Strong credit offtake fuels banking sector growth

STABLE PERFORMANCE: Total assets exceeded RO 29 billion (versus gross assets of RO 30.25 billion) at the end of 2016

Oman’s banking sector continued to remain resilient despite challenging economic conditions, the Central Bank of Oman (CBO) stated in its 2017 Financial Stability Report.

Relatively improved crude oil prices, ongoing fiscal reforms, and satisfactory financial performance by the banking sector meant that the short-term risks to its financial stability further subsided in 2016, the report said.

“The banking stability index also show that on balance, the stability of the banking sector stayed intact as the sector remained well capitalised, profitable, and fairly liquid with low infection ratio during the year under review, the apex bank stated.

Despite some slowdown in the economic activities, the banking sector continued to expand with strong credit offtake, according to the CBO. Total Assets (net) of the banking sector exceeded RO 29 billion (Gross Assets RO 30.25 billion) at the end of 2016; thus, registering a growth of 6 per cent during the year. This growth is lower than previous years’ growth. However, deceleration in growth is not unexpected considering the challenging macroeconomic conditions faced by Oman and banks’ need to adjust to the new normal of lower oil prices and rising interest rates.

“Notwithstanding these shortterm adjustments, the banking sector in Oman is set for solid growth over the next several years on the back of economic diversification under ambitious Tanfeedh plans and a relatively low banking sector penetration,” the report said.

The Central Bank noted the continued growth of the ‘Private Credit to Non-Oil GDP’ ratio during 2016. However, the existing level of corporate and household debt (in relation to the GDP) was far from excessive, therefore, the debt overhang remained highly unlikely and the increasing credit-to-GDP ratio indicates a positive development, it said.

Private Sector Credit to GDP Gap also increased during 2016. However, this does not signal build-up of system-wide risks as this increase in the Gap was driven largely by a sharp fall in nominal GDP (due to fall in oil prices)