Mashreq says customer debts will stop bank lending

12 September 2013

Consumer spending will slow as indebted population forced to pay-off their loans

Banks in the UAE will stop lending to overleveraged retail customers for a period of six-12 months as a result of the introduction of a credit bureau, which could lead to a slowdown in consumer spending, according to Abdulaziz al-Ghurair, chief executive of Mashreq.

A trial launch of the Al-Etihad Credit Bureau started earlier in 2013 with 12 banks covering about 80 per cent of the market. By 2015 the bureau will be fully implemented. “Once the credit bureau goes live there will be consequences,” says Al-Ghurair. “Banks will stop lending as they discover every single customer is over-borrowed.”

He adds, “For six-12 months there will be almost zero lending to existing borrowers and everybody will have to save money to repay the banks.”

The expected drop in lending will have an impact on the economy, says Al-Ghurair. “Definitely on the consumer side there will be less consumption. Consumer spending will slow down.” He adds, “That is the cost of adjustment.”

Al-Ghurair is more optimistic about the shorter term, and expects profit at the bank to rise by about 40 per cent in 2013. He said he expects profits across the UAE banking sector to grow by around 20 per cent, but added, “We are outperforming the market.” The growing economy and healthy corporates are helping to drive growth in bank profits. “Provisions for Mashreq and other banks are also going down,” says Al-Ghurair.

Mashreq would have a look at the planned sale of the UK’s Barclays retail banking assets in the UAE, Al-Ghurair added.

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