restrict fees and commissions charged by high street banks.

Banks will also not be allowed to charge fees for opening a new account or leaving one dormant, while the cost of closing an account within a year of opening it will be capped at Dh100 (US$27.20).

The cost of taking out a personal loan will also change, with the charge pegged to a borrower's income.

"This is one step to establishing proper standards in the industry," said Dr Mohammed al Waqfi, an assistant professor with the College of Business and Economics at UAE University.

But experts say that more needs to be done in the short term to relieve the heavy debt burdens carried by many consumers in the region.

Between 65 and 75 per cent of residents in the UAE, and up to 85 per cent of those living in Dubai, are still in debt, according to data from the International Swiss Debt Management Consultancy (ISDMC), a credit counselling and debt management firm serving the Middle East.

The new rules are expected to "lighten the debt load which consumers are currently carrying, which is compounded by a lot of hidden charges", said Yohannes Mazeingia, a managing director at ISDMC.

"But the most pressing thing that would benefit the consumer at this time is for banks to be more flexible in arranging a structured payment instalment that is affordable for individuals," he said.

Even under the new rules, borrowers can take out a personal loan at 20 times their monthly salary. And banks will be able to set repayment instalments for those loans as high as 50 per cent of a worker's gross salary, or 30 per cent of a customer's pension if they are retired. Experts argue these instalments may still be too high, particularly because the UAE lacks a proper credit reporting system that would allow banks to make multiple loans to a borrower and set appropriate repayment plans.

"The main problem is people are in debt, and banks need to be more flexible in arranging more affordable instalments," said Mr Mazeingia.

Yet the new regulations should also make it easier for consumers to take out a loan when they need one and can afford to pay it back, which became difficult during the credit crisis.

In 2009, some UAE banks were reportedly losing up to 2,500 customers a month who fled the country without paying off their credit card bills. "Many people took out a loan, quit their job then ran away," said Dr al Waqfi. "Control on these issues is needed so that banks will be able to distinguish between people who are reliable and people who are not."

The changes may also affect the way customers perceive their banks. Last month, a study from Ernst & Young found that 25 per cent of retail banking customers in the GCC plan to switch banks this year, while another 10 per cent said they had already switched because of dissatisfaction.