I wrote about distressed loans several times before in the Arabic daily Al Sharq, where I said the government was responsible for citizens’ inability to repay their debts because of the global financial crisis and that the government had halted most of its projects and failed to pay for the projects fully or partially completed.
When the global financial crisis became more severe, we saw government intervention to solve problems faced by banks and the owners of housing complexes and towers.
Later, the government provided support for banks with financial problems in the US and carmakers suffering accumulated debts in some Western countries.
While doing this, the government left behind the ordinary Qataris in debts, which led to further problems for them.
The problem with most of our officials and decision-makers is that they do not want to budge a little from the belief that Qatar’s economic condition is excellent and there are no economic problems facing the Qatari society, forgetting the destructive impacts of distressed debts on the local economy and individuals.
In one article, I suggested the establishment of a special fund to help citizens who cannot repay loans to banks and financing companies.
I also called for the immediate release of citizens who were jailed because of failure to repay loans, not those convicted of fraud and swindling.
I also called for reinstating citizens dismissed from their jobs because of distressed loans, cancellation of interest on loans and enacting law to deal with such problems facing people in Qatar.
I made these suggestions with a focus on means of solving problems, not on who might have caused them. However, after investigation, I found that there was a lack of legislation to regulate the work of banks, which caused the bulk of the problem of distressed loans.
To compensate for the lack of legislation, the Central Bank of Qatar issued Circular No. 36/2011 on salary-linked credit which outlined rules on how to back up loans as follows:
1. A loan should not be more than QR2m for citizens and QR400,000 for expats.
2. The repayment schedule should not exceed six years for citizens and four for expats.
3. Interest rates should not exceed those approved by the bank in addition to 1.5 percent.
4. Instalments should not exceed 75 percent of the salary of citizens and 50 percent of the salary of expats.
5. The maximum limit for withdrawal by credit card should not be more than the net salary for citizens and expatriates, while interest on this withdrawal should not exceed 1 percent. Banks can give loans only to employees whose salaries are transferred to accounts with them. A person who obtains a loan from a bank cannot take another loan or funding from other banks until the original loan is repaid.
This rule prevented banks from giving loans to people whose salaries were not transferred to the concerned banks, and banks forced to cut the interest rate for old loans in light of the new rates decided by the central bank in addition to a margin not exceeding 1.5 percent.
One of the best things about the new rules was that it obliged banks not to force loan-seekers to sign cheques for the total value of the loan as guarantee. This eliminates the prospect of arrest. Citizens could have been jailed for not repaying loans. The rules also reduced cases of bounced cheque at courts.
One good thing is that banks have been prevented from demanding cheques as guarantee against loans, which is necessary to protect clients and banks from the risk of taking clients to court. It reflects positively on reducing cases of fraud cheques.
This law also brought to a minimum consumerism and luxury loans, and saved banks from distressed loan problems.
They reduced complex interests, which increase the loan by 75 percent in the form of interest and additional fees. When clients fail to repay loans, total interest can be more than the loan.
Excessive bank loans marked the years preceding the global financial crisis, and most loans were not calculated by banks.
I do not accuse banks of offering too much loans to individuals and companies, because all indicators and official statements emphasised that the government’s major infrastructure and urbanisation projects would continue to be implemented through 2020.
Nobody had expected that these projects would be stopped or slowed down. That is why banks should have tapped into this activity for the sake of their shareholders, given the absence of legislation.
The rules of Central Bank of Qatar came to fill the gap created because of the absence of legislation which should have been enacted by the government.
In introducing these rules, the central bank helped the government solve its problem. Yet, the rules came short of dealing with the consequences of the problem.
The government should have made a study on ramifications in the absence of legislation. Then it could have utilised scientific knowledge and expertise to solve the problem. But the government sought to gloss over the problem.
The situation is dangerous and policy makers badly need support. I do not think the investment of billions of riyals locally to solve this problem will affect Qatar’s financial ability negatively, given the fact that our country has huge surplus every year.
Government intervention to help citizens is important. It can offer help to citizens and banks and revive the local market.
The money to be invested in solving the problem of distressed loans will not be wasted. It will go back to treasury, after providing easy terms for citizens.
I know that some officials will try to block implementation of any suggestion. However, they need to know that pumping money directly by raising salaries or increasing subsidies or indirectly by paying distressed loans can contribute to stabilising society, the economy, and the country.
