Muscat: Salaried individuals in the Sultanate of Oman have relied a lot on personal loans from commercial and Islamic banks and the growing appetite can be gauged from the new figures released by the Central Bank of Oman (CBO) in its 2022 report.
According to the report, personal loan disbursals by commercial and Islamic banks in Oman hit a new record of OMR10.935 billion in 2022, up from OMR10.542 billion a year earlier, underscoring the continued demand for personal banking credit by salaried individuals to address their private, consumer and family-related funding requirements.
The report said that personal loans accounted for a significant 37.4 percent of total banking credit of OMR29.223 billion recorded in 2022. This is in line with a 40 per cent cap of their loan portfolio set by the Central Bank of Oman for personal loans (including residential housing loans).
Personal loan requests cover a broad array of funding requirements ranging from housing finance and improvements, to educational, wedding, medical and holiday-related expenditures. Often, it can also be used to fund the purchase of automobiles, household electronics and other consumer-related expenditures.
Personal credit has been on a steady upward trajectory over the past several years, according to the CBO report.
Surpassing the OMR 10 billion mark for the first time in 2018, it climbed to OMR10.242 billion a year later. After a marginal increase of OMR 10.269 billion in 2020, personal loan disbursals jumped to OMR10.542 billion in 2021. It has since risen just shy of the OMR 11 billion mark in 2022.
Other sectors of the economy too have benefited from banking credit extended by conventional and Islamic banks during 2022.
The CBO report commented: “The banking sector continued to play a supportive role in promoting economic diversification initiatives by meeting the credit needs of all segments in the economy. The present regulatory framework permits banks to allocate a prescribed proportion of their total credit towards personal loans and to allocate a minimum of 5 percent of total credit to SMEs.”
It further noted: “The personal loans category continued to hold a majority share in total credit at 37.4 percent at end of 2022. This category witnessed a growth rate of 3.7 percent in 2022 and 2.7 percent in 2021. Additionally, several other sectors also registered positive growth rates during the year demonstrating some signs of economic recovery.”
The service sector accounted for 10 percent of total credit of 2022 while the construction sector constituted 9.4 percent and manufacturing sector was 8.3 percent. Electricity, gas and water constituted 5.6 percent while transport and communication accounted for 5.9 percent.
Credit to agriculture and allied activities, despite having small shares, experienced the highest 50.1 percent in 2022. Similarly lending to the government sector expanded by 36.1 percent while to non-residents it increased by 34.8 percent.
On the other hand, credit to the manufacturing and wholesale and retail trade sector declined by 3.1 percent and 2.4 percent respectively.
FLCs now offers personal loans
The record disbursals of personal loans also received a boost after the announcement by the Central Bank of Oman in June authorising Finance & Leasing Companies (FLCs) to extend, among other products, personal loans to customers.
Following the nod, FLCs have been carrying out additional business activities and these include real estate financing, working capital facilities, personal loans and lending against their own deposits.
The CBO said that expansion of additional activities include relaxing certain conditions for their existing activities.
The CBO in its circular said that the relaxations were extended to FLCs on conditions to accept corporate deposits, investments including discretion to change its business hours as per need of the market.
The amendments aim to broaden the activities of FLCs and help in contributing positively to the development of the sector and the overall economy.
In its circular, CBO said that FLCs are now permitted to extend personal loans to individuals that do not require collateral or security, subject to some conditions.
The loans are for customers with a monthly net salary of less than OMR 1,000 where the maximum Debt Burden Ratio shall not exceed 50 percent of net salary.
For customers with monthly net salary equal to or exceeding OMR1,000 and those having repayment towards housing loan, the maximum Debt Burden Ratio shall not exceed 60 percent of the net salary.
Elaborating further, the CBO circular said that net salary referred to herein, is the salary received by the customer in their bank account on a monthly basis.
The tenure of such personal loan shall not exceed seven years. It is permitted to allow a maximum of two monthly deferments per year, over and above the maximum tenure of seven years as per customer request.
FLCs shall take due care in determining overall debt burden by reference to such sources like bank statements, credit report from Mala’a (Oman Credit and Financial Information Centre).
The circular further said that the purpose of the personal loan shall be non-business.
The top up of the personal loan shall be allowed, only after 12 months of satisfactory conduct of existing loan account or after 50 percent of the existing loan is repaid or when the loan was not fully availed as per his/her eligibility.
Age factor shall be considered appropriately. to ensure that repayment obligations can be met reasonably ahead of retirement.
The total personal loan portfolio (secured and unsecured) shall not exceed 50 percent of the total lending of the FLC, the CBO circular further said.