The central bank stated that if the borrowers ’salary falls for reasons other than retirement, the banks can adjust the discount rate to 50% of the new low salary for repayment with the extension of the loan period, whether personal or real estate.
The Central Bank stated in a new circular, Emirates Today obtained a copy of it, that if the duration of the personal or real estate loan exceeds the permissible limits as a result of the low salary, no bank or financing company may grant additional facilities or funds to the customer.
He explained in the circular (No. 5060/2019) that “the bank or finance company should, as soon as it is known that the borrower is retired, immediately reduce the debt burden ratio to 30%,” explaining that “if the salary falls for reasons other than retirement, it is possible Adjusting the debt burden ratio to 50% of the low salary, by extending the term of the loan.
He added, "In both cases, it is not permissible for any bank or financing company to grant additional facilities or funds, when the period of the personal or real estate loan exceeds the regulatory limits set for each of them."
Meanwhile, Nora Abdullah, the head of personal finance at a bank, said that “banks usually extend the repayment of loans, if the customer requests a restructuring, stumbling or moving from one business to another with lower salary or retirement.”
She explained that "the citizen usually takes advantage of the advantage of extending the period even if it exceeds the maximum set by the central bank, while the loans granted to residents are limited to a period of four years for a personal loan, or 15 years for a mortgage."
She pointed out that the circular came to give the banks a wider choice, provided that this does not conflict with the risk management internally for each bank, as it came to emphasize the regulation of granting loans, and not to give customers personal loans or any other financing as real estate, and included a commitment not to exceed the deduction of salary or income 50%, and 30% in retirement.
It is noteworthy that banks used to deduct the full end-of-service gratuity from the balance of the loan owed to the customer, when he moved to another job with a lower salary, or extended the payment period by doing a restructuring to cut the deduction, accompanied by an increase in the interest rate.
Loan guarantee
The banking expert, Mustafa Al-Rikabi, said that the banks take a guarantee from the borrower and the authority in which he works, which is to transfer the end-of-service reward in the event of leaving the work, or transferring it to another work, and sometimes with a lower salary, so some banks take the end-of-service bonus and deduct it from the remaining balance Of the loan, while others extend the term, provided that it does not exceed the maximum set by the Central Bank, especially for residents, and does not take the bonus.
He added that the goal is to ensure that the customer continues to pay, provided that the deduction does not exceed 50% of the “central” decision.
Failure to grant the customer any additional funds if the loan period exceeds the permissible limits.
Nora Abdullah:
“The circular came to give the banks a wider choice, provided that it does not conflict with the internal risk management of each bank.”