MUSCAT -- Local banks are trying to reach a consensus on restricting maximum personal loan amount to an individual borrower to ease repayment burden of people. The move is expected to check excessive borrowing at a time when the cost of living is going up in view of inflationary pressures. "Banks are competing among themselves to offer personal loan to their customers. Different banks have various limits on the maximum personal loan amount. It varies from 50 to 70 times of salary, depending on the bank. The repayment period also varies from 15 to 25 years in the case of Omani nationals," said a senior banker.

"In several cases, as much as 75 to 80 per cent of salary goes to pay loan instalment. People are not able to repay such amount with increasing cost of living. Now, banks are looking at reaching a consensus on the portion of salary a borrower can repay as loan instalment," added the banker.

According to bankers, excessive borrowing could lead to default on loan repayment, like the subprime loan crisis in the United States.

In fact, banks consider personal loan as the most lucrative business portfolio. "If the loan instalment is 50 per cent of the salary, borrowers will not have much problem," he noted, without giving an indication of the proposed ratio. Senior officials of local banks had a meeting, which was attended by a representative of the central bank. "There will be another meeting soon to discuss the issue further and reach a consensus," he added.

However, the official noted that the banks did not had any discussion to avoid undercutting of personal loan interest. The interest rate ceiling on fresh personal loans of commercial banks was brought down to 8 per cent from 8.5 per cent with effect from June 14. The reduction, which was aimed at giving a relief to small borrowers, was in line with the declining trend in interest rate in the international market, especially for dollar-dominated loans. The new rate is applicable to fresh personal loans and those who took loan before the reduction can close the loan to go for fresh loan with lower interest.

This was the second time that the apex bank brought down interest ceiling on personal loan this year, after a half percentage point cut in March. According to the CBO, the aggregate personal loan portfolio of all commercial banks put together touched RO 2,599.92 million by end-December 2007, constituting 39.9 per cent of total loan portfolio. This is against RO 2,238.11 million by end-September 2007. The ceiling of housing loan has been raised from 5 per cent to 10 per cent of total loan portfolio following requests from banks. With the revision in mortgage loan ceiling, the combined personal and housing loan portfolio ceiling of banks is increased to 50 per cent from 45 per cent earlier.

By A E James

© Oman Daily Observer 2008

 

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