Loans to get costlier

By Vinod Nair — MUSCAT: Dec. 10: Bank loan rates in Oman are expected to go up in future, for most part of 2017, and a lot will depend on the sustainable recovery of oil prices. Banking officials in Oman confirmed to the Observer that the days of low interest are over, at least for now. But they refused to comment on whether the changes are already being felt on the ground. Joice Mathew, senior research development manager at United Securities, said the Central Bank of Oman (CBO) has fixed a ceiling of six per cent on banks’ lending rates.

“Institutions in Oman have been charging lower rates, some around 4.5 per cent or lower. It may be noted even rates offered by banks for deposits have gone up from around 1.5 per cent to around three per cent or more in recent times.” He said the number of people availing of loans might come down in the coming days due to the prevailing economic uncertainty, but things may change as the economy improves.

A senior banking official said when people availing new vehicles come down, so will be the need for loans. He said this has nothing to do with the demand for loans. Rates offered on deposits have gone up and naturally, loans will also go up. “Most banks have not increased the interest rates, though there will be some changes in the developing economic scenario.”

A sales executive with an auto dealership admitted the demand for new cars has dropped this year despite massive promotions. “I cannot give figures, but it is in line with the current economic climate. But oil prices are recovering now and that’s important for us.”
According to a news agency report, CBO recently said it will not raise the loan and deposit rates because of tightening liquidity arising out of low oil prices, but rises may be inevitable depending on the trend in US rates.

Speculations were rife as Bank Sohar recently told some clients it was raising rates for loans and deposits. Rates on some personal loans will rise to 5.5 per cent from 4.99 per cent from December 15. “Unfortunately, market conditions have now changed and the cost of funding has significantly increased,” Bank Sohar said in a note to clients. As a result, it has become extremely challenging to keep interest rates at the current levels,” the new agency said.
CBO executive president said Bank Sohar’s hike followed a previous lowering of rates by that bank, so the hike was within “allowable limits”. A six-per cent cap on rates for loans to individuals is still in place, the agency said.

“The increase was 0.5 percentage points. We will try not to see it happening with other banks,” said the CBO president.

However, he said there was an upward pressure on Omani banks’ loan and deposit rates since oil prices began dropping about two years ago, because a decline in government deposits had pressured liquidity in the banking system. In addition, the US Federal Reserve is expected to raise rates when it meets next week. “Depending on changes in the Federal Reserve rates, (Omani rates) might increase,” he said.