MUSCAT: Oman’s conventional banks have achieved a robust year-on-year growth of 9 per cent in aggregate personal loans or consumer loan portfolios, which stood at OMR7,805.11 million by the end of September 2016. The growth in personal loan was attributed to the tendency of more and more customers taking loan to generate additional funds to meet their high-value purchases at a time when organisations are resorting to a cut in bonuses and other perks due to a slowdown in economic activity.
“Low income levels could be one of the contributing factors for a better demand for consumer loan. The public and private sectors have already taken away several perks and bonuses. But people find it difficult to cut their expenditure in the short run,” said an economist, who does not want to be named. Also, bank customers believe that the interest rates are likely to increase next year, which also partially aided a growth in demand for personal loans.
The average local currency lending rate by the end of September 2016 stood at 5.030 per cent, against 4.762 per cent in December-end 2015. The repo rate with CBO also edged up to 1.025 per cent from 1 per cent during the period. HamoudSangour Al Zadjali, executive president of the Central Bank of Oman, last month said that there is no move to increase interest rate ceiling of personal loan of commercial banks in Oman, despite a general increase in interest rates in the financial system. The maximum interest rate a commercial bank can charge from a customer for personal loan is fixed at 6 per cent by the apex bank. In fact, majority of Omani banks are offering personal loans at the ceiling rate, or at less than 6 per cent.
In the Sultanate, several small time businessmen also take consumer loan to fund their businesses since it is faster to get such loans, against business purpose loans. The total personal loan portfolio of Oman’s conventional banks constitutes 39.8 per cent of total bank credit of OMR19,587.81 million by the end of September, 2016, according to the latest quarterly report released by the CBO.
The CBO report said that on an incremental basis, the flow of credit to consumers resulted in an additional disbursement of OMR641.04 million in the last 12-month period ending September 2016. Consumer loans are generally taken for meeting high-value purchases, including cars. However, bank customers are not taking loan for buying cars now, which is evident from a slowdown in car sales since the beginning of the year.
Also, there is a positive correlation between growth in job creation and demand for personal loan in the Sultanate. With a freeze in government sector for employment and dull business scene in the private sector, the growth in new jobs decelerated this year. By the end of December 2015, the aggregate personal loan portfolio of Oman’s conventional banks was OMR7,333.80 million, or 40 per cent of total credit. In fact, personal loans are the key revenue drivers for the Sultanate’s financial institutions, due to their high interest margins.
CBO stipulates an upper ceiling of 35 per cent of a bank’s total credit portfolio as personal loans, and another 15 per cent as mortgage financing. The apex bank also lowered the debt burden ratio a number of years ago, defined as the portion of salary that is applied for loan repayments of borrowers to 50 per cent and 60 per cent for personal and housing loans, respectively.