Al Etihad Credit Bureau introduces expense-to-salary ratio in credit reports

Al Etihad Credit Bureau’s credit reports will now include an expense-to-salary ratio (ESR) as it seeks to offer more insight into the creditworthiness of potential borrowers in the UAE by assessing their non-banking monthly payment obligations.

The ESR will be indicated as a percentage ranging from zero to 100 and represent a person’s financial obligations as share of their salary, the regulator said on Friday.

It will take into account active loan instalments, credit card limits and monthly telecoms and utility bills, the AECB said.

“Credit reports are a direct reflection of an individual’s appeal and payment behaviour to lenders like banks and financial institutions, but are also as important for other entities such as property managers and telecom service providers,” said AECB chief executive Marwan Lutfi.

“The addition of the ESR to the AECB reports is a natural step in our ongoing path towards generating data-driven insight for lenders to assess the creditworthiness of individuals, while taking into consideration their regular non-banking monthly payment obligations, such as utility bills and telecommunication bills.”

Set up in November 2014, the bureau brings transparency to the lending industry by assembling a credit record of the UAE’s financially active residents. It collects data such as loan, mortgage, credit card and phone bill payments.

An individual’s credit report documents their entire credit history in the UAE, showing the credit cards, loans or other finance products they have signed up for, along with their payment behaviour.

Therefore, bounced cheques and any payment defaults will be recorded. The document also lists a person's full name and Emirates ID number.

A UAE resident's report is generated only when they have a credit card, loan, mortgage or a phone bill. The AECB collects data from banks, finance companies and telecom companies.

A credit score for individuals is a three-digit number between 300 and 900 that represents a borrower’s creditworthiness and how likely they are to make credit card or loan payments on time. A low score indicates they are a higher risk for a lender while a higher score indicates a lower risk.

The new ratio will indicate a potential borrower’s total obligations as a share of their reported monthly salary, the credit bureau said.

Banks provide an individual’s salary details as part of regular data submissions to the AECB.

The feature will serve as an “additional parameter in assessing creditworthiness and affordability for individuals and banks alike”, the credit bureau said.

“ESR not only provides banks and credit report users with insights on the individual’s spending behaviour, but is also a barometer for individuals themselves that will allow them to gauge their own spending habits and — hopefully — consider a more financially responsible alternative should their ESR be less than ideal,” Mr Lutfi said.

Meanwhile, AECB’s ChequeScore service, which allows businesses and people to instantly assess the risk of a cheque bouncing, is now live on the credit bureau’s website.

ChequeScore, which covers cheques issued by UAE-licensed banks and calculates the issuer’s credit score, payment behaviour, issuance frequency and clearance history in real time, was unveiled as an app in February.

“It serves to lower the number of bounced cheques and provides a push for financial accountability,” the credit bureau said.

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