CBO reduces interest rates on personal loans

[Smile]

The Central Bank of Oman (CBO) has decided to reduce the ceiling rate of interest on personal loans to be offered to the public by licensed banks from 1 April, 2003 to 11 per cent per annum from 12 per cent. The objective of the CBO in creating a ceiling on the maximum interest rate is to prohibit banks charging a high interest rate on personal loans. Banks are expected to compete within the ceiling. Banks should also keep their personal loan portfolio within 40 per cent of total credit both for the private and public sectors.



The CBO reduced the ceiling rate on personal loans from 13 per cent to 12 per cent per annum in the beginning of 2002. The decision for a further reduction is because of a continued decline in interest rates of deposits and loans in general. The CBO understands the growing concern of the ill effects of personal loans which go beyond the serviceability of borrowers and continue for long periods. It expects banks to make desirable changes in their policies and approaches, as regards individual loan limits, period of loans, and criteria for topping up.



Despite cutting the interest rate ceiling on personal loans, there still remains a need to make the burden of personal loans affordable. It is hoped that the borrowing members of the public will themselves perceive what is good for them. The public is thus urged to avoid debt-traps and increase savings, which will serve their interest better. ONA

<a href="http://http://www.omanobserver.com/" target="_blank">Oman Daily Obsever</a>



<b>Well, good news indeed, could local jam'3eyat influence the changes? </b>

[Invincible]

It's good news, but not that great really. I know people who get loans for 11% before CBO decided to reduce the interest rates. 9% would be more like it <img src="/threads/images/graemlins/wink.gif" alt="" /> I've never taken a loan in Oman, but I was just wondering, is the interest rate lower if it's secured? is there much of a difference?



I wanted to know something, is there special interest rates for student loans? I know many countries that have interest rates as low as 6% for students. Any idea?

[Smile]

I think BM have Student loans but what percentage I donno.

One more thing from the article above it wan't mentioned whether this changes applicable for both and existing and new loans?

[muscati]

<blockquote><font class="small"><hr />
is the interest rate lower if it's secured? is there much of a difference?


<hr /></blockquote><font class="post">

Security does not lower the interest rate unless it's cash. But then again if you have cash security, why would you need a loan?

[Smile]

<blockquote><font class="small"><hr />
I wanted to know something, is there special interest rates for student loans? I know many countries that have interest rates as low as 6% for students. Any idea?

<hr /></blockquote><font class="post">

I just got this information from BM, Eduational Loans are charged at 10.5% while studying, after the studies the normal Personal Loans rate applies, which is 11%. For me 10.5% doesn't make any difference to 11%, also whats the point of differatiate the two, if they're almost the same.?

[muscati]

The student loan plan was made back when interest rates were at 13 and 14%, which is why 10.5% was considered a good rate. I agree that since interest rates are now 11% the 10.5% doesn't sound very appealing anymore. I'm sure the bank is working on changing the system to make it more reasonable.

Do you know anyone who's availing of this loan? I don't think educational loans are very popular in Oman because they have many restrictions.

[Invincible]

<blockquote><font class="small"><hr />
Do you know anyone who's availing of this loan? I don't think educational loans are very popular in Oman because they have many restrictions.

<hr /></blockquote><font class="post">



Thanks for filling me in (both Muscati and Smile). As for your comment above. Alright, it's good that it has been reduced, but sorry to say this, 10.5% is ridiculously high! I know a few people who would love to take student loans, but if Banks dont make it practical and affordable, it's not an attractive service/product anymore. My crazy suggetion would be, make it interest free till the student graduates, then charge even 11%. Hehehe...



As for the security thing you mentioned. I agree, what's the point of taking a loan and using cash security against it - although lots of businessmen do that very often (I wonder why though!). In other countries, interest rates are dropped by at least 2% when loans are secured (not necessarily cash security). Banks would obviously drop loans that are cash secured, isnt the cash security meant to be deposited at the bank? it's to their benefit at the end of the day if Im not mistaken.



Anyhow, I cant say much because Im sure there's a lot of economics in deciding the interest rate, so I dont want to argue about the rates. CBO has done a good thing to put a ceiling to the interest rates. That's an improvement, and Im sure there's more space for improvement. God bless Oman.

