UAE plans to cap interest rates on credit cards

Gulf state to curb interest rates banks can charge consumers in push to curb bad loans
UAE plans to cap interest rates on credit cards
The UAE saw lending excesses in the oil-boom years to late-2008
By Reuters
Tue 31 Jan 2012 12:24 PM

The UAE central bank is finalising rules that would cap the
interest rate banks charge
on credit cards at 18 percent annually to curb bad
loans, Al Khaleej newspaper reported on Tuesday, citing a senior central bank
official.

The paper said the new rules will be published in February.
The central bank officials were not immediately available to comment.

Banks in the UAE, one of the world's top five oil exporters,
charge between 27 and 36 percent a year, much higher than many other Gulf Arab
countries, the paper said.

The rate stands at 18 percent in nearby Qatar and Kuwait,
while lenders in Saudi Arabia charge between 19 and 24 percent.

The global credit crunch of 2008-2009 exposed lending
excesses in the UAE where many enjoy lavish lifestyles, splurging tax-free pay
on luxury cars and villas.

In November, provisions for non-performing loans at UAE
banks reached a record high of AED53.2bn ($14.5bn), up 20 percent since the
start of 2011, the latest central bank data shows.

The UAE economy shrank 1.6 percent due to the global
financial turmoil in 2009, its worst performance in two decades, as oil prices
plunged and a local property bubble burst, straining banks.

Bank lending has remained in low single digits since then
with banks hit by a $25bn debt restructuring of the state-owned Dubai World
conglomerate in 2010.

Last December, the central bank said it had approved
amendments to liquidity rules for UAE lenders but did not give details.

The exposure of UAE banks to sovereign and private sector
debt in crisis-hit Europe is small and their capital adequacy ratio was around
11 percent, Central Bank Governor Sultan Nasser al-Suweidi said in October.

Foreign bank claims in the Gulf Arab region stood at $323bn in
June 2011, or about 29 percent of the regional economic output with the UAE
showing the highest levels, Deutsche Bank said in a report earlier this month.

Analysts polled in December expected the $297bn UAE economy
to expand by 3.9 percent in 2011, before slowing down to 3.1 percent this year
on a weaker global growth.

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