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Mon 13 Jan 2014 01:15 PM

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Former bank CEO blames 'reckless' customers, not banks, for debt crisis

Retired NBAD boss Michael Tomalin says banks are doing 'the right thing' and over-stretched customers are 'not the bank’s problem'

Former bank CEO blames 'reckless' customers, not banks, for debt crisis

The former CEO of a top UAE bank has criticised customers for being “reckless” in their borrowing, while banks are doing “the right thing”.

Michael Tomalin, who recently retired as CEO of the National Bank of Abu Dhabi (NBAD) after 14 years, said banks were not responsible for customers who over-borrowed because they could not access the customers’ lending history.

“Individuals are being reckless by over-borrowing, not banks,” he told Arabian Business in an exclusive interview published in full in the January 12-18 edition of the magazine.

“It’s not the bank’s problem; it’s the individual’s problem. Each bank is doing the sensible thing but can’t see what’s going on with that guy/girl banking somewhere else.”

The planned national credit bureau would help limit customers’ ability to “bank shop” and overstretch themselves by taking out loans at numerous financial institutions, Tomalin, who is now an executive member of the NBAD board, said.

“When the credit bureau is in the perfect state and all the banks participate it will make a big difference because it will allow [banks] to take credit checks before granting credit, so that will make the decision making much easier.

“It will also bring the price of credit down, because if somebody has a very good record then banks will be happy to do it.

“My concern is its going to take quite a while to get to that perfection; all the banks have got to participate, all the names have got to be in the right order, you’ve got to reference everybody through numbers, so getting into that perfect state is going to take a while.”

The credit bureau is due to be launched by the end of March after a six-month delay and will be operated by Al Etihad Credit Bureau, a federal government company specialising in providing UAE-based credit reports and other financial information.

AECB said earlier this month it had approached all UAE-based banks to sign agreements and provide credit information by the end of January.

Banks in the UAE presently are unable to access data on consumers at other financial institutions when making a lending decision, which has led to residents borrowing from multiple lenders and running up huge personal debts impossible to repay.

Defaulting on debt is a criminal, rather than a civil, offence in the UAE, with those unable to meet repayments facing jail sentences.

During the financial crisis, many expatriates with large debts left the country without repaying their loans.

Personal borrowing is on the rise again – with the total value of personal loans taken out in the first five months of 2013 equal to all of 2012.

But Tomalin, known for his conservative lending approach, said he was “not too concerned about that yet”.

“There’s a correction going on. We had asset growth in the banking system over much of the time that I was there, 10-15 percent a year across the system [but] over the last few years the asset growth was actually quite low, maybe 2, 3, 4 percent, in fact, in some periods it’s been flat - negative.

“We’ve seen a recovery in the property prices [and] when people see their personal circumstances improve they tend to spend some more, but the Dubai economy is [also] picking up, a lot of people are coming into the country and when they come into the country they will use credit and they need to have banking services.

“I think it’s great that the economy is now growing at 4 percent so with inflation you’d expect the bank market to grow probably 6, 7, 8 percent in asset terms a year so it’s going to look fast relative to the rather pedestrian pace we’ve had over the last 2-3 years, but not that fast compared to the growth that we had 6 or 7 years previously.”

During a broad interview, Tomalin also called for the issuing of a bounced cheques to be decriminalised, arguing banks’ use of security cheques was archaic.

He also said it was “a pity” the UAE Central Bank had thought it necessary to introduce a mortgage cap at the end of last year.

“I think there can be some general rules and regulations or limitations that banks would find acceptable but the numbers have got to be sensible,” he said.

“To find that right balance is something that ultimately bankers should decide.”

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Mark Williams 6 years ago

You know it's attitudes like this from people like this that make me thoroughly sick! I took a pre emi loan for an off palm property prior to the 2008 crash and was left paying interest for 4 years to the tune of over 300k aed. The bank in question ADCB ignored the fact that the property was not being built and carried on just taking for me which almost crippled me. Does he not even care about the aggressive marketing and sales tactics aimed at clients from banks enticing those people into debt. Double standards of the worst kind. Debt controls and makes banks millions, don't forget that Mr Tomalin. Banks and you bank have profited massively from debt.

glb 6 years ago

Well when banks can make laws that prohibit gainfully employed people with the capacity to service the loans, and insured to cover the loan amount from taking a loan based purely on their age ( over 58) , to blame recklessness on the consumer is just as ludicrous.
The profits banks make at the expense of people here from situations beyond the consumer control is just as ridiculous - when the consumer is controlled by the sponsor - who is paying his wage monthly - if the sponsor defaults or is late - then it is the consumer who has to pay - through the nose usually.

There should be non-performance clauses in the loan terms to cover for situations that people find themselves in all too often here

Lauren Bailey 6 years ago

When you can't access someone's lending history why would you extend borrowing to them? Also, why would even extend excessive amounts of capital to someone when you cannot access their history.

Sal 6 years ago

@Mark Williams, well said. You are not the only one, there are many who was ruined, jailed or even killed themselves because of the loans. When will we have a fair legal system to take care of consumer too.

Sal 6 years ago

glb, I agree with you completely.
The banks were selling loans left and right using recklessly recruited agent who called up many and thrust the loan upon them and many just taken it as an advantage and got into trouble. No one can blame the consumer, it is totally baseless. I don't understand why a person at his statue make statement like this.

Sole 6 years ago

Its always easy to blame the weak party ,

Instead of criticizing the victim why don’t we hear Mr. Tomaline advices and encourage his ex-bank and other financial institutes to consider working in a way that respect article 11 of international covenant for civil rights , instead of lobbying with real estate tycoons to prevent the government from passing insolvency law or waiving the middle age draconian laws of criminalizing bounced cheques ?

If you consider yourself real CEO or Leader , Isn’t better to initiate then follow ? or at least be honest and try to be or practice the change that you want to see in the world ?

Concerend banker 6 years ago

I work in a bank, and this is not totally correct, all bank reports all loans that are Over 250,000 to Central bank, and any bank can access an automated system to get that information, yes there is no information about the bank name, or details on the loan, but it is all there.

if a person took a 200,000 form 10 banks , it's big for the person , but not that big for the bank , and let’s face it the biggest problem was not the small loans but the multimillion loans that was given to Companies , and they should have audited financials that include all the borrowing , hence I do not agree with the statement , that was stated , sorry you need to know the facts about your business before talking bla bla bla, and you are the seasoned banker. Really

Iftikhar 6 years ago

How many times sales guys from bank contact people and ask them to buy products which customers do not need? Haven't you experienced sales guys requesting you not to mention your other credit cards while confirming applications?

I believe banks here are more reckless than customers. With majority of banks having outsourced their SALES function, this is inevitable. Sales teams' interests are not aligned with that of bank they represent. Blaming it on customers means avoiding facts.

Geko 6 years ago

Straight forward and courageous should raise up while on service. Does everything to raise that incentive cheque and preach after retirement, we have different name for it.

Expat from Reasonland 6 years ago

The absence of a credit score for individuals is irrelevant in this case when the major issue plaguing the sector stemmed from the corporate side. The due diligence of corporate clients is entirely the prerogative of the lender. Even in the case of individual clients, the banks must have access to the client's degree of indebtedness simply by virtue of the existence of a regulator. Lack of risk management is never the client's fault.
These are very strange statements from Mr. Tomalin.