Commercial bankers in the UAE have asked the central bank to remove a ban on transfers between banks of personal loans to local citizens, a body representing the lending industry said on Monday.

Enjoying a cradle-to-grave welfare system and other financial support from a wealthy government, UAE citizens are viewed as attractive customers. So banks have been competing aggressively to persuade them to pay off loans from rival institutions and transfer the business to them.

This ignited an interest rate war among the banks, prompting the central bank to intervene. In a circular last month, it directed banks to halt loan transfers for three months while it studied the practice to find a solution.

On Monday the UAE Banks Federation said it had started talks with the central bank in an effort to have the ban lifted.

"Such a decision limits the choices of the customer, and plays against the open-market and the free economy system adopted by the country...(It) gives rise to monopoly and harms and damages the banks' reputation," the body said.

"It is the customers' right today to gain from the current interest rates on personal loans, marking 2.8 percent in some banks, due to the strong competition which falls on the customer side," the federation's chairman Abdulaziz al Ghurair said in the statement.

Comment could not be obtained from the central bank.

Loan growth in the UAE remains in the low single digits even though banks are increasingly cash-rich as the economy recovers. With many corporate loans still viewed as risky, banks are targeting UAE nationals and rich expatriates. – Reuters