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Sat 25 Aug 2007 12:00 AM

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Standard Chartered urges government to act on bad debt

Official says government should 'take the initiative' to stem rising tide of bad debt in the UAE.

The government should "take the initiative" and bring the industry together to stem the rising tide of bad debt in the UAE, a senior figure at Standard Chartered bank has urged.

Shayne Nelson, regional CEO for the Middle East and North Africa, told Arabian Business: "The industry needs to come together and discuss how we approach this [increasing levels of bad debt]. I'd like to see initiative from the government to push this forward."

The Emirates Credit Information Company, or Emcredit, is currently the UAE's only independent provider of business information products. However, only nine out of 53 banks in the Emirates have so far signed up, or are in the latter stages of its lengthy membership process, since the bureau launched in November last year.

Nelson admitted that Standard Chartered had no plans to join Emcredit but added that to tackle the problem of bad debt a country has to "start somewhere".

Banks in the UAE remain cautious about joining Emcredit. The UAE's first credit bureau is a private organisation and not affiliated to the UAE Central Bank leaving large financial institutions nervous about sharing data, as well as committing to joining a body that has no ties to the Emirates' banking regulator.

Nelson told Arabian Business that Standard Chartered had been through some "rollercoaster rides" with credit cards in Hong Kong, Korea and Taiwan and that it did not want to repeat this in one of its key emerging markets.

He added that the solution could lie in creating a blend of a positive and negative credit bureaus - one that lists all a client's liabilities, loans and repayment history, but one that also records bad debt and clamps down on over-committed customers.

"When you have a positive credit bureau the industry can self-regulate, say ‘he's too over committed', and see what he's got," he said.

"Often when our applicants come to us they don't fully declare what their liabilities are. The positive bureau allows the industry to self-regulate around what someone's income is, what their liabilities are and their cash flow requirements to service those. But you have to use it and use it properly," Nelson added.

An Emcredit spokeswoman said that the bureau's first product, Embounce, a joint venture between the bureau and the Dubai Police to tackle bounced cheques, would "go live" at the end of this month. An estimated 40% of the UAE's prisoners are incarcerated due to severe levels of bad debt.

She added that the bureau would provide banks, financial institutions and businesses with data on individuals and companies whose cheques have bounced and enable them to recover the funds.

Due to non-disclosure agreements between Emcredit members she refused to reveal which banks had joined the bureau, but said that Emcredit's first phase strategy to enlist the 10 to 12 banks within the UAE that hold 80% of the country's credit portfolio was "well underway".

"The response from banks has been encouraging and is getting better each day. Nine financial institutions are in the membership process with Emcredit, some are in advanced stages of data submission. Seven of these are among the top 12 banks," the spokeswoman revealed.

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