CBO cuts personal loan interest rates
MUSCAT -- The Central Bank of Oman (CBO) yesterday reduced interest rate ceiling on fresh personal loans of commercial banks to 8.5 per cent from 9 per cent with effect from April 1. The decision was taken by the CBO board, which met under the chairmanship of Dr Ali bin Mohammed bin Moosa, Minister of Health and Deputy Chairman of CBO board. Hamoud bin Sangour al Zadjali, Executive President of the CBO, said that the reduction is aimed at giving relief to borrowers of this segment, without severely affecting the profitability of commercial banks.
"This is to give relief to this segment of borrowers. It will not have much impact on the profitability of banks," he said. "This is meant for small borrowers... Those who purchase car and other household items. It will reduce the burden of this category of borrowers," noted Al Zadjali. Al Zadjali said that the reduction is in line with the declining trend in interest rate within the country and in the region.
The new rate is applicable to fresh personal loans, sanctioned after April 1 and existing borrowers will not gain from the reduction. However, existing borrowers can negotiate with banks for bringing down their interest or close the loan and go for fresh loan with lower interest. There was no change in the interest ceiling of personal loan for more than three years, after fixing the maximum ceiling at 9 per cent on January 1, 2005. The interest rate ceiling was reduced by one percentage point each in phases from 13 per cent per annum in 1999.
The CBO has stipulated a ceiling of 40 per cent of total loan portfolio as personal loan. 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 the total loan portfolio. This is against RO 2,238.11 million by end-September 2007. Banks can give 5 per cent of total loan portfolio as housing loan, taking the total personal loan portfolio to 45 per cent.
The CBO board also approved 'in principle' an application of Muscat Finance and National Finance Company to merge together to form a large non-banking finance company. The boards of both companies decided a few months back to go for a merger. The merged institution, which will have a combined net worth of RO 26 million, will be the biggest non-banking finance company in the Sultanate. The merged company will have a higher market share, be able to compete effectively in Oman and will be in a better position to consider regional expansion.
Another application of Oman Company for Hotels and Tourism to raise its stake in United Finance Company (UFC) to 35 per cent from 10 per cent has also been cleared, the statement said. Yet another request from Travelex & Co to open branches in Oman has also been approved. Travelex is planning to open a money exchange to carry out remittance businesses and to issue demand drafts. The CBO board also approved final audited accounts and the banks' deposit insurance scheme accounts till end-December 2007. The board members also discussed the recommendations of the mission of International Monetary Fund (IMF) and World Bank on FSAP, and directed CBO's executive management to follow up the implementation of all these recommendations as far as possible.
By A E James
© Oman Daily Observer 2008
