Posted on April 11, 2011

Qatar Central Bank (QCB) has imposed ceilings on the amounts a bank can give as personal loan to an expatriate or a citizen.

The QCB has issued a circular to all the banks in this regard and the banking industry has begun following the directives. According to the circular, banks cannot give more than QR400,000 as personal loan to an expatriate against his monthly salary even if he is eligible to request for more based on his remuneration.

In no case the period of repayment of a loan can be more than four years, or 48 months, says the QCB directive. Also, a bank must make sure that the equated monthly installment (EMI) being paid by a borrower should not be more than 50 percent of the borrower’s total monthly pay packet, including basic salary and allowances. The borrower’s financial commitments are to be kept in mind while deciding the loan amount. A bank is not allowed in any case to charge more than 6.5 percent annual interest on personal loans.

As for Qatari citizens, they are allowed to access personal loans to a maximum limit of QR2m. The repayment tenure in their case has been extended to six years, or 72 months. The QCB has also been lenient as far as the ratio of EMI to a Qatari borrower’s monthly salary is concerned. A Qatari is allowed to pay 75 percent of his or her total monthly salary as EMI to service his or her loan. And significantly, no borrower is allowed to transfer his loan to another bank during the time he or she is repaying it.

It may be recalled that banks, competing with one another to woo customers, launched promotions and ‘bought’ their loans offering them top-offs. The QCB has also directed the banks to charge 0.25 percent additional interest on loans if EMIs are not paid on time. As for credit cards, no bank is allowed to charge more than one percent monthly interest on outstanding amounts. The central bank has imposed this ceiling because interest rates on credit cards reached as much as 21 percent annually.

Because of this, a lot of defaults were being reported. The QCB has also asked the banks to reduce the interest burden on existing personal loans—loans that are currently being repaid by expatriates as well as nationals. Personal loans can be given by the banks only if a borrower has his or her salary transferred to it. A depositor is also eligible to seek a loan from a bank against his deposit and conditions applicable to personal loans would apply, the QCB has said.

source: The Peninsula