Licensed banks in the Sultanate are prohibited from offering any prizes, gifts or other such inducements to entice customers into buying their personal loans or other financing products, according to the Central Bank of Oman (CBO).
The warning came in a Master Circular issued by the apex bank last week, revising the guidelines regulating promotional campaigns, competitions, merchant discount schemes and loyalty programmes of banks.
In essence, the circular dispenses with the long-standing requirement for licensed banks, including Islamic Banking Entities (IBEs), to first obtain a ‘No Objection’ from the CBO before undertaking any promotional campaign, competition or discount scheme.
The waiver applies to all types of “promotional campaigns, competitions, merchant discount schemes, loyalty programmes and other initiatives of a similar type/nature, including those relating to deposits, personal loans / financing (including credit cards), debit / prepaid cards and mobile wallets”, the circular noted.
However, it reaffirmed the continuing ban on inducements in the form of prizes and gifts to lure customers into opting for the personal loan or financing products of a licensed bank.
“Prizes and incentives, whether in cash or kind (including token gifts), should not be offered on any loan / financing products and remittances, though promotion / publicity thereof is otherwise allowed. The only exception for offering prizes and incentives, in this context, is in respect of credit card campaigns,” it noted.
Personal loans, in particular, account for around 40 per cent of the total credit portfolio of commercial banks in the Sultanate, which topped RO 10 billion for the first time in 2018.
Importantly, the circular directs banks to “unambiguously” communicate any changes in interest / profit rates in their promotional campaigns. Teaser loans, for example, which typically involve lower interest / profit rates initially, followed by higher rates for the remainder of the tenor of the loan, should be coherently communicated to potential customers, it stressed.
The CBO circular also calls on banks to ensure that customers are clearly aware of the downsides of opting for instalment waivers. “In the case of ‘instalment waivers’, banks should make known to customers the effect thereof, such as extension of tenor and impact on interest / profit amount, in all their communications,” it stated. Additionally, it warns that promotions centring on discount schemes should not mask any hidden charges or costs to customers.
In concluding, the Central Bank noted that in the wake of the scrapping of the No-Objection requirement, banks are expected to diligently adhere to the guidelines governing competitions and promotions.
“As banks will appreciate, liberalisation should be accompanied by greater responsibility, and the Central Bank expects banks to maintain market harmony by eschewing unhealthy competition / unfair practices, besides appreciating customer sensitivities and ensuring protection of customer confidentiality,” it added.
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