The Al Etihad Credit Bureau, which was officially launched in September, is the result of many months of planning and data collection. It brings together, for the very first time in one place,two years’ worth of information about the credit history and repayment record of each individual with a bank account in the UAE.
The UAE Banks Federation has played an active role in this process through the banks working group direct involvement with the bureau, and both in encouraging its member banks to co-operate with the Credit Bureau, and in discussing and resolving issues that have emerged just before initial phase of the project has reached completion.
The word on the street is that a credit bureau benefits only the banks. It does benefit them, that is true; but it benefits customers and the economy even more.
Banks have a much clearer line of sight about the creditworthiness and repayment performance of their customers because of the information they will now have access to. This means that they can be more confident about the ability of their customers to fulfil their repayment obligations. But customers will benefit because this should make borrowing cheaper in the longer run, priced according to their creditworthiness. And the economy will benefit because if banks are not having to write down as many bad loans their shareholders will benefit, and their customers will have more money to spend on goods and services rather than on bank fees.
If we look at examples of credit bureaus being launched in this region, such as in Qatar and Saudi Arabia, we see that there is always a settling in period. In Qatar the credit bureau – set up most recently, in 2011 – strengthened the credit market and added stability after a turbulent couple of years, which were exacerbated by an interest rate cap which squeezed lending. In Saudi Arabia a national bureau was set up some 10 years ago, to bring a common approach and format into play after a number of separate bureaus had been run by individual companies.
These examples show that after about 18 months on average the beneficial impact of the credit bureau is felt across the economy. In some cases it can have a short-lived impact on personal lending, and it may do so here in the UAE. But this is the kind of lending that has up to now been used as revolving debt to finance debt, whichis not a good recipe for well managed finances.
We have also seen that credit bureaus can initially have an impact in how credit (or covered) cards are used, in some cases resulting in consolidation of a number of cards to one or two. This may not be in the best interests of the banks, but forcustomers it is if they have been using a multitude of cards to finance longer term debt at much higher interest or profit rates.
Member banks of the UAE Banks Federation have started to register to use the data available from the Credit Bureau, and we are encouraging them to share their experiences as they start to use it to make sure that issues as they arise are dealt with quickly and efficiently, and in co-ordination with the Credit Bureau. So, in brief, we see any short term pain in the short term becoming long term gain, for everybody.
Abdulaziz Al Ghurair is the Chairman of the UAE Banks Federation