[Smile]

Well, I know a person, who was about to avail the loan but due to tough restriction he changed his mind. The bank needs 2 guarantors, with salary above OR 500 each, the applicant should be fresh Secondary School graduate, the loan limit is OR 16,000 which isn't sufficient to cover everything if you're planning to study in US/UK. Above all he wasn't happy with re-payment plan.

As for security, I can understand other form of security but cash security against loan that also makes me wonder why?

[Invincible]

It's all business tricks - maybe trying to show that they're more liquid than they really are in reality.

[copdot]

The rule of thumb is that the bank will give you money only if they are sure that you don't need the money. You tell them you need money badly they'll keep pushing you around.



Another thing that really bugs me is the credit card system here. Firstly, many of the banks that I checked say that in order to get a credit card, I have to first 'lock' an amount of money with them, then they would give a credit of 90% of that amount. That sounds crazy. If I have that much money why do I need a credit card? I can make use of my normal debit card then. Secondly, the interest rates are ridiculous. They charge between 12-13% interest on credit cards. If I am not mistaken the maximum interest charged around the world is 3%.



I wonder what business do they make in credit cards.

[muscati]

copdot, the actual rule of thumb is that banks will give you a loan if you have the capacity and means to pay them back. Your need is irrelevent. You can borrow the money and put it all in a pile and burn it if that's what you want.

For a credit card all you need is a salary assigned to the bank. If you don't have an assigned salary then they'll ask you to keep a deposit as margin. As for interest rates on credit cards, they are comparable to anywhere else in the world and lower than the UK and some US banks. The standard rate is 1.5% p.m. which comes out to be 18% APR. In the UK many banks chanrge over 20% APR. I doubt there's any bank in the world that charges 3% APR, and 3% per month sounds very unlikey as it comes out to be 36% per annum!

Maybe you should take a minute to look things up before you post on the internet next time.

[copdot]

Its not as easy as you made it sound Muscati.

I had a salary transfer and my company was a reputed LLC. They said that the company has to be registered first.To register the company in the bank, they needed the owner to sign the forms. Which meant I had to go to the Sheikh to get his signature.

The margin that you are talking about is what they lock. Which means I cannot use that money at all. And still they would give me 90% of that amount (this is the rule of your bank BTW).

Let me check and get back on the interest rates. You are a banker, you know better. But still I'll check.

[Abdul_Karim]

Do all banks in Oman deal with interest? Aren’t there so-called Islamic banks that don’t charge any interest?

[Mutazaa]

I think they should also do something with regard to housing bank. 10 % on housing loans is too much, I think.

[Smile]

<blockquote><font class="small"><hr />
Do all banks in Oman deal with interest? Aren't there so-called Islamic banks that don't charge any interest?

<hr /></blockquote><font class="post">

Yes, they do and no Islamic banking.

[Invincible]

No Islamic banking in Oman? I thought there is. But to be realistic, I dont believe there is such a thing as Islamic banking. They just charge interest in another way.

[NaDa]

Few banks used to promote some Islamic products such as Oman Arab Bank and NBO some time ago, not any more. CBO does not allow it!



Invi,



Of course there is Islamic Banking. It started as early as 1965 in countries like Pakistan, Sudan, N Iran. Now, its developing so rapidly in Bahrain,which is a hub for Islamic Banking Finance, Indonesia, Malaysia,.. There r countries like Saudi Arabia who operate using dual banking system-Conventional and Islamic Banking.



There r about 250 Islamic Financial Institutions world wide, n its growing 15% annually. These banks basically operate using PLS basis- Profit and Loss sharing.



Bahrain also developed a monetary agency( Bahrain Monetary Agency) which set a regulatory framework for the 26 Islamic Banks in Bahrain.

[Invincible]

Thanks for being informative Nada. Im aware that Islamic Banking exists. I was just responding in reply to Smile's post where she mentioned that there's no Islamic banking in Oman. To be honest, Islamic Banking do the same thing that regular banks do but simply in a different way.

[muscati]

<blockquote><font class="small"><hr />
Islamic Banking do the same thing that regular banks do but simply in a different way.

<hr /></blockquote><font class="post">



Exactly, invinci.



The Omani government hasn't allowed islamic banking in the country for a simple reason. If you allow a bank to operate on "islamic" banking principles then you'd be saying that other banks are un-islamic. To allow both to operate would be hypocritical. Thus if you want to allow so-called islamic banks then you should also stop the operation of conventional banks.



