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Banks expect credit bureau to reduce bad debts and fraud

DUBAI - The announcement by the Department of Economic Developement yesterday to set up a credit bureau in Dubai in association with Dun and Bradstreet (DB), has a come as a pleasant surprise to many banks operating in UAE.

Leading local banks and foreign banks including Emirates Bank, National Bank of Dubai, Citibank and ABN Amro had for long supported the idea of establishing a credit bureau. “A credit bureau serves as an effective check on bad debts and financial frauds. To a great extent defaults and bad debts could be substantially reduced by setting a common data bank,” said Louis A Scotto, General Manager of Emirates Bank, who had been a strong advocate of credit bureau for long.

The new bureau to be owned and managed by DED will have the technical support of Dun and Bradstreet, a leading international player in the field with substantial experience. “Credit risk perpetrated by frauds had been a major cause of bad debts and bad reputation for the banking industry and the economy as a whole. While the economy, and in particular the financial services sector is going through a phase of rapid expansion, any kind of reputation risk arising from frauds can damage the reputation of the country and its businesses as a whole,” said the CEO of a local bank.

A recent Survey of Fraud in the GCC region by KPMG global network of independent professional services firms had found that the incidence of fraud has increased in the region. Many in the financial forensic community believe that an expatriate dominated financial market like the UAE is more susceptible to fraud and credit risk and there should be appropriate checks and balances in place to reduce the risk of growing bad assets in the system.

All the senior executives in the banking industry who Khaleej Times contacted agree that DED's initiative mark the beginning of a new era in the financial services industry in the UAE. DED believes that a neutral platform to asses risk and share data among banks will reduce the incidence of fraud and improve the overall quality of assets held by financial institutions.

The formation of the bureau is the result of a significant initiative launched by the Government of Dubai in its drive to help the financial community create a neutral platform to assess risk better. “The DED looks forward to continued support from the financial community to ensure the success of this project,” said Mohamed Ali Alabbar, Director General, DED.

DED's optimism is shared by most banks, however, there were a few who were skeptical about such an initiative, the membership to which is not mandatory for banks.

“A central database and sharing of credit information is indeed ideal for banks and other financial institutions such as insurance companies, car financiers and mortgage companies to reduce their credit risk.

“But the success of the initiative will depend on wider acceptance of the bureau in the financial services industry,” said the credit manager with a foreign bank.

A few others like him also subscribe to the view that it will be a long time before all banks agree to a share credit information on a common platform because of the severe competition in the loans and credit cards business. DED has already initiated talks with leading banks and financial institutions which will form the user group.