The month of September will mark the beginning of Al Etihad Credit Bureau’s ability to issue consumer credit reports to financial institutions. This comes after the credit bureau recently completed uploading six months’ worth of credit data and relevant financial information to its reporting system. With access to the past twenty-four months of consumer banking data, the remaining eighteen months of credit history that the bureau has on hand is currently being uploaded to its system to provide more comprehensive reports.
The credit reports released by Al Etihad Credit Bureau will disclose information such as consumers’ debt levels, credit payments, financial obligations, late payments and any history of loan defaults. This information will help banks and lending institutions properly evaluate potential customers, thus preventing individuals who are not credit worthy from receiving loans. Banks will have to pay for each credit report downloaded, and this cost may very likely be passed on to the borrower.
While many industry experts expect a decrease in consumer lending because of the increased transparency, there are a couple of factors that will counter this effect. Firstly, banks in the UAE will now have a more accurate picture of what outstanding loans an applicant has. This means personal loans for debt settlement may become more prevalent as consumers consolidate their debt, and banks become more willing to lend to such individuals since they have a clearer picture of their credit profile and more control over how the debt will be used. Products such as Abu Dhabi Islamic Bank’s Al Khair Liabilities Settlement are set to benefit from the Al Etihad Credit Bureau’s consumer data reports.
In addition, many UAE banks have been dependent on lending to Government-Related Enterprises (companies owned by, or with close ties to, government bodies). However, the UAE Central Bank has imposed limits on how much of banks’ portfolios can be composed of GRE lending. As a result, over the next few years, banks have to make up the lost income by lending to private companies, SMEs and individuals.
Having access to consumer credit data will help financial institutions and the banking system improve the level of transparency. Banking executives in the region such as Standard Chartered UAE’s CEO Mohsin Ali Nathani commented by saying, “Availability of credit data will improve transparency and credit quality in the banking system. We have been closely cooperating with the credit bureau to achieve its goals. From our experience in different markets across the world we are sure of the benefits it bring to the banking system.”
Marwan Ahmad Lutfi, CEO of Al Etihad Credit Bureau has this to say about the subject, “the strategic objectives of Al Etihad Credit will be achieved through a multiphase process. The first phase, which will be launched in September, will allow banks and financial institutions to access and purchase existing and potential customers’ credit reports electronically after submitting all the necessary documents. Customers will also have access to their credit reports through our soon-to-be-launched customer service centres.”