A few years ago, I interviewed a Dubai-based expat working in property sales, who had found himself $42,000 in debt after taking out a series of personal loans and credit cards.
“My mobile rings so often that I have separate rechargers in my home, in my office and in the car,” he told me. “I had 40 calls from a local bank yesterday. And that’s about seven people from just one bank — they don’t seem to be able to coordinate who is speaking to who. The pressure is incredible — it gets right into your mind.”
The figures back in 2010 were alarming. According to Lafferty, outstanding consumer credit in the Gulf reached an estimated $139bn, an 80 percent rise on the same figure eight years earlier. Credit card debt had reached $7.8bn, up from just $1.7bn in 2003.
What’s alarming to note is that little appears to have changed in the last three years. Along with rising property prices, jam-packed roads and bumper megaprojects in the offing, the issue of personal debt brings memories of the pre-2008 boom.
A study by Strategic Analysis, published last week, shows that consumer debt in the UAE alone has reached $95,000 per household, or $114bn in total. The country represents two thirds (67 percent) of the Gulf’s household debt. Just under half of those polled by the firm said that their monthly income was not enough to cover their repayment obligations, while 60 percent said that a quarter or more of their salary was spent on paying back debt.
There’s a far more serious aspect to all of this, particularly within the Indian expatriate community. K V Shamsudeen, who established the Pravasi Bandhu Welfare Trust, which helps low and middle income non-resident Indians in the GCC, says that around eight percent of all Indian deaths in the Gulf are suicides as a result of bad debt.
Commenting on our website last week, Shamsudeen wrote: “I have came across expatriates who had more than ten credit cards and loans from more than half a dozen banks, mainly because they are taking loans from wherever they can, and when lenders start pressuring them, they could not manage it, then end up committing suicide.”
Responsibility must rest with the person who took out the loan, but the banks have certainly made it easy for them to do so. The Strategic Analysis study put the blame for much of this spending binge on lax lending conditions for consumers in the boom years leading up to the financial crisis. The Kuwaiti parliament this year approved a $2.6bn relief scheme for loans issued before 2008, while the UAE in 2011 set aside $2.7bn to clear defaulted debt.
It’s fair to say that local authorities have taken some steps to clamp down on the issue. Back in 2011, the UAE central bank capped personal loans at 20 times the monthly salary of the borrower. But last week, a central bank official has said that many banks in the UAE are violating those personal loan regulations introduced two years ago, but freely admitted that the regulator had no authority to punish lenders for infractions.
There are also restrictions on cold-calling, although I’m not sure lenders pay much more than lip-service to these regulations. My own bank calls me about once a week, not to offer me a personal loan, but to push a cash advance of up to 70 percent on my credit card, which would probably equate to costing me far more in interest payments.
You now have to pay 20 percent of the cost of a new car upfront — although salesmen have tended to find ways to get round this. The much-discussed mortgage cap is currently being updated. The country’s first credit bureau is slowly, slowly grinding into gear.
These moves are all well and good, but consumer lending has shot up again this year. Loans taken out in the first five months have already matched the total for 2012. There have been a lot of lessons learnt in the last four years or so, but handling consumer debt does not appear to be one of them.
Ed Attwood is the Editor of Arabian Business.