The Debt Panel: 'My salary was cut and I can't afford my loan repayments'

I took out a Dh430,000 personal loan seven years ago. I was keeping up with the monthly instalments but my employer reduced my salary from Dh22,621 to Dh18,621 in November due to the effects of Covid-19 on the business. However, the company is not willing to cite the pandemic as the reason for my salary reduction.

I requested my bank to restructure my outstanding loan balance of Dh365,300 and reduce the monthly instalment of Dh10,380. The bank ignored my request and has continued to automatically deduct the loan repayment from my salary every month.

I have other debts, which include an outstanding credit card balance of Dh8,188. I can only afford to pay the minimum monthly amount of Dh409 towards this. I also have a monthly car loan payment of Dh1,563 and a Dh200,000 mortgage in my home country, with a monthly repayment of Dh5,800.

My other monthly expenses include Dh1,200 for day-to-day living in the UAE, a telecom bill of Dh313 and a family allowance of Dh4,500. Overall, my monthly expenses add up to Dh24,165.

The bank is deducting more than half of my salary and charging me a high interest rate, which means I am unable to pay for other expenses or support my family in the Philippines.

I need a loan repayment holiday for at least three months and my liabilities to be restructured with a maximum monthly payment of Dh6,500.

Although I approached a debt management company for assistance, I cannot afford to pay for their service. I have also appointed a power of attorney to deal with my debt situation. However, the bank has refused to deal with a third party despite my PoA being approved by the Abu Dhabi Judicial Department. How can I convince the bank to accept my PoA and restructure my debt? RI, Dubai

Debt panellist 1: R Sivaram, executive vice president and head of retail banking products at Emirates NBD
It is unfortunate that your salary reduction has put additional pressure on your finances, but it is commendable that you are trying to find a workable solution to meet your commitments.

Firstly, I would recommend that you meet the concerned bank officials in person to appraise them of your situation. It is best to connect directly with the bank, instead of through a PoA. This could help you agree on a mutually acceptable solution.

In your meeting, request a debt consolidation and restructuring plan that will also cover the car loan and outstanding credit card debt, as well as a rescheduling of the total outstanding amount over a longer period of time to reduce your monthly instalments.

It is important to share details of your circumstances with your bank in your home country, to explore if the mortgage payments can be also rescheduled to a lower monthly instalment.

You could also consider selling the property or any other assets you have, which will release funds that can be used to settle some of the outstanding debt in the UAE and potentially put you in a better financial situation to meet your expenses.

While your monthly expenses seem reasonable, scrutinise these to find ways to further minimise your outgoings through a good budgeting and spending plan. You may also want to initiate a discussion with your employer to ask when your original salary might be reinstated.

Lastly, going forward, it is very important that you practise prudent borrowing and avail credit only when strictly necessary as unplanned events can significantly impact your plans, as you have experienced.

I wish you the very best in arriving at an agreeable solution with your banks to address your situation so that you can be on a stable financial footing soon.

This is an unfortunate situation that I have come across on multiple occasions. It often appears that banks use their position of power of having a salary transferred to a person's account, which can be to their detriment.

It certainly appears that getting a restructure on your loan in this situation is near to impossible as it is not in the interest of the bank.

In your current situation, you have two options. First, you could try to pay off your existing liabilities by applying for a loan with a different bank. However, this appears unlikely because your debt-burden ratio is extremely high.

The second option would be to move your salary to another bank if possible and then have the restructuring conversation with your existing bank.

I would advise you check the terms and conditions of your loan when doing this. It is important to note that a bank should not be taking more than 50 per cent of your salary and I suggest you raise the matter directly with the collections team in writing.

In regards to the PoA, this is also a tactic I have come across recently with collection agents. I suggest you speak with a legal representative to find out your rights concerning this matter.

Although we all try to ensure that our loan commitments are within manageable levels, it has become highly challenging for many people who have had Covid-induced pay cuts.

The Central Bank of the UAE launched the Targeted Economic Support Scheme to help borrowers affected by the pandemic. The scheme has been extended to June 2022 and allows banks to provide temporary relief to borrowers for up to six months, which gives them time to manage their finances.

Based on your reduced income, your debt-burden ratio is almost 67 per cent. Local banks cannot consider your home country liabilities for the purpose of this calculation. Under the central bank's guidelines, your UAE financial liabilities should not exceed 50 per cent of your salary.

While you do qualify for a restructure/payment holiday, your bank may have rejected your request based on certain factors that could include repayment history or any previously availed restructuring or payment holidays. There is a maximum number of restructures or payment holidays that one can avail as per the bank's policy. To have a better understanding of the bank's decision, try to find out the reason why it rejected your request.

Draft a formal request to the bank, show them documents about your pay cut and explain your cash flow situation. Also request the bank to reduce the monthly instalment and increase the tenure of the loan.

It is important to demonstrate your intention to repay the loan and give the bank confidence that you will resume regular payments as soon as your salary is reinstated to the full amount. If you have a plan to repay through selling an asset, you should also include this information in the letter to the bank.

If you are still not satisfied with the decision, you can file a written complaint with the bank. The bank is expected to independently deal with the complaint and provide a resolution within a defined period.

If you don’t receive a response within 30 days, you can register a complaint with the central bank’s Consumer Protection Department. If the issue is still unresolved, you can also consider legal action. Note that you will have to bear legal costs and the issue could take time to resolve.