Bad loans are on the rise in the UAE, as the first-quarter earnings reports from banks and The National’s Debt Panel series shows. Individuals have found themselves increasingly in situations in which paying back the money they have borrowed has become difficult, if not impossible, especially in a softening economy. This puts a customer at odds with their bank because of the laws in the UAE.
Dealing with delinquent customers in the right way is down to the sophistication of a lender’s collections system, says Chris Maranis, the business development manager for London-based Exus, which builds debt-collections systems.
The company works across the Middle East and has yet to deploy any of its systems here, although it is in talks with several banks. Mr Maranis speaks here about the UAE market and why new collections systems could ease the stressful experience that customers who have fallen behind on payments go through.
You say you have studied the market extensively. What did your research tell you about bad loans and debt collection in the UAE market?
The UAE has been affected by the crisis we experienced in the rest of the world. Some years ago there was a rise in the non-performing loan rates that the UAE banks experienced, which is the percentage of loans in arrears in contrast to the total loans. What has happened recently, especially in the UAE, is that non-performing loan rates at a lot of the banks increased because of the oil price decrease. This has been experienced mostly in the SME sector, but also for individuals. Most UAE banks, at least from our own research and contacts, have for some time been investing in collection systems.
How do these collection systems work?
In collections we have certain phases, so you have what we call early collections. This is the area where a customer falls into arrears – for example, he misses his instalment day and banks start to communicate with the customer in a friendly and polite manner to remind him of his obligations. As you can imagine, as time goes by the banks escalate their communications to the customer from multiple channels. They can do either from a call centre. They can do it by sending reminder letters. They can do it by outsourcing to collections agencies or by sending emails and any other means of communications. All this management of the delinquent portfolio of this call centre, of this letter sending, of this outsourcing, can be done by a system. But collections systems can offer many more things that can benefit the bank and the debtor. This is very important. Many aspects of these systems or features they offer help the bank but also they help the debtors.
One of the quite interesting aspects is the collections segmentation, as we call it. For example, think that you are a bank and you have 1,000 delinquent customers. Each one of them is a person. They might all be delinquent, but the treatment you are going to give to each one of them should be adjusted, if not to each specific customer, then to patterns of customers you can identify. So you have different customers. You have customers who have a temporary inability to pay because they have a very temporary problem. Or you have customers who are the people who are skipping their obligations in a very organised way. These are different kinds of people. I can give you an example that is very simple but it will help you understand. Imagine you have a loan and it is due on the first day of each month and imagine you get your paycheque from your employer on the fifth of the month. That means that each month you are probably going to be delinquent for four days. If the bank does not identify this pattern in your payment methods, they might be calling you every month on the second of the month to remind you that you are late. This will irritate you. This will make you take your loans and go to a different bank. So you see, this risk segmentation can help the bank but it also helps the debtors.
What percentage of UAE banks operate a system that helps reduce the hassle that customers receive when they fail to pay?
From the discussions that I have had, most of them already have some specialist collections system. However, we have seen that most of them have systems that were deployed more than six or seven years ago and they do not offer the new tools such as warning signals.
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