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The central bank has issued a set of new regulations on retail banking and services charges applied to all banks operating in the country. Under the new rules, the apex bank has capped personal loans at 20 times the salary or the monthly income of a borrower with a repayment period set at 48 months, the statement said.
“The bank approved a new regulation regarding bank loans and other services offered to individual customers, and that the said regulations have been circulated to banks of all types and finance companies, including Islamic finance companies,” the central bank said.
“The new regulation sets amount of the personal loan at 20 times the salary or the monthly income of the borrower — the value of the loan is tied — up to the borrower’s income. The repayment period is set at 48 months, which is sufficient for repayment, and leaves a space to obtain a long-term loan for a private house, whereby value can be increased, i.e. some sort of saving is achieved, which leads to improvement of the living standards of the borrower and his family,” the statement added.
Under the new regulations, processing charges for both personal and car loans will be one per cent of the total amount with a minimum of Dh500 and maximum of Dh2,500, while giving free hand to banks on credit life insurance. The apex bank has also fixed two per cent for delayed payment penal interest charge from a minimum Dh50 to maximum Dh200. The loan top processing charges also remain the same at Dh500 and Dh2,500. According to a local banker, there are no big changes in the services charges, however, he said, “under the new regulations, all the retail banking service charges and limitations have been streamlined across the board for both local and foreign banks operating in the country. Earlier each and every bank had their own charges and policies on certain retail banking services and transactions”.
The banker, who wished not to be named, said they had earlier conducted a survey and found their service charges were lowest and now the new regulation will bring all in line with the unified Central Bank policies to help make competition further healthier in the local market. Some of the basic charges on certain services have been removed while in some cases where it was free were introduced new charges such as Dh10 per teller service per transaction, which some bank charged and some offered the service free. “These are some of the good things that have been introduced because many account-holders have been misusing the service,” he said.
“These regulations set the main features of the car loan and its repayment period. These regulations cover new facilities such as overdraft facilities and credit card unpaid balances, and it requires banks to disclose the interest rates they charge on loans and facilities and send a copy of the table to the central bank for publication. This would facilitate comparison of rates charged by banks, hence enable the borrower to determine the bank that offers the most suitable rates,” the central bank said.
These regulations also set a method for calculating interest through a formula that would determine the interest amount. These regulations require that repayment installments should not exceed 50 per cent of the borrower’s gross salary or any regular income from a defined specific source. Should repayment period of the loan or all bank loans combined extend to the retirement stage; the deductible amount shall drop to only 30 per cent of the pension salary.
Elaborating on personal loan policy, the bank announcement said: “These regulations prohibit taking of postdated blank cheques or cheques to cover installments with value exceeding 120 per cent of the loan or the debit balance of any facility. These regulations allocated a specific article for the armed forces personnel loans, and requirements were set by agreement with the General Head Quarters of the Armed Forces.
“These regulations establish a specific system for determining rates of commissions, fees, deductions and charges on loans, banking facilities and other services. These regulations have set maximum limits as per a special Annex to the Regulations, containing a detailed table of rates. These regulations require banks and finance companies not to impose any commissions, fees, charges or fines other than those mentioned in this table, without Central Bank’s written approval. These regulations also require the central bank to review the annex annually to update it.”
In case of violation of provisions of these regulations, the central bank shall impose the fine prescribed as per Union Law No- (10) of 1980, regarding the central bank, the monetary system and organisation of banking.
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