Oman: Bank loans harming citizens and could destabilise the economy
Omani citizens are saddled with more banks loans then they can afford and the increasing number of borrowers is threatening to tip the scale of economy, say financial experts.
According to the Central Bank of Oman (CBO) statistics, local operating banks lent RO5.027 billion to individuals in 2011 in comparison with RO4.284 billion in 2010 and RO4 billion in 2009, an average rise of seven per cent a year. The above loan figures do not include mortgages but money spent on luxuries such as furniture, cars and holidays.
Official statistics also show that traditionally people borrow half what the government allocates for the entire year for its total state expenditure.
"This is slowly tipping the scale of the economy when ordinary people borrow half what the government spends the whole year. The country is tipping towards recession, which in turn will increase the inflation. It will be very difficult to reverse this trend once it starts persisting," Abdulaziz Al Rahbi, a financial analyst at Capital Investments, told Times of Oman. Hamoud Sangoor Al Zadjali, executive president, Central Bank of Oman, has repeatedly cautioned against excessive borrowing and urged commercial banks to extend the bulk of their loans to projects instead to individuals to boost employment.
The present ceiling of consumer loan's interest is set at 8 per cent to deter borrowers but bankers say that individuals pay no heed. "If 8 per cent is designed to discourage people from borrowing money then it is not working. They still come forward taking thousands to buy what they don't really need," a retail banker from bank muscat, who did not want to be identified because he is not authorised to talk to the Press, told Times of Oman.
Al Rahbi expects consumer loans to jump by 20 per cent this year because of the initial public offering (IPO) of the two Islamic banks. "Individual investors borrow heavily to buy new shares hoping to make quick profits just two months later. It does not always work out that way. They are left with debts which they can pay half what they borrowed," Al Rahbi added. Bank Nizwa's IPO mopped up RO681 million, 11 times the amount it was raising when it sold its 40 per cent share to the public May this year.
Al Izz Islamic Bank has also floated its IPO last month, which is expected to attract more cash than the RO40 million it is hoping to raise. But the number of "senseless" borrowing, as some people call it, will continue to rise as the appetite of borrowers never seems wane. "As long as banks are ready to loan almost any amount of money you want, the consumer loans will keep increasing every year to cripple individuals," Saif Al Hashmi, a retired Oman International Bank's retail banker, told Times of Oman.
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