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Sun 1 Apr 2007 12:00 AM

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Banks losing out in bad debt battle

Major banks and their credit card operations in the UAE are losing as much as 8% in annual revenues due to a rising number of ‘skips' - customers that flee the country leaving a trail of bad debt behind - according to the CEO of RAK Bank.

Major banks and their credit card operations in the UAE are losing as much as 8% in annual revenues due to a rising number of ‘skips' - customers that flee the country leaving a trail of bad debt behind - according to the CEO of RAK Bank. In an exclusive interview, Graham Honeybill, chief executive at RAK Bank since 1996, told
Arabian Business

that "rising inflation" and a "fluid market", particularly in Dubai, are contributing to rising cases of low-income workers "skipping" the country after racking up large amounts of credit card debts.

"Previously skips were not an issue for us, but in a fantastically fluid environment people come in and out as they want. Over the last year we've seen an increase in the number of skips and that is down to the economic conditions in Dubai, generally in the lower salary levels," he said.

"We've noticed growing instances of bad debt and customers leaving in the below AED4000 [US$1090] salary level, and this is also common with our competitors. Credit card companies are losing up to 8% but it varies between banks." Honeybill added that if an institution goes into the ‘non sub-prime' (non-bank customers) sector it gives people the opportunity to skip the country, his own bank catering for 80% of non-bank customers. "There is no security, no salary coming in, no credit profile for non-bank customers and you're taking quite a risk. Ourselves and our competitors know that a lot of these people tend to skip the country and leave their debt behind, but there is no credit reference bureau to take care of a growing problem facing the industry," he said.

A federal credit regulator backed by the Central Bank, however, is set to open its doors to financial institutions in Dubai in the coming months allowing a large proportion of bad debt to be eliminated from the Emirates' banking sector. This follows the launch of Emcredit last year. 100% owned by the Department of Economic Development, it aims to target several banks and credit providing organisations.

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