Actual Local Investigative Journalism - Legal limits on Car loans avoided.

I stumbled across this rather hidden actual Omani Media Investigative Journalism piece in.... Times of Oman. Yes. A story on car loans.





Read between the lines, and the story is that while the Central Bank have decreed that all car loans are to be for a maximum of 80% of the car value and the remaining 20% paid by the customer, dealers are getting around it by simply 'over invoicing' on the value of the car, enabling customers to effectively borrow 90% or more from their banks and flaunt the intent of the CBO's law.

Loopholes are a common problem in Omani law, especially as the lack of either personal income tax or VAT means a lot of the economy is uncontrolled and not easy to police. But it isn't hard to make this sort of transaction even more legal.

For example, I could actually charge you full price, but then offer an instant cash rebate, free gifts (that can be exchanged for cash), and include insurance, 'free' servicing, etc.

It is an example of how these simple 'micro-managing type' laws are often by-passed almost immediately. People are just too damn clever to easily be made to do something they don't want to do, especially when there's a buck in it.

Excellent work, Aftab H. Kola. This is good to see. More please!!!!!! [Essa, Bonus?]

Is CBO regulation putting a spoke in car sales through finance?

Aftab H. Kola
Times of Oman, Wednesday, December 03, 2008

MUSCAT — One of the key sectors in Oman — the auto finance industry — faced fluctuations in fortune this year following a new regulation from the Central Bank of Oman (CBO).

It may be recalled that the CBO in the beginning of the year had issued circulars to all financial companies that a borrower who wants to buy a car through loans should pay a minimum of 20 per cent down payment of the cost of the vehicle.

CBO instructed that personal loans for purchasing of vehicles have been mounting significantly and with a view to improve prudence and moderation the step was necessitated.

Cars in Oman have been within the close reach of consumers due to easy instalment schemes offered by auto finance companies. In fact, industry sources attribute this success of auto companies to the effectiveness of their alliances with financing institutions. The increased preference for financing car purchases through loans, thus, seemed justified.

According to reliable industry sources, out of 30,000-odd cars sold in Oman every year, 65 per cent are through finance. Says Aftab Patel, CEO, Al Omaniya Financial Services, “The down payment rule is applicable to individuals and not for corporate or business buying. There has not been a significant demand reduction in car sales through finance as the consumers have taken it in a positive spirit. If you look at the other way, instalments will come down.”

Another official from a car finance company said: “Smart money managers who make a 20 per cent down payment have more freedom to make a change in the car they drive. During the second year, when the car depreciates at a much slower rate, they would begin to build equity in their car. During a trade-in, they would actually get a positive credit towards the new car.”

Major players in retail car financing refused to comment on how the CBO rule has affected the car finance market. However, Mohammed Nazim, deputy general manager credit and collection, Suhail Bahwan Automobiles is candid: “The down payment rule has affected the car market marginally, but people are just crazy about cars here.”

Another official from one of the leading finance companies frankly admits that the car sales have been affected to a fairly good extent. He observed: “It is extremely difficult for new employees to pay 20 per cent down payment.”

But reports suggest that some car dealers who have in-house finance schemes are offering car loans without sticking to 20 per cent down payment. They charge less than 10 per cent down payment.

Consumers like Mohammed Hisham, a government employee find it extremely difficult to shell out a big initial amount to buy a car on finance.

He says: “The down payment component is important to a low-salaried man like me. I just got a licence and I’m keen to buy a car. But I don’t think I can buy one if they insist on 20 per cent.”

There are many like Hisham who echoed similar views. Then there are some smart agencies who know how not to send away a potential buyer either by ‘over-invoicing’ or ‘trade-in’ tricks. Industry experts now feel that the future of the automobile sector is now directly linked to the ever-increasing youth population, which is the prime target segment for most of the dealers.

And so they are devising some new schemes so that down payment does not deter them from buying cars.

Naughty naughty...

Easy Credit the rule in the GCC, and Oman

Interesting article this week in one of the UAE financial mags about the explosion in UAE and GCC Credit card debt and personal loans. As in Oman, it seems many people are in debt up to the eye-balls in loans. In fact, a rising problem in Dubai and Abu Dhabi are so-called ‘skips’, young expats (usually European) who live the high life a little too well, get into a deep pit of personal debt, and end up maxing out everything and then fleeing the country.

