Emirates NBD to use work gratuity as collateral against bank loans

Customers can borrow up to 90 percent of severance pay under loan plan, says lender
Emirates NBD is Dubais largest bank by market value
By Gavin Davids
Mon 20 Dec 2010 06:07 PM

Emirates NBD, Dubai's largest bank by market value, on Monday said it plans to offer personal loans that will be underwritten by customers’ end-of-contract employment gratuity.

Customers will be able to borrow up to 90 percent of their gratuity, with a minimum loan amount of AED10,000 ($2,722), on the premise that their severance pay is used as collateral, the bank said.

“ [It] allows customers in the medium and lower salary range to avail of personal loans… by considering the end-of-service-benefit amount as collateral against which the customer can take the loan,” said Shekhar Krishnamurthy, the bank’s head of retail assets and liabilities, in a statement.

“Loan amounts cannot exceed the total benefit amount due.”

Under UAE law, employers are required to pay end-of-contract gratuities to staff, the amount of which is dependent on the length of the employment contract.

The gratuity was initially intended to compensate for the lack of a government pension scheme for expatriate workers residing in the country.

Applicants must be salaried customers of the bank and earn a minimum of AED5,000 a month to be eligible, the bank said.

It is thought to be the first UAE lender to offer a loan plan underwritten by gratuities.

Emirates NBD said in October that its third-quarter profit tumbled 60 percent after a spike in bad loans and a provision for its exposure to debt laden conglomerate Dubai World.

The lender booked nearly $816.7m in impairment allowances in the first nine months of 2010.

 

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