UAE struggles with recovering bad debts, number 'could double’ in next few years
Non-performing loans (NPL) in the UAE could double in the next few years on the back of growing credit demand and as banks fail to refine their debt collection strategies, a top executive told Gulf News yesterday.
Manos Margaritis, deputy CEO of Exus, said the level of bad loans in the UAE is still low compared to other markets, but the number could increase and balance sheets could suffer if collection processes are not improved. Exus is a software vendor catering to the needs of the banking industry.
“The NPL in this region is between 1.5 per cent and 10 per cent and the UAE sits in the middle of this range. The numbers seem to be low but there’s no clear indication about the extent to what those loans are covered,” he told Gulf News.
Margaritis, who was in Dubai yesterday to speak at the 9th Annual Middle East Retail Banking Forum, said banks in the country are still having difficulty recovering bad debts and not quite efficient in evaluating the level of indebtedness of borrowers.
“The NPL is only expected to increase as more mortgages are being given and as the market opens up,” he said. “There’s a lot of work to be done in this area. There is no clear overview of the level of indebtedness. There is a gap and difficulty in liquefying and protecting the assets connected to loans.”
Credit rating agency Moody’s Investors Service said late last year that the ongoing recovery of the UAE real estate market and the continued improvements in the banks’ operating environment will lead to a decline in NPL levels and increase profitability.
Banks’ loan loss provisions have declined recently. Abu Dhabi Commercial Bank’s impairment allowances dropped from Dh529 million in the third quarter of 2012 to Dh308 million in the same period last year, while National Bank of Abu Dhabi’s bad debts accounted for 3.32 per cent of the loan book.
Margaritis said the creation of the UAE Credit Bureau is going to help banks ensure they are lending to borrowers who have the capacity to repay. However, debt collection and recovery procedures still need to be improved. “For one, banks need to be careful when choosing outsourced debt collectors. There’s also a lot of work to be done in terms of segmenting the customers. Different collection strategies are required for different types of customers,” he said.
“Banks are not consistent in the way they treat [borrowers]. They should keep in mind that customers have different risk profiles and each of them should be treated differently. For example, for the low-risk customers, there may not be a need to call them consistently. For the medium-risk, you may want to send a polite letter after 10 days and follow it up with a phone call later,” he said.
Preeti Bhambri, founder and managing director of MoneyCamel.com, a personal finance website, said UAE banks are doing better when it comes to chasing defaulters and screening borrowers. “They have put a lot of processes in place to make sure that the customer is eligible to borrow and can be tracked. They have really been choosy on who they’re lending to and careful that the loans are repaid,” Bhambri said.
- Deflation shocks in emerging markets and the GCC currency peg
- Crashing oil: has the time come for GCC countries to tax their citizens?
- Moody indeed: how did Moody's rate the ME's banks for 2015?
- The Middle East's Switzerland? Lebanon's banking secrecy is here to stay
- Precious retirement: why UAE expats are moving their pensions out of the UK