The key problem is the immaturity of the financial markets: in most of the GCC you can go from bank to bank, applying for personal loans and credit cards, with no cross-check between the lenders as to the actual debt load of an individual, as there are no real credit rating agencies. Across the GCC banks have relied on an adhoc system of requiring letters from employers, insisting salaries are paid directly into the accounts, and ‘blacklists’ of people who are to be denied credit.

Easy unsecured credit is a huge problem in the US and UK, so you can imagine the damage it could do in a country like Oman, where the average citizen is even less fiscally smart. In addition, Oman seems to have a tremendous cultural expectation that, no matter what, the mighty government (or Daddy) will step in to fix all financial ills. Interestingly, Kuwait’s Government have recently had to create a $2bln fund to bail out locals who have effectively borrowed themselves into bankruptcy.

Oman has done something good with the plan to create such a real credit rating agency here by 2009, teaming up with Experian, a major global consumer credit rating agency. Called the National Bureau of Commercial Information, it is (naturally) backed by the big boys (Zubair, Bahwan, Hosni…) and supported by the Central Bank. This is well overdue, but ahead of the rest of the GCC.

Why is this an issue?

In a report in June the CBO reported that the level of outstanding credit in Oman rose almost 50% in 2007, rising to $19.4bln. They also lowered the ceiling on the maximum interest rate on personal loans to 8%. (in theory only on new loans, but people could refinance old loans to the new rate). According to the CBO official report, Personal Lending by Oman’s Commercial banks rose in 2007 by 42%, from $4.7bln to $6.7bln.

A credit crash seems almost inevitable in Dubai with the whole 'running on vapor' attitude to everything, and a society dominated by relatively young expats. Dubai is also a net importer of oil…

Hopefully it isn’t too late to forestall a ‘debt crunch’ here, plus deposit growth in Oman is pretty robust, also at 40%+. But its a worry that so much of the easy credit is being spent on cars, weddings and holidays. As long as oil prices and the MSM stay high, things should be OK in Oman for now. Else the next bit of financial sophistication will need to be bankruptcy laws.

Oman Tribune article

Sultanate gets first private credit bureau

MUSCAT The National Bureau of Commercial Information SAOC (NBCI) launched Oman’s first private credit bureau on Monday under the auspices of HE Hamoud Bin Sangour Al Zadjali, executive president of Central Bank of Oman (CBO).

NBCI has partnered with Experian to acquire technical know-how and systems for the bureau. Experian, one of the three largest global information services companies, has signed an agreement with NBCI for supply of its proprietary software to enable NBCI to establish a credit reference data base and bureau service in Oman.

The partners of NBCI are Al Jawhar National Corporation, Infoline, Zubair Corporation, Qurum Business Group and Al Farqad Investments; and Hind Bahwan is its chairperson. NBCI vice-chairman and MD Khalid Ahmed Al Hosni said credit bureaus are part of the financial infrastructure of a country and are among the providers of basic information for developing credit strategies.

The function was attended by Executive President of CMA Yahya Al Jabri

India booms, Inflation rages

A few tidbits in the news lately. Sorry, no juicy gossip right now. So its Indian growth, no revaluation, and a booming money supply.

First, India is booming. And this may have some serious implications for Oman.
I’ve already of heard of many NRIs [that’s Non Resident Indians in the jargon, ie Indian Expats] returning to India, both skilled and even labourers, because they can make more money and have a better quality of life in India.
It looks like the old Omani truism "Once Oman didn’t have oil, now we have oil, maybe someday we won't have oil… but we’ll always have Indians!" may be starting to bust.
Some employers are now unable to attract skilled Indian Engineers and other senior professionals at anything near the equivalent Omani wages. While this is good news for Omanis looking for work, it is not so good for Omani Businessmen, long used to an effectively limitless supply of cheap workers in the subcontinent. This is yet another thing to add to the inflationary pressures in Oman.

Employees in India set to strike it rich as wages seen rising 14.4%
NEW DELHI The explosive rate of growth in India has created a phenomenal demand for talent so much that wages are forecast to rise by 14.4 per cent during the year 2008, says a report.

"Wages are forecast to rise by 14.4 per cent during 2008, the fifth successive year of double-digit growth. This far outstrips wage inflation in China (8.6 per cent in 2007) and is second only to Sri Lanka, where wage growth has been driven by high inflation," global management consultancy firm HayGroup said.

