All of sudden, because of the real estate boom that the Sultanate is having, more banks have started to offer housing loans like BankMuscat; BankDhofar; National Bank of Oman and Oman Arab Bank in addition to the old players in the market like Alliance House Bank and the government owned Housing Bank.
Not long ago, though, the CBO had asked the Omani banks to participate in a campaign to keep their customers informed about the risks of handling huge loans as well as laying out the advantages that such financial schemes can have in resolving matters of money because of the large amount of bad loans that banks kept dealing with in the last few years and were sucking them of their resources.
Having put both matters into consideration; why then start all over again with the tumbling wheels of time by going back to square one by encouraging customers more and more to take advantage of their housing loans?
Such loans aren't just petty cash. These loans are, in fact, a huge burden on people who own a very down-to-earth salary that they barely survive on not to mention the fact that they see these loans as some sort of opening in their horizon to get them out of their financial troubles?
There are needs and wants in the market. Both need to be addressed. That much is understood. But how do you balance out both on the scale when one tips over the scale to it's side?
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Links:
- Alliance Housing Bank
- Central Bank of Oman
- BankDhofar
Tuesday, January 16, 2007
keeping scales balanced
Posted by Sleepless In Muscat at 14:43
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7 comments:
The reason all of a sudden it seams like all the banks are galloping to the real estate market with housing loans is because until last year they weren't allowed to. Until 2006 the central bank used to consider housing loans to be personal loans, and since personal loans are limited to no more than 40% of all loans that a bank can give banks couldn't offer housing loans without exceeding their lending limit. In 2006, the CBO finally agreed to allow banks an extra 5% to be used for housing loans.
The way I see it housing loans are good for the economy. For one thing people would be borrowing to own their own houses instead of borrowing money to spend on things that don't last. Growth in housing is good for the economy. It is a huge multiplier effect: contractors, engineers, building material suppliers, etc etc. When you go take a loan of 30 or 40 times your salary and just spend that cash left and right, a phone here, a tv there, some money for a vacation, some money for luxuries, etc. You are left at the end of the money with a big loan that you pay every month for years and years with nothing to show for it. But when you borrow to build or buy a house, you end up with a house. Equity. It's value increases year after year. True you'll be paying the bank for 20 or 25 years, but isn't that better than paying rent? Worst comes to worse, you can sell the house and pay off the loan, which is something that you can't do with a regular loan.
Incidentally, that responsible borrowing campaign you mentioned is actually BankMuscat's only, not all Omani banks.
Muscati:
And here I thought that it was due to the new 'sense of financial fashion' that grew on them after such a long time of schemes such as winning money, cars, holidays and other gifts.
So howcome is it, that the CBO is the one that sets the standards for the banks - isn't that a bit of a tight centralized monetary system that clamps the industry from prospect and growth?
And why is BankMuscat the only bank participating the campaign? Doesn't that provide a bad image about the other banks in the sense that they don't care about how much you take as a loan as long as you're able to pay it back no matter the circumstances?
I find that highly worrying.
howcome is it, that the CBO is the one that sets the standards for the banks
Isn't that one of the CBO's main functions? They're not there just to print money, you know. They are the ones who decide what banks can and can't do. Our central bank is extremely conservative. It doesn't allow our banks from doing lots of things that banks do in other countries. For example banks in Oman can't own real estate other than their own head office. They can't invest in real estate or develop properties for sale. In fact banks in Oman can't even be entirely retail banks. They have to offer full commercial and whole sale activities. YOu can't be just an investment bank. Or only give personal loans and issue credit cards without giving commercial loans.
As for the responsible borrowing campaign. I think it was BankMuscat's idea. They came up with it and then involved the CBO and the Ministry of Social Development. As the biggest bank in Oman, BankMuscat wants to use its influence to educate people that even though it is very easy to take a loan, you should think hard whether you need the loan before taking it.
Muscati:
I realize that the CBOs functions aren't limited only to that. But it still seems that they're a bit too possessive on the country's banks and their system just as you mentioned with the ill-funcionality of the retail banking system.
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