However, our government is not blind and recognizes that islamic banking is nothing more than a gimmick and thus doesn't allow it.



Islamic banking is for people who are willing to fool themselves into believing that borrowing money on interest is 7aram, but by disguising the borrowing as a purchase and resale agreement it's ok to do it.



I saw an advert in a Saudi magazine the other day promoting islamic personal loans. It used to be that islamic banks didn't give personal loans. They only operated in fields where they can transact on sale/purchase basis. But now they give you personal loans too but cover it up as a contract to buy and sell low value metals such as zinc or nickle. So you're not really taking a loan from the bank. You're buying a quantity of zinc from them and paying them in installments on a cost + profit basis. This is not interest. It is profit on a trade transaction. It is 7alal.



Whatever!

[Invincible]

Very well put Muscati. Everytime Ive tried to explain it to people, they wouldnt get it. Perhaps I never put it in the right words. Im glad our government doesnt allow it. Using the word Islamic but doing the same old thing. At the end of the day, to me, banking is like any other business transaction. Nothing comes for free. If you want a service, you got to pay for it.

[RONI]

Next time you go to visit your bank, ask about personal loans in US Dollars.



I am sure you guys will be shocked <img src="/threads/images/graemlins/anim_naughty.gif" alt="" />

[DuXcK]

A new word should be added to the dictionary: <b>7alalization</b>

Our Quran is very clear: Riba is haraam and trade is 7alaal.

[Neo]

Guys,

Can some one help me how does the interest is being calculated. For example if I take a 5000 rials omani on a 11% interest, how much in five years on monthly basis would I pay and the total amount I will be paying?. If someone could obtain the forumale so I can calculate for any amount any interest rate. Thanks?

[Neo]

as simple as that, u sure, I thought some other stuff involves?. I think something more in involved. According to ur cal, that mean a person would end up paying (92.49*12*5) = 5549 RO, which is only 549RO only extra, WHICH IS NO WAYYYYYYYYYY

[muscati]

Neo, start Excel. Choose the Paste Function which has the symbol fx. Choose the Financial Function and then choose PMT. Enter the following:



Rate : 11% / 12

NPer : 60

PV : -5000



The monthly installment is RO. 108.712.



You have to remember to divide the interest rate by 12 because interest is paid monthly on the amount outstanding, and not flat annually on the full amount.

[Neo]

Damn thanks dude, thanks a bunch. This excel does wonders huh.



Okay, now, what about Insurance cals, how does that fit in? I know they charge insurance how do they calculate that, and do they fit it in one the monthy or one time thingi?

[Neo]

Not car insurance, the insurnace for the loan you take?

[muscati]

Life insurance is taken as percentage of the full amount depending on the tenor of the loan. It is not a simple calculation. It's a certain number of baisas for every 1000 rials you borrow multiplied by the number of months in the loan. I think it differs from bank to bank depending on which insurance company they deal with. If you already have a life insurance policy, you can assign it to the bank and not pay the insurance premium in the bank.

For 5000 rials over 5 years the life insurance is 104 rials. It is usually deducted from the loan amount unless you ask in which case they will add it to the loan.

[Neo]

Thank you again <img src="/threads/images/graemlins/smile.gif" alt="" />.

[Nomad]

Neo,

Bank Muscat have a loan calculator online.

<a href="http://208.234.28.175/bankmuscat/global_bk_regular_calculator.asp" target="_blank">http://208.234.28.175/bankmuscat/global_bk_regular_calculator.asp</a>

[vagabond]

I am surprised at the ignorance of people on Islamic banking. There may have been some who changed the name of Interest to Profit but you can not really cheat Allah this way.



All the Islamic banks now have got serious with Sharia board of very respectable professionals, sharia people and Muftis.



Please take time to research Islamic banking and then I dont think you will pass those flippant comments.Also look up <a href="http://www.e-adib.com" target="_blank">www.e-adib.com</a> which gives excellent comparison between products of conventional banks against Islamic banks.



If Muslims themselves without knowledge comment, just imagine what non-muslims can do.



By the way, Islamic banks have a large portfolio of non-Muslim business because they are cheaper, more transparent and more innovative.