Omani banks’ personal loans register 10 per cent growth

Oman’s conventional banks have posted a robust 10.44 per cent growth in aggregate personal loans, or consumer loan portfolios, which stood at OMR7,680.96 million by the end of June 2016

The growth in personal loan was attributed to the tendency of more and more customers availing of loan due to fear that interest rate may rise. ‘Times of Oman’ on Wednesday reported that the loan default cases are growing in the Sultanate, mainly due to financial difficulties faced by borrowers amid an economic slowdown.

“More and more people are taking loan as customers think that the interest rate may go up (in the coming months),” said Loai B. Bataineh, general manager and head of investment banking group at the Oman Arab Bank. The maximum interest rate ceiling of personal loans remains fixed at 6 per cent per annum. The majority of Omani banks are offering personal loans at the ceiling rate, or at less than 6 per cent.

“Besides, a lot of people take personal loan to fund their small businesses as it is faster to get consumer loan (compared to bank funds for business purpose),” he added.

The aggregate personal loan portfolio of Omani banks constitutes 39.7 per cent of total bank credit of OMR19,348.14 million, as of the end of June 2016, according to the quarterly report released by the Central Bank of Oman (CBO) on Wednesday.

The CBO report said that on an incremental basis, the flow of credit to consumers resulted in an additional disbursement of OMR725.95 million in the last 12-month period ending in June 2016.

Bataineh said that people are used to take consumer loan in the country as their income is not enough to meet their monthly expenses. People are not taking loan for buying cars, as it is evident from slowdown in car sales in the recent past.

Ironically enough, the growth in demand for personal loans was in the double digits, although new employees taking up jobs declined in the aftermath of an economic slowdown caused by sluggish oil prices. 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.

In fact, the commercial banks, which have already reached their upper ceiling, cannot grow their retail portfolios, which is generally a high margin business. However, if corporate loans grow at a faster pace, banks will be able to increase their personal loan portfolios as well.

Joice Mathew, head of research at United Securities, earlier this month said that growth might decline in the coming months. “The growth may slow down in the coming months. We are seeing some slowdown in loan growth on a quarter-on-quarter basis.” A slowdown in the growth rate was witnessed in the second quarter, which could accelerate further in the remaining quarters of the year.


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