Omanis depend too much on bank loans

Athird of borrowers struggle to meet their monthly repayments as local banks easily extend personal loans to Omanis.
The alarming amount of money the local banks loan to citizens could destabilise the economy in the long run. By July this year, individual people borrowed RO 4.35 billion, mostly as personal loans, a rise of about 5 per cent compared to July 2016, according to official statistics.
This amount is equivalent to more than half what the government had allocated to spend for the whole year in 2016. What is more interesting, it is also more than double the RO 2.5 billion the government has borrowed from foreign financial institutions.
The overall banking statistics also show that over a third of borrowers either permanently default on their loans or miss out on some repayments. The other third of borrowers struggle with their livelihood as they are left with only forty per cent of their earnings to meet their household expenditures. It means only 33 per cent of all personal borrowers are comfortably meeting their repayments.
The alarming thing is that in this latter group, some of them go into their retirement with banks still owing them money. They go into the red hoping their children or relatives would help them meet their financial obligations in their old age.
The grim picture is that credit starts much sooner now, as early as the age of 19.
Higher education students, who have missed the government’s scholarships or their parents are too poor to finance them, get themselves into debt. Commercial banks happily promote their education loans to ensnare young adults who would later start their careers saddled with loans that would prove to be very crippling in the long run.
In the first five years of their careers, they would put their marriage on hold and their first home would become a distant dream. They would add another loan on top of their credit woes to buy a car.
For those who have poor parents, they would need to find enough money to look after them. Life for some of these poor youngsters has a bad financial start.
On annual basis, the repayments of loans outstrip the country’s inflation rate.
In other words, while the rest of the population struggles to keep up their earnings with inflation, the borrowers have the additional burden of repayments, on top of that hardship. Some financial analysts argue that the society is producing a community with a fading hope of a prosperous future. The gap between good earners and strugglers is widening, thanks to a culture of heavy borrowing and banks that are ready to lend at the drop of a hat.
The decision of the Central Bank of Oman’s Board of Governors in March to reduce the ceiling on personal loans to 35 per cent from 40 per cent of total bank credit is a move to try to cut borrowing but it has been done before with little effect.
Why? Because the banking sector is expanding and we will have one new bank coming this year and another one on the anvil two years later to move back the amount of loans available to borrowers back where it were two-three years down the line. There are already murmurs among bankers that the new ceiling on credit will reduce their profitability in 2018. Statistics show that combined profitability of all commercial banks is in the excess of RO 200 million last year.
It has been steadily rising by the rate of seven per cent every year in the last five years. It is not hard to guess that personal loans have been making banks richer and pay for the fat bonuses of their senior officials.
The general feeling is that bank managers do not sit down with their customers to work out their expenses to see whether their clients can afford the repayment or not. Nobody ask them if they have other liabilities such as a car loan and house rental. Perhaps it is time Oman introduces a credit check where a report would generate a record of all loans taken by an individual to make sure the customer can afford another liability or not.