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Dubai: High consumer spending boosted personal loans that rose 11 per cent in three months - to Dh48.4 billion during the first quarter of 2008, up from Dh43.5 billion at the end of 2007, according to the UAE Central Bank.
According to reports, house rents represent more than 40 per cent of an average household income, while about 60 per cent go into consumer spending, leaving the average families vulnerable to loan sharks, credit cards and other forms of debt traps.
"This is an alarming scenario," Dr. Amzad Hossain, Assistant Professor of Economics and Finance at Al Ain University, told Gulf News.
"Either consumers should be encouraged to spend less, or the business community should be asked to invest in manufacturing so that the local economy could benefit from such high consumption trend."
The findings of a survey conducted by the Department of Planning and Economy in Abu Dhabi show, consumption represents 60 per cent of the family income. "This rate was found to be even higher among families whose monthly income was less than Dh10,000," the report says.
It puts the blame on the banks. "These banks have embarked on massive campaigns to entice clients to borrow more and more loans and thereby maximise their interests."
According to statistics, banks posted net profits of Dh7.5 billion during the first quarter of this year, accounting for 30.5 per cent of their net profits last year which stood at Dh24.45 billion. On the other hand, these huge profits by the banks have never been matched by similar benefits for clients.
Unfair
The bank-client relationship has been more than unfair, it said. "While banks have been steadily maximising their profits, customers have been sinking deeper and deeper in personal debts," the report said.
The adverse effects of personal loans are not only limited to the individuals or their families. "Rather, these effects are felt by the entire society," the Department observed.
"As a direct result of the spending spree, goods are imported from foreign countries. Thus, the country's trade balance is titled in favour of those foreign countries as cash moves away from local to international markets."
The report recommends a lowering of personal loans ceiling. "The cure to this woe is to introduce a set of stringent measures to limit the ceiling of these personal loans. It has been noted that some banks provide loans that are 50 times the salary of a person. This needs to be reviewed," it said.
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