LENDERS ORDERED TO RUN CREDIT CHECKS ON CUSTOMERS

▶ Central Bank issues new rules to guarantee a person’s creditworthiness and encourage responsible lending

Banks in the UAE must carry out a credit check on customers before issuing a chequebook, according to a new circular sent to financial institutions by the Central Bank.

The Central Bank said it issued the circular as part of its efforts “to improve responsible lending practices by banks”.

“Before issuing customers with chequebooks, banks are now required to carry out checks with the Al Etihad Credit Bureau to ensure the creditworthiness of their customers,” the Central Bank said yesterday.

The Central Bank also said any chequebooks issued to new customers must only contain a maximum of 10 individual cheques.

The UAE has ramped up its efforts to curb irresponsible lending in recent years. The credit bureau opened in November 2014 to bring transparency to the lending industry by assembling a credit record of the nation’s financially active residents using data from banks as well as telecoms and utility companies.

Last month, the credit bureau rolled out its mobile and online service so borrowers can access their credit report digitally.

In July state news agency Wam reported that fewer bad cheques had been intercepted by the UAE Clearing Cheque System in the first five months of the year compared with the same period in 2017 and 2016.

The total number of bounced cheques handled by the UAE Clearing Cheque System during the first five months of 2018, according to Central Bank data, came to 515,000 with an approximate value of Dh26.2 billion. This represented 31,000 fewer cheques compared with the same period last year.

The Central Bank circular said lenders must also advise their customers that cheques that bounce due to insufficient funds will be recorded with the credit bureau and will negatively affect customer creditworthiness.

“Banks have been also encouraged to advise their customers to minimise the use of cheques and consider other payment methods (such as direct debits and bank transfers) where possible,” the Central Bank circular said.

Last month a Central Bank circular sent to lenders said UAE residents must submit their Emirates ID to banks or risk the suspension of their debit and credit cards.

The note urged banks and finance companies to ensure customers update their records by February 28, 2019 to avoid repercussions. The ruling applies to customers who have not already handed in identity documents.

According to Marwan Lutfi, the chief executive of AECB, there are 6.5 million credit facilities such as loans, credit cards, mortgages and overdrafts in the UAE. While 4.5 million residents and 200,000 companies are listed in the bureau’s database. Mr Lutfi told The National last month there are about 3 million active borrowers.

With 71 financial and nonfinancial companies supplying data tothe credit bureau, Mr Lutfi said its reach will only grow further as more organisations report to the bureau.

Last month he said in future, the credit bureau will include court data, rents and even salaries in its credit reports, to ensure a resident’s payment obligations are fully transparent to lenders.