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CBO lowers personal loan ceiling to 35%.

Summary: Muscat: The Central Bank of Oman (CBO) yesterday decided to bring down the upper ceiling ...

Muscat : The Central Bank of Oman (CBO) yesterday decided to bring down the upper ceiling of personal loan portfolio of commercial banks to 35 per cent from 40 per cent of a bank's total credit, while increasing the housing loan limit to 15 per cent from 10 per cent now. The decision was taken by the board of governors, which met under the chairmanship of Dr Ali bin Mohammed bin Moosa, Deputy Chairman of the board here yesterday. It is not clear whether the decision will be implemented immediately or a grace period will be granted to local banks to comply with the revised upper limit. Market analysts said that the increase in upper limit of mortgage finance will help real estate sector, although banks will get a lower margin compared to personal loan. "Since it is backed by assets, the loan quality will improve and will help the growth of real economy," noted Sankar Kailasam, Head of Asset Management at Gulf Bder Capital Markets. The CBO decision was aimed at bringing in discipline among those who take personal loan. There have been concerns that a sizable amount of personal loan is used for conspicuous consumption, which include luxury cars, mobile phones and leisure travel. In other words, the increase in will help to create more appreciating assets, than depreciating assets. Of late, the Majlis A'Shura also discussed the issue in detail. The aggregate personal loan portfolio of all banks touched OMR5.8 billion (which include mortgage finance) by end-December, 2012. This constitutes 41 per cent of the total loan portfolio of all banks at OMR14.36 billion. "So, there is ample room for banks to grow their mortgage finance portfolio," added Kailasam. Kailasam said those commercial banks, which have already reached their upper ceiling (of 40 per cent personal loan and 10 per cent housing finance) can not grow their retail portfolio, which is generally a high margin business. However, if corporate loan grows at a faster pace, banks will be able to increase its personal loan portfolio as well. In principle approval The CBO board also gave an in principle approval for ahlibank to take over the assets and liabilities of Tgeer Finance Company. Further, the board approved the application of National Bank of Oman to expand its business in the United Arab Emirates by opening additional branches. In addition, the board discussed the scope for investments of Islamic banking, besides the personal and housing finance in the context of Islamic Banks. The apex bank last year brought down interest rate ceiling on new personal loan to 7 per cent from 8 per cent, offering relief to bank borrowers. The interest rate cut was aimed at bringing down the repayment burden or indebtedness of bank borrowers, at a time interest rates across the board have witnessed a substantial fall.

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Publication:Times of Oman (Muscat, Oman)
Geographic Code:7OMAN
Date:Mar 25, 2013
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