Banks get tough in granting loans to expatriate workers

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Clarification in economic vision of private sector awaited

KUWAIT CITY, July 11: Some banks have circulated internal credit policies that disallow consumer loans for expatriates, especially those working in private companies not classified with the bank.

According to the new credit policies, it’s the obligation of banks not to increase the percentage of non-performing loans they have in light of the negative economic effects of the outbreak of the coronavirus pandemic.

The chances for the expatriate to obtain consumer loan has practically become confined to some government jobs carefully chosen by the banks and restricted (according to some banks) to the ministries of Health, Education and Awqaf only, besides stopping loans for workers in other government agencies due to decisions taken to lay off large numbers of expatriates to nationalize those jobs.

The source emphasized that supervisory instructions and banking policies do not tell between a citizen and an expatriate but it’s everything about the conditions of their companies, as great change has begun to be witnessed in the salaries of expatriates since the beginning of this year.

The banks are awaiting clarification in the economic vision of private sector, especially the medium and small companies and the status of expatriate workers therein. On the other hand, granting loans to expatriates in private sector is currently limited to workers in the major companies listed on the Kuwait Stock Exchange, which include banking, telecommunications, investment and real estate sectors with high financial solvency, as they will not be affected by militancy.

At least, there’s a need for the client to enjoy a reasonable sum in the end of service benefit entitlements to guarantee maturity of loan. Consumer loans can be used to buy cars, furniture, and support education, medical treatment and more.

The banks grant consumer loan to expatriates, even though they are significantly lesser than what is usually granted to citizens. Some expatriates said they obtained loans worth 30,000 dinars before the coronavirus crisis for a period of about 5 years.

The customer signs a loan agreement indicating purpose for which it’s being obtained is permitted, then funds are approved as long as the experience indicates he is obligated to pay. What has changed since the beginning of July after the halt in economic life coinciding with the comprehensive and partial ban, coupled with the closure of many businesses that pushed the banks to be cautious in giving credit to their expatriate clients in the first two months.

Banking sources confirmed that this change does not have much impact on the banking sector, because the share of expats in personal loan portfolio remains very limited. The Central Bank data indicates the size of the personal loan portfolio reaches 16.3 billion dinars, of which about 1.4 billion dinars constitutes consumer loans and 11.8 billion dinars from simplified loans, and the remainder is divided between unrated loans, and loans to buy stocks and real estate.

Sources pointed out that there are one or two banks still granting loans to expatriates, but on very strict conditions. The Central Bank of Kuwait instructions give 25 times the salary not required. It should be noted that consumer and installment loans are linked to a wide segment of citizens and residents having relative importance in the lending and financing portfolios of both banks and finance companies, taking into account the importance of controlling growth in these loans in a manner that maintains monetary and financial stability.

In a tour conducted by the daily on the sites of some banks that currently require the provision of loan (online), they discovered the minimum salary for consumer loan is set at 400 dinars and the age of the applicant must not exceed 65 years when the loan is due.

The fixed interest rate on new loans is about 1.5% of the Central Bank price discount plus 4% interest limits for a consumer loan of 25 thousand dinars with a repayment period of up to 5 years with or without the end of service benefits. With the end of service, the maximum loan amount reaches 150% of the value of end of service benefits.

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