Banking institutions are essential in our everyday lives. A state cannot be complete without banks, which offer several services to the society. The UAE has many financial institutions, which are generally successful. The Standard Chartered Bank is one of the most effective financial institutions, which offer short term and medium term loans among other services. Customers request different types of loans of different amounts. The bank offers loans only to the eligible clients whose probability of paying is high. There are regular and new customers as far as loans are concerned. Regular customers can obtain medium term loan, while the new ones can account only for the short term loans. The Standard Chartered Bank analyzes client credibility before issuing loans in order to avoid increasing bad debts. The government has supported financial institution in the UAE and the Standard Chartered Bank has also benefited from these incentives.
According to Creswell (2007), the research “describes the meaning for several individuals of their lived experiences of a concept or the phenomenon”. While the narrative-based analysis that is utilized in the majority of the studies reviewed above proceeds from the perspective of an individual or a specific text as the unit of analysis, a phenomenological study makes use of the analysis of the common experiences of the number of individuals with respect to the single phenomenon or “object” of human experience. While the qualitative method-based phenomenological research would be less efficient than a quantitative sampling of the statistically significant population, the limitations inherent in financial requirements of the present study have led the researcher to the selection of the phenomenological approach as the best possible alternative to purely quantitative inquiry. To conduct this study, the researchers procured data by visiting the Standard Chartered Bank, visiting its official website and reviewing several books and journals.
In the UAE banking laws are different but quite strict. The United Arab Emirates controls money laundering, criminal activities and illegal transfers. The government became very strict, especially when it discovered the 9/11 hostage takers, who were transferring illegal money through Dubai. In order for a financial institution in the UAE to acquire a banking license, it must have collateral and social responsibility. In addition, the institution has to have several Sharia acquiescent available for the citizens. Muslims are not permitted to charge interest. Banking institutions in the UAE do not have credit agencies as it appears in the West. Credits in the Standard Chartered Bank are done using check books. Moreover, an automatic system is used in paying bills. In case a borrower fails to pay a debt as per the agreed date, he/she is taken to jail and commanded to repay the debt. This teaches them a lesson to borrow responsibly and keep the debt promise. It is not illegal to be in a debt, but it is illegal to write a bad check. Lenders require debtors to write them a check representing the amount loaned. In case the borrower does not repay the debt as per the agreed period, the lender presents the check. This is the evidence that there is a debt. The debtor is directly taken to jail and imprisoned. Once the whole debt is cleared, the debtor is forgiven and allowed to borrow another time from any lending institution in the UAE. Whenever a person is making a revolving acquisition, such as a car loan, in the Standard Chartered Bank, the financial institution requires him to write a check representing monthly payments. In case an individual misses one payment, the banker calls and asks for an explanation. It is possible to make an arrangement to pay on another date before the next payment. However, failure to make payments in the specified date leads the borrower to jail until the whole debt is cleared.
Services Offered in Standard Chartered Bank
Investment and Corporate Banking
The Standard Chartered Bank provides clients with transactional payments services, strategic advice, trade solutions, risk management, financing and loans. The bank supports corporate clients, who desire to achieve growth as well as job creation. The bank meets their financial needs and is expected to pay within one year for short loans, between two and five years for medium loans and more than five years for the long term loans.
The Standard Chartered Bank offers personal banking services to clients. This helps customers to manage their bank accounts, accumulate money, and meet their saving and borrowing needs.
The Standard Chartered Bank provides preferential and exclusive services to eligible clients in the UAE.
Types and Nature of Financial Information the Customers are Required to Furnish to Support the Purpose of the Loan
To acquire a loan in the Standard Chartered Bank, clients are required to provide financial information to the bank. The customers are expected to give true information regarding the following financial history:
Capital from assets;
Business capital in case the client has one;
Net profit from businesses;
Expected profit from the loan;
Salary of beneficiaries.
Analyzing Loan Eligibility
The Standard Chartered Bank analyzes eligibility of customers using the following methods:
- Liquidity Ratios analyzes;
- Assets analyzes;
- Pay slip assessment;
- Beneficiaries’ assessment;
- Assessing bank accounts in other financial institutions;
- Assessing the UAE Revenue Authority Report.
Types and Nature of Security the Bank Usually Asks For When Granting Loans
The Standard Chartered Bank requires clients to provide security, which guarantees their loan payment ability. The securities offered may be in terms of money, precious metals, land title deeds, vehicle log books, business permits, guarantor’s pay slip details, employment number and beneficiaries’ financial details. Securities are important, as they make the lending agreement between the bank and the clients to remain strong. The bank returns the securities to the client after the whole debt is cleared. In case the client does not pay the debt and becomes bankrupt or dies before the paying period, the bank auctions the security in order to get the loan back.
Typical Interest Rate and Terms of the Loan
The Standard Chartered Bank offers the short term loans and medium term loans to its clients. Short term loans refer to the loans, which are repaid within a period of one year. Such loans have a typical interest rate of 15% to all clients. On the other hand, medium term loans are repaid between two and five years. The typical interest rate for medium term loan is 13%. For a client to qualify for a loan in the Standard Chartered Bank, the following terms are applicable:
One must be of the legal age;
One must be of contractual capacity;
One should have an account in the Standard Chartered Bank;
The account has to be active for six months continuously before acquiring the loan;
One has to be capable of paying back the loan;
One must have an eligible guarantor ;
One must be ready to offer security to guarantee the loan;
One must be ready to pay the loan on the specified time;
One has to be ready to include interest earned by the loan.
