Muscat: Thousands of young Omanis joining the country's workforce and public sector employees flush from recent pay rise are expected to push the Sultanate's personal loan spending up by more than
Bankers and stock market analysts expect the consumer loan and mortgage finance to grow slightly over 10 per cent in 2014, taking the value of all consumer loans in the Sultanate to more than
This is compared to 8.9 per cent growth or
"We are estimating a better growth in the portfolio this year owing to the increased borrowing power of customers, primarily from the government sector employees as a result of recent salary hikes," said
"It is roughly estimated that as many as 60,000 locals will join the workforce this year, if last year's trend is any indication. Last year,
"Additionally, the two-year moratorium on personal loan top ups will be fully over in the first quarter of the year, which should help in incremental disbursement," added Mathew.
By the end of 2013, listed banks had a combined gross exposure of
Echoing a similar view, Ahmed M Al Abri, chief operating officer of
"Those who joined (the workforce) last year will borrow from banks this year. The next growth will come from increase in salaries," he added.
Omanis primarily borrow money to meet their basic personal needs such as housing, vehicle and lifestyle products, which include consumer electronics and white goods.
Low interest regime
"Lower interest rates creates affordability of loans, and hence can also be viewed as a factor responsible for better demand for personal loan," added
However, the CBO decided to implement it from June this year on requests from commercial banks. Other major restrictions brought in by CBO on consumer loan front last year include introduction of debt burden ratio (the portion of salary that goes as loan repayment) of 50 per cent and 60 per cent for personal and housing loans, respectively. Also, there were some other restrictions on top up of existing loans.
"Despite the elevated borrowing power of customers as a result of salary hikes, the new debt burden ratio regulation combined with restrictions on loan top up had restricted the personal loan growth in 2013. In 2014, we expect the banks to capitalise on the increased borrowing power, but the lowered interest rates resulting in slower growth of interest income growth (of banks)," noted Mathew.
"With the new restrictions, the risk of retail loan non-performing assets will be minimal," added Kailasam.
Agreeing with Kailasam,
Among various banks,
In fact, the personal and housing loan portfolios of some of the listed banks have limited room for growth as a result of CBO lowering the bank's maximum limit on personal loan portfolio.
"However, we expect those banks who have more room for growth in personal loan portfolios to seize more market share in 2014.
Owing to the relatively higher yields, personal loans are a major contributor to the banks' interest income.
The CBO decision to lower interest rate ceiling to 6 per cent will be affecting the interest income growth of the banks. However, the impact will be minimal in the immediate term as the 6 per cent interest rate cap will be applicable on new loans only.
"We have observed that the average time taken by the banking system to fully reflect interest rate ceiling cuts has been around 4-5 years. We estimate the overall interest yield on loan book of listed banks to get reduced by 16 bps in 2014 as a result of this decision. But we expect banks to try neutralising the impact of this development on their profitability with increased volume growth over the long term," added Mathew.
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