Credit cards offered by local banks carry interest rates that are among the highest in the world, research by The National shows. A survey of more than 170 cards offered by 40 banks operating in the UAE shows the average annual interest rate is 33.9 per cent, more than double the average rate in the US and almost twice the average rate available in the UK.
The rates on UAE cards are about 2 percentage points higher than they were a year ago, when the UK research firm Lafferty Group determined the average was 32 per cent. "What they are basically doing is increasing their margins to make up for their losses" on other types of loans, said Andrew Neeson, the head of Lafferty's global credit card research unit. "I suppose you could argue that is a reasonable thing for banks to do, but it makes for a less competitive product."
Regional banks, like their peers around the world, are increasingly focused on attracting "premium" customers with high salaries. However, unlike in many other countries, the credit cards awarded to premium customers in the UAE generally do not come with lower rates. First Gulf Bank, Mashreqbank and Dubai Firstoffer platinum cards with annual interest rates above 40 per cent. After the global credit crisis, many local banks lowered credit limits for existing customers and drastically reduced the availability of new credit cards.
"The cards business in particular has experienced increased turbulence because of the financial crisis," said Mustafa Ramzi, the head of HSBC's credit card unit. "Our goal was to ensure our customers could repay." Mr Ramzi said the bank had recently restored the higher credit limits of many existing customers and was "more open" to offering credit to qualified new customers. To qualify, a customer must earn a monthly salary of more than Dh15,000 (US$4,083) or keep more than Dh100,000 with the bank.
Other banks in the UAE declined to comment on their credit card policies, but most, like HSBC, evaluate customers primarily by their salaries and the size of the deposits they keep with the bank. Credit cards are rarely available to customers who do not have other accounts with the bank. That could change in coming months, as the Dubai Government this week decreed that all banks in the emirate will share data with the credit bureau Emcredit.
A credit bureau should allow banks to evaluate applicants by their broader credit histories and should introduce competition for the best customers. "If you are required to have a bank account in order to qualify for a credit card, that creates a lot of inertia," Mr Neeson said. Those with good bill-payment histories should qualify for lower rates and higher credit limits. The UAE experienced a huge increase in consumer credit during the past decade. The penetration rate per 100 adults was 90.8 in 2008, up from 28.4 only five years earlier.
There were 199.4 cards per 100 adults in 2008, a more than threefold increase from 62 cards per 100 adults in 2003. breagan@thenational.ae