Oman banks feeling the heat of bad loans as expats lose jobs

The average bank loan of each expatriate leaving behind a debt in 2016 and 2015 was 4,515 rials - or Dh43,000, official statistics show.

Job losses in Oman have left expatriates unable to pay their personal loans, in turn impacting local banks. Silvia Razgova / The National

MUSCAT // Banks in Oman are being left with an increasing number of unpaid loans from expatriates leaving the country after thousands of foreign workers lost their jobs due to the economic downturn.

Firms in the private sector have been forced to terminate contracts after seeing their profits go down in the last two years due to shrinking revenues caused by lower oil prices.

According to the Ministry of Manpower, 43,110 expatriates from different professions lost their jobs in the private sector in 2016 – about 12 per cent more than a year earlier.

Statistics from local banks show that 2,622 expatriates did not pay their loans last year after their employment was terminated and 2,345 failed to clear their debt in 2015.

Unpaid loans from Omani banks amounted to about 21 million rials (Dh200m) in the last two years.

Official statistics showed the average bank loan of each expatriate leaving behind a debt in 2016 and 2015 was 4,515 rials.

According to the Central Bank of Oman, the majority of the bank loans expatriates take are consumer loans.

“A consumer loan is a type of loan customers take when they buy something personal like a car, furniture or go on holiday. This appears to be the trend of expatriates when they go to the bank for a loan,” said Kareem Al Adawi, a retired banker.

Lower oil prices in the last two years have hurt Gulf economies as governments cut spending and companies slashed jobs.

In the first quarter of 2016, 69 per cent of the Gulf’s 26 banks reported a rise in the percentage of unpaid loans and defaults, according to Reuters.

Unpaid – or “bad” – loans are also a problem among Omanis.

Two years ago, the Central Bank of Oman urged financial institutions to protect themselves against bad debt by setting aside an amount equivalent to about 5 per cent of the banks’ total annual net profits to cover unpaid loans.

In 2011, the UAE Central Bank capped loans at 20 times monthly income. It introduced a debt-burden ratio two years later, which limited residents’ debt repayments to a maximum of 50 per cent of their monthly income.

But the increasing cost of living has spurred many to take out personal loans, which rose to Dh349.9 billion in February this year – a three per cent increase from January, according to the UAE Central Bank.

Oman hosts a total of 1.86 million expatriates, mostly from India, Pakistan, Bangladesh and Philippines.

Expats working in Oman are also concerned they may lose their jobs before they can finish settling their financial liabilities in the sultanate.

“Most of us know we are going to get our contracts terminated anytime because of the current situation. But for some of us who have bank loans this is causing real stress,” said Ajit Malhotra, an Indian engineer working in Muscat. “How are we going to settle the debt when we go home?”