UAE banks warned against loan instalment hikes

The interest rate on loans and ban financing to customers has risen 87 basis points since January
UAE banks warned against loan instalment hikes
The UAE Central Bank said that violations by banks would be “dealt with” in accordance with the Central Bank’s regulations. Photo by Tom DulatGetty Images
By Bernd Debusmann Jr
Wed 24 Oct 2018 11:24 AM

UAE banks should not deduct more than 50 percent of the salary to pay personal loan instalments to bank customers in the country, according to the country's Central Bank.

In a statement to the Arabic-language Al-Ittihad newspaper, the Central Bank said that violations by banks would be “dealt with” in accordance with the Central Bank’s regulations.

Customers cited by the newspaper reported that 60 percent of the total value of their salary or fixed income was being deducted to pay monthly instalments to repay banks.

The Al-Ittihad story said the interest rate on loans and bank financing to customers has risen by 87 basis points since January, while the EIBOR (Emirates Interbank Offered Rate – the benchmarked interest rate for lending between UAE banks) stands at 3.475 percent, compared with 2.6 percent at the beginning of the year.

“The value of the monthly instalment that was paid until the beginning of this year was AED 18,500 to pay a 20-year residential loan at a rate of 4 percent, but the lender had raised the interest rate six months ago,” a Ras Al Khaimah resident is quoted as saying, adding that the bank recently informed him that the interest rate of his loan had increase to 4.99 percent, meaning that monthly instalments would increase by more than AED 1,300.

The credit portfolio of UAE banks stood at AED 1.633 trillion at the end of August 2018, according to the newspaper.

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