HSBC Eases Lending Criteria

Is the nation finally edging out of a global economic crisis that saw banks literally close their doors on lending? Its a big question, particularly for those of us once used to casually picking up a loan for the latest car who were left stunned when the days of easy credit came to an abrupt, and slightly disconcerting end.
At the time it was necessary. The boom years had seen the UAE's lenders and borrowers overextend themselves, leaving banks with bad loans that had no hope of ever being repaid. In turn, we tightened our belts and braced ourselves for a new era of living within out means.

But there is a glimmer of hope for borrowers, with HSBC announcing new lending criteria for its credit cards, mortgages and personal loans.
While the days of reckless lending are nowhere near returning, the move by the bank makes it slightly easier for those who want to borrow and, more importantly, can afford to borrow.

"The market and credit environment in the UAE has improved and we have made changes to our propositions accordingly to ensure our customers can make use of these products for their borrowing needs," Rick Crossman, HSBC's head of personal financial services, told Personal Finance in an interview this week.
The new measures include lowering the minimum salary requirement for credit cards and personal loans to Dh7,500 from Dh15,000 and reducing the minimum deposit for a mortgage to 20 per cent from 25 per cent.

HSBC's new criteria comes three months after the Central Bank issued new retail banking rules covering personal and car loans with limits capping the amount banks can lend to customers at 20 times their salary and a loan repayment period set at 48 months.

It was a clear message from the authorities that they wanted to strengthen the banking sector by limiting lenders' credit exposure. But perhaps it was also a signal to banks that it was okay to lend again - albeit with stricter criteria.

While this all sounds like good news, the last thing the nation needs is a return to the bad old days of bad loans, but Rupert Connor, a senior financial consultant at Acuma Wealth Management in Dubai, says this won't happen.

"Though this means a greater number of people are going to have access to consumer lending, or at least be considered for it, you are not going to see HSBC open the flood gates to new mortgage applications. Remember, all the banks were burnt very badly not so long ago with their reckless credit offerings, so they are very conscious for this not to happen again."

Other new offers by HSBC include 0 per cent interest on credit-card balance transfers for six months and mortgage rates starting at 5.49 per cent. This is down from the 2010 rate for completed properties of between 6.25 per cent and 6.75 per cent.

So how will this affect the property market?

" If the demand is there then it can only be a good thing," says Mr Connor. But he warns investors eager to get on the UAE property ladder to tread carefully."

"Along with the banks, many individuals were burnt very badly buying on some level in Dubai's real estate market. With career uncertainty, talk of working visa's being shortened to two years, no citizenship qualification and a grey area of legal property rights one must be very savvy when considering buying in the UAE."

"Much like any investment, time must be spent looking at all the variables and ultimately exit strategies.  If you know that you will spending five to10 years living in Dubai then I can see the advantage of applying for finance to buy in the UAE. However, I am far from being convinced that property in the UAE is a sound investment unless you are in a position to be massively speculative, which is how people were so badly burnt at the peak in 2008."

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