A proper assessment of a borrower's credit-worthiness serves to protect both the bank and its depositors and creditors.

It should be beyond question that lending business is only conducted with the necessary prudence customary in banking; that is, before granting a loan, the bank must be convinced that the prospective borrower is credit-worthy.

The Central Bank, therefore, advises all banks operating in the U.A.E. not only to examine the credit-worthiness of their customers in detail before granting any loan, but also to ensure a proper follow-up regarding the financial situation of each customer throughout the whole business relationship.

Banks have to make sure that they can detect any deterioration in their customers' financial situation with minimal delay. For this purpose, they are expected to review their loan books on a regular basis and ask their customers for up-dated information.

Banks must insist that major borrowers disclose reliable evidence of their financial situation by submitting financial statements, other relevant information, and signed declarations of their independence from the bank, its principal shareholders, directors and officers.

Regarding corporate customers required to keep accounts, banks should obtain regular audited annual financial statements and ensure that they are kept informed of any major changes in the customer's business environment or other variables of such customers occurring throughout the year.

In the case of loans to group enterprises, banks must obtain the individual financial statements of the borrowing group enterprise as well as the consolidated statements of the group itself.

In cases where the head office of a foreign bank or a fellow branch abroad decides on loans to be granted by its UAE branch to borrowers with activities in the UAE, the Central Bank insists that full documentation be made available to the bank's UAE branch.

With regard to borrowers who are not obliged to prepare financial statements, banks must obtain statements of assets and liabilities, land register excerpts, property tax and/or income tax assessment notices and confirmation of salary, where applicable. The question as to what documents the credit-worthiness assessment is to be based on may be decided on a case by case basis.

Banks may, in exceptional cases only, refrain from requesting a complete disclosure of a customer's financial situation where the requirement to disclose would be clearly unjustified due to the type and level of security provided; for example, where the security provided covers the repayment of the loan, including interest, at all times, at the following minimum values or after the following minimum adjustments:
 

* The market value must be determined by an independent expert and it should not exceed 10 times the yearly obtainable rent.

Other securities than mentioned above, especially unquoted securities, are not considered appropriate by the Central Bank. Banks are free to be more prudent in fixing higher markdowns particularly when the market is facing national or international financial problems. However banks should ensure that they hold adequate collaterals in respect of large exposure cases.

The waiver of the disclosure of financial situation may also be justified in the light of the credit-worthiness of guarantors. In this case, the bank must be informed about the financial situation of the guarantors according to the same principles as in the case of borrowers. Moreover, only such persons may be acceptable as guarantors who, in addition to the borrower, have assumed a legal obligation for a particular loan. All persons or enterprises already considered as a single borrower (within a group of related borrowers) are, however, exempted from qualifying as acceptable guarantors for this purpose.

The Central Bank emphasizes that, in the case of unsecured loans, the financial situation of a borrower be always disclosed irrespective of his credit-worthiness.