A trap in unending debts

To keep pace with the growing need for money, an increasing number of citizens and residents are turning to banks for loans, which very often leads to a possible spiral of unending debts. Scores of borrowers are involved in multiple loans, including housing, vehicle, households, marriage, etc. There are also people who take loans to finance their extravagant travel needs. The result is that many are now toiling to make ends meet as they are financially stretched after hefty monthly loan deductions from their salaries. Some of them are under stress and depression.

Their situation has aggravated because of a rise in living costs aided by the austerity measures adopted by the government to tide over the crisis resulting from the fall in oil prices. According to Lo’ai Bataineh, Chief Executive Officer of U Capital, layoffs in some sectors, including construction and oil and gas sectors, restructuring of salaries with a cut in perks and allowances, are some of the major reasons for default in loan repayments.

“Inflation outpacing wage growth has aided the default,” he said.

Although none of the banks was willing to give the exact number of citizens or expatriates who have defaulted on loans, everyone agrees the number is alarming.

“The banks cannot help them in any manner except giving some extra time in genuine cases. Many borrowers approach us with pleas for waiver of instalments. We cannot violate the policies of the banks,” said a senior manager at a local bank.

Although the banks sympathise with defaulters of circumstances, in many cases we have no other option but take them to law, he said.

Personal loans are generally unsecured loans which are used to drive consumption, whereas secured loans assist or drive investment.

“Personal loans are taken mainly to cover an unexpected, or in some cases, an unwanted luxury expense. Popular use of those expenses includes weddings, luxury vacations, house refurnishing or remodelling, emergency medical bills and educational expenses, etc,” said Lo’ai Bataineh.

According to the 2016 annual report of the Central Bank of Oman, personal loans inclusive of residential housing loans continued to form a major part of the total credit at 40.1 per cent in the Sultanate.

The credit amounted to RO 7.9 billion at the end of 2016.

Within the personal loan segment, residential housing loans stood at 9.8 per cent of the banks’ total credit outstanding.

On an incremental basis, the flow of credit towards personal loans led to an additional credit disbursement of RO 564.2 million during 2016 compared with a large outlay in the previous year amounting to RO 678.3 million.

However, the apex bank’s sustainability report indicates that the high quantum of personal loans is not a matter of concern.

“The banks’ exposure to the household segment, having potential of volatile performance, could be a source of concern as it might spell a situation of debt overhang,” the report says.

It’s not only citizens who are affected by high levels of debts, thousands of expatriates, too are facing worsening financial conditions.

This will have a negative impact on the physical and mental condition of the workforce.

A senior official in the recovery section of another bank said there are also cases of individuals who change jobs forcing the banks to “give a chase”.

“Some people deliberately change their jobs and give different bank accounts to their employers for salary transfer to escape loan repayment. In these cases, we have to take legal action,” he said.

The bank official said banks always take a sympathetic approach and prefer to work with those in debt to find a solution.

“People should borrow wisely to ensure the repayment is affordable. The borrower should ensure payment is cleared on time. Banks try to get in touch with the debtors to remind them of their obligations, which could also be in their home country,” he added.

According to him, any debtor who mistakenly believes he/she can hold creditors to ransom as moving the courts can be a long and expensive procedure for creditors and may not always be worth their while.

SAMUEL KUTTY