Personal loans of Omani banks grow 11 per cent; slowdown expected

Muscat: Oman’s conventional banks posted a robust 10.8 per cent growth in aggregate personal loans, or consumer loan portfolios, which stood at OMR7,512.30 million at the end of March 2016.
However, this growth rate is expected to slow in the remaining quarters of this year, according to market analysts.
The aggregate personal loan portfolio of Omani banks constitutes 39.4 per cent of total bank credit of OMR19,053.24 million,as of the end of March 2016, according to the Central Bank of Oman (CBO).
The CBO report said that on an incremental basis, the flow of credit to consumers resulted in an additional disbursement of RO732.37 million in the last 12-month period ending in March 2016.
Ironically, the growth in demand for personal loans was in the double digits,although new employees taking up jobs decreased 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.
Of note, personal loans are the key revenue drivers for the Sultanate’s financial institutions, due to their high interest margins.
Joice Mathew, head of research at United Securities, said that the base impact had influenced personal loan credit growth, since most of the growth occurred in the nine month period starting inMarch 2015.
Mathew also 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.
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 loweredthe 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.
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.
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.