What banks look at when settling bad debt in UAE

What banks look at when settling bad debt in UAE

Attorney Barney Almazar from Gulf Law with Andrea, who has finally able to settle her Dh 1.7million credit card debt with her bank which ballooned over a decade.
Image Credit: Virendra Saklani/Gulf News archives

Dubai: Debtors are morally and legally obliged to pay their dues to banks and financial institutions while settlement or consolidation are only the last resort if they have fallen on hard times, advocates said.

The reminder comes following hundreds of enquiries from UAE residents after Gulf News published a story on how a Dubai resident “Andrea” was able to settle two credit card debts of Dh1.7 million with Dh15,100 in June.

The resident had lost her job 10 years ago and could not repay her debt. She eventually defaulted and went into hiding for a decade.

Gulf Law Director Attorney Barney Almazar, who worked with Andrea to arrive at a settlement with the bank, said his office received similar debt settlement requests after the story came out. He said, however, that though Andrea’s case is extraordinary, it will not be the norm.

“[Andrea’s settlement] is really a special case and we don’t expect that this amount of condonation will become a precedent,” Almazar told Gulf News.

Almazar and his team have handled many clients with debts to settle with banks through the years.

The most common vary between bank loans such as personal or salary loans, car loans and credit cards and sometimes both. The amount borrowed and the length of time of default also differ from case to case.

Almazar, however, refuted comments by some residents that they would “borrow money and just settle with banks” later on.

“We cannot name banks for privacy reasons, although what I would like to stress is that borrowers should honour their obligation to pay what they have borrowed. We should not have the mindset to borrow and then resort to ‘settlement’ with the intent of shortchanging the bank. That would be an abuse of the system,” Almazar said.

There is hope

In cases when residents end up having to skip payments due to financial hardships because of job loss or emergency, even when police cases have been filed against them, there is still hope, Almazar said.

Residents only need to reach out to their bank directly so both parties can agree on a repayment scheme.

“Most settlements will end up with the borrower paying back the principal amount to the bank, having the interests, penalties and surcharges waived,” he said.

“Bank operations are highly regulated by the government. Waiving off receivables is the last resort—so defaulters must show good faith in their settlement. It is very unlikely for banks to refuse settlements as long as there is no bad faith on the part of the debtor. At the end of the day, banks prefer to have a healthy balance sheet and the debtors to have a good credit standing.”

“I have not encountered a situation where the bank refused any form of settlement. Even those with existing cases, banks will still settle.”

There have been circumstances, however, when the negotiation will hit a road block. This could be when a bank will not accept the offer of the debtor and the debtor is not in the position to take the bank’s offer.

“In such instances, we look at the reasonability of the offer and we aim to balance the commercial interests of the bank and the civil rights of the borrowers. The Central Bank plays a very important role in bringing back the parties to the negotiation table. The Central Bank has a mechanism where debtors can request the assistance of the regulators to mediate. It is a much informal process and practical approach than resorting to the courts,” Almazar said.

No one strategy for all

Gaurav Bhalla, Founder and CEO, Lotus Loans and Overdues Rescheduling Services based in Dubai, who has handled more than 2,700 customers in the UAE, said there is no “one strategy fits all approach” in debt settlement or consolidation as each and every case is unique.

“After analysing the case, we explore options like one-time settlements, long-term payment plans based on the repayment capacity of our clients and subject to the rules and regulations of the lending institutions,” Bhalla told Gulf News.

“The primary objective is to arrange for repayment plans so as to enable our clients to become debt free considering the debt burden ratio as prescribed by…

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