The high level of demand for experienced employees is driving wage inflation and creating a culture of job-hopping. Staff turnover of 20 per cent or more is not unusual in high-demand sectors such as the service industry, as talented workers jump from employer to employer, following the promise of even higher wages.

"Reward programmes of companies are in crisis as wage inflation is witnessing an upward spiralling and staff turnover rates hit new highs," the Human Resource consultancy firm said.

"In an environment where employees can achieve a pay rise of between 40 per cent and 50 per cent by moving to a competitor, they are unlikely to stay put," HayGroup added.

In the year 2007, the middle management level witnessed the maximum increase in average annual base salary (16 per cent), while supervisory, senior management and the executive level had an average annual increase of 14 per cent in their base salaries.

No Revaluation for the Rial - CBO
The Government, in its firmest statement yet, has stated that it intends to neither de-peg the rial from the dollar nor revalue the peg. Of course, at this stage its hard to believe the dollar could fall much further, especially in an election year when US dollar almost always rises coming into November. So it probably will make little difference to future inflation I guess.


Dollar peg to stay, says CBO’s Zedjali

MUSCAT The Sultanate has no plan to revalue the Omani rial or to drop its peg with the US dollar, Central Bank of Oman (CBO) Executive President HE Hamoud Bin Sangour Al Zedjali said on Tuesday.

Zedjali told Oman Tribune that a weaker rial helps attract foreign investments and make exports more competitive, which will offset inflation effects. “On the flip side, the falling greenback do have a negative impact on the currencies pegged to it,” he said.

“As a result of the dollar’s weakening, imported goods will cost more whereas the value of the exported goods will go down,” he added.

No shit. That doesn’t really do diddly-squat for the poor in Oman who are forced to buy hyper-inflated rice and oil. The infamous 'Family pack' hardly helps when you don't have the disposable income does it?

Sh. Zedjali continued:

According to the central bank chief, the interest rate policy of the Sultanate is in harmony with not only the economic conditions prevailing in the country but also with the present global scenario.

He said the balance sheets of the commercial banks at the end of 2007 showed total assets surged 42 per cent to RO10.3 billion compared to RO7.2 billion posted in 2006.

Personal loans also increased from RO1.8 billion in 2006 to RO2.6 billion.

Net profit reached RO213.8 million in 2007 as compared to RO162.9 million recorded a year ago.

On the personal loans offered by the banks, Zedjali said there is a limited ceiling of 40 per cent of the total banking loans to the personal loans. “Housing loans also shall not exceed 5 per cent of the total loans granted by the banks,” he added.

Again, the key questions go unasked and unanswered with Oman's totally vapid reporters, sorry, 'copy and pasters', from what passes for Oman's Fourth Estate. For Example, some questions I'd like to see asked:
If personal loans have increased by almost 50%, but are capped at 40% of total loans [by value I assume], what is the current level of loans vs the cap?
What’s the exposure of the banks’ assets to a fall in the raging Muscat Stock Exchange?
If Oman is booming while the global economy is looking weaker (thanks to high oil prices, huge subsidized investments and a stock-market and housing bubble in Oman, with the USA financial collapse) how exactly can a USA-based loose monetary policy, being applied defacto in Oman, be in harmony with all these conflicting forces? Oman’s money supply growth is already running over 40%, so is the CBO happy with that, and does it not see this as a significant contributor to domestic inflation? If the CBO is not happy with the record growth in the money supply, what is the CBO planning on doing about it, given that it has already admitted that it is not able to control Oman’s Monetary Policy?


Oman's annual money supply

17 Mar 2008 Oman's annual money supply, an indicator of future inflation, grew 40 per cent in January, its fastest pace in at least three years, the Ministry of National Economy said on Monday.

M2 hit $16.52 billion on January 31, compared with 4.54 billion rials a year earlier, the Ministry of National Economy said in its monthly bulletin on its website.

That is the biggest rise since at least December 2005.
Inflation accelerated for a seventh straight month to a 16-year high of 8.29 per cent in December, the latest available figure.

Oman, which pegs its rial to the dollar, relies heavily on imported food and has been hit by rising prices as the US dollar slides against major currencies. (Reuters)