Omani banks’ pre-tax profit hits record RO 520 million in 2018

The Sultanate’s banking sector posted strong results in 2018, notwithstanding the relatively modest performance of shares of a number of listed banks on the local bourse, according to the Central Bank of Oman (CBO).

Profit before taxes of the banking sector exceeded half-abillion mark for the first time in the banking history of Oman, the apex bank stated in its newly published 2019 Fiscal Stability Report. Commercial banks grossed RO 520 million in pre-tax earnings during 2018 compared to RO 452 million during the previous year, it said.

“Although the administrative costs increased during the year, the profitability was helped by the improvement in net interest income and foreign exchange income. It appears that the market participants recognize banks’ resilience, therefore, the funding costs remained somewhat checked even in the rising interest rate environment,” the report stated.

During 2018, the Return on Assets (ROA) and Return on Equity (ROE) of banks remained steady at 1.6 per cent (2017: 1.5 per cent) and 10.6 per cent (2017: 9.9 per cent) respectively, with Net Interest Margin (NIM) of 2.7 per cent (2017:2.7 per cent). Interest income remained dominant (81 per cent) in the total revenues of the banks, whereas, non-interest sources contributed only 19 per cent.

Moreover, within the interest income, interest earned on advances formed the lion’s share with over 89 per cent contribution. “This skewed position reflects that there is a scope to diversify sources of income,” it noted.

The major portion of banks’ non-interest expenses stem from staff and administration costs with a share of 57 per cent in the total non-interest expenses. This suggests that there is a possibility for improving operational efficiency to arrest staff and administrative costs.

Economic fundamentals hold the key to the future performance of the banking sector. Concrete developments on the economic front bode well for the financial performance of the banking sector.

Whereas sluggish economic growth or rise in interest rates may negatively affect borrowers which may increase NPLS and provisioning requirements. Low credit growth, higher provisions, and higher operating costs due to employment creation expectations from the banks are some of the factors that may bring the profitability of the sector under pressure, it added.