Government Incentives and Support the Banks Receive in Handling Loans
The UAE banking department is clearly capitalized. The capital adequacy for this sector is more than 20%. Financial institutions have their retained earnings growing at a healthy pace. The Central Bank has been closely controlling the financial institution and witnessed healthy dividend payouts. The main reason for high capital adequacy ratio in the banking sector is the renovation of federal government guarantees into subordinated debts. The government did this on purpose in order to support banks which handle loans. The debt will be repaid between 2016 and 2017. The Central Bank has also introduced a structure for liquidity assessment. This framework is referred to as the Liquidity Coverage Ratio. It was introduced by the government in January of 2012. Introduction of the current minimum ration has also favored lending institutions. There are new liquidity policies, which encourage banks to raise relationship-based loans and retail deposits, as they reduce dependence on short-term wholesale funds and interbank. Customer deposits, capital and medium-term borrowing are principal sources of funding for the UAE banks. The net loans to customer deposits ratio of most of the banks in the UAE are typically high. This is partly due to the banking sector’s large capital base and the fact that the larger banks also have access to medium- and long- term borrowings from the regional and international markets.
The nature and purpose of the financial loans that customers request from the standard chartered bank include the following:
Discounting Local Bills
This is financial facility that reduces the company's cycle of cash conversion in order to capitalize on certain PDCs of high-value or to improve liquidity.
Export Bill Discounting
Against Collections and Credits export Letters. There are fixed repayment tenors as per export documents industry and tenor standards.
This caters for overseas and local suppliers. A good option in protecting your transaction interest is Credit Insurance. Tenors of repayment are fixed according to the invoice allowed credit period.
Progressive Payment Certificates
This banking facility can assist to execute projects undertaken in paymasters that are well-regarded. Under this facility there are others, like authorized Progressive Payment Certificates (PPC), discounted duly, that ease the flow of cash and make available necessary cash liquidity.
Nature and Types of Customers
In the Standard Chartered Bank of the UAE there are two categories of customers: the regular ones and the new ones. The regular are the customers, who have been operating in the bank for a period of not less than one year. New customers are the individuals, who have started operating with the bank within duration of one year or less. Regular customers are eligible to receive both short term and medium term loans if they satisfy all necessary requirements. On the contrary, the new customers are only eligible to a short term loan, since their credibility has not been proved.
The UAE Standard Chartered Bank pays specific attention to the ratios in case of a business loan, where the bank considers the business’ liquidity ratios to ascertain whether the company is in a position to pay back the loan in the specified duration. It also takes into account the capital ratios to ascertain the extent, to which the business is financed by debt, so as to determine whether in case of dissolution of the business it would be possible to recover their money.
Limits on the Amount of Loan and if Any, Is There a Special Security Requirement
In the Standard Chartered Bank there is a limit on the loans given depending on the financial capacity of the borrower. This is determined by the bank’s analysis of the customer. If the analysis ascertains that the customer has financial capacity to pay back a certain principle and the interest on the principle within the time given without any bleach, then that is what the customer gets. In case the customer’s financial capacity cannot be awarded the amount they want, then the bank advices accordingly. There is no special security requirement for these limits other than the normal loan security.
Bank’s Experience on the Success of Such Lending Facility Especially Impact of the Most Recent Downturns of the Economy and Massive Business Failures
With the current downturns of the economy and business failures, the Standard Chartered Bank professes to have experience low lending, since the public is not borrowing to invest in a new or to improve the already existing business. The number of people, who are asking for loans from the bank, has tremendously reduced. The bank authorities also professed that they have experienced poor loan recovery, as the borrowers have not been able to pay back their dues without a bleach of the lending contract, as a result of business failures and general economic downturns.
Bank’s Specialization on Handling Such Loans
The Standard Chartered bank, which is under consideration within this discussion, due to the problems that are arising, as a result of the economic downturns and business failures, has designed strategies to counteract it. These strategies include:
In the bank’s preparation of the financial statements there is provision for bad debts, so as to cater for debts that the bank could not recover. The bank also carries out an analytical research on the customer’s ability to pay back the remaining dues of the loan, and if it is not possible, it deliberates with the customer on how to recover the remaining amount. The bank also, in case, where the borrower cannot be traced, accesses the guarantor, so that the loan money can be recovered. Under this the bank may also opt to auction the security that was given for the loan if by doing so the bank will recover the dues.
In conclusion, the undertakings of this research covered the Standard Chartered Bank of the UAE in short and medium term loans financing. The scope of this research is the way the bank offers these loans in policies and procedures. The research has ascertained that the Standard Chartered Bank has good polices that are meant to give the customers the best services, as well as taking care of the investors’ (shareholders) wealth. It is clear from the above discussion that the bank management tries to avoid bad debts by not giving loans to the customers, who have been operating within the bank for less than six months. Although these measures are in place, the research realized that due to the current economic downturns bad debts have been occurring in low rates but on the increase. It has also been noted that the lending rate has subsided greatly due to the high lending interest rates against very unpromising economic times.
The recommendation that would be most appropriate in this case is the bank’s management should consider restructuring its lending interest rates to be a bit lower in order to enable investors to borrow money even in the deteriorating economic situations.