A recently issued survey by a firm of International business analysts has shown that the amount of consumer debt in the UAE is rising and is at worrying levels. The figures collected show that as of June 2012, the total household debt in the UAE totaled over AED 418bn (USD 114bn, GBP 75bn), an average of AED 348,650 (USD 95,000, GBP 63,000) of debt per household! I would be surprised if the actual figures were any better a year later.
A poll showed that up 60% of citizens spend at least a quarter of their monthly income on repaying debts, including credit card and personal loans. Even worse, a significant percentage of people have total monthly debt obligations that exceed their income. Inevitably this will lead to missing payments and the attendant consequences.
Furthermore when you consider that bouncing a cheque is a criminal offence for all non UAE nationals, of concern to many is the fact that in 2012 the value of bounced cheques was believed to be AED 46bn (USD 12.7bn, GBP 8.5bn). Whilst this is a reduction of 15% compared to 2011, such high numbers remains a risk to financial stability.
In 2011, the UAE Central Bank introduced more stringent criteria for personal lending with banks permitted to approve loans of up to 20 times an individual’s monthly income, with installments not to exceed 50% of monthly income. Whilst individuals must take responsibility for their own finances, I consider the limits to be too high in most cases. This is borne out by the fact that the level of personal debt in the UAE is the highest in the GCC.
There will always be a need for personal borrowing, but anyone taking on debt must ensure that they can comfortably manage the payments and repay the capital as soon as possible so as to avoid paying large amounts of interest.
We have seen significant personal credit problems in the UAE in the past, fueled in part by excessive lending and for a healthy society it is important that the problems that followed the financial crisis of 2008 are not repeated. Stricter lending criteria should help, but the onus is on the individual to manage their finances properly.
