Oman's bank­ing sys­tem out­look sta­ble

The Pak Banker - - COMPANIES/BOSS -

The out­look for Oman's bank­ing sys­tem re­mains sta­ble, says Moody's in a new report pub­lished to­day. The out­look is un­changed from 2007 and re­flects Oman's sup­port­ive macroe­co­nomic en­vi­ron­ment; low and well-pro­vi­sioned for non-per­form­ing loans (NPLs); and am­ple liq­uid­ity buf­fers, un­der­pinned by a sta­ble de­posit fund­ing base.

Th­ese pos­i­tive fac­tors con­tinue to be balanced by struc­tural weak­nesses re­lated to the banks' de­pen­dence on the small, un­di­ver­si­fied Omani econ­omy, which is heav­ily re­liant on the hy­dro­car­bon sec­tor, and the pres­ence of sig­nif­i­cant fund­ing and bor­rower con­cen­tra­tions.

Moody's ex­pects Oman's real GDP to ex­pand by 4.1% in 2013, fu­elled by high oil prices and pub­lic spend­ing, which will stim­u­late the non-oil econ­omy and pos­i­tively af­fect the bank­ing sec­tor over the 12-18 month out­look pe­riod.

Oman's sta­ble macroe­co­nomic con­di­tions will cre­ate lend­ing op­por­tu­ni­ties for banks and sup­port credit growth of around 10%-12% in nom­i­nal terms in 2013.

How­ever, whilst Moody's ex­pects the op­er­at­ing en­vi­ron­ment to be sup­port­ive over the out­look pe­riod, the rat­ing agency also recog­nises that Omani banks will re­main re­liant on the small lo­cal econ­omy and the per­for­mance of the hy­dro­car­bon sec­tor (which ac­counted for over 50% of GDP in 2012), leav­ing the banks vul­ner­a­ble to the risk -although un­likely -- of a sus­tained drop in oil prices.

The banks' NPL lev­els will re­main low, at around 3% of gross loans over the out­look pe­riod. Moody's bases this on (1) Oman's sta­ble macroe­co­nomic en­vi­ron­ment; ( 2) im­proved labour mar­ket con­di­tions, buoyed by government spend­ing cre­at­ing jobs; and (3) reg­u­la­tions in­tro­duced by the Cen­tral Bank of Oman dur­ing 2012, link­ing max­i­mum re­tail loan amounts to salary lev­els.

How­ever, Moody's ex­pec­ta­tions of solid as­set-qual­ity per­for­mance are coun­ter­bal­anced by banks' as­set ex­po­sure to event risks, given their high sin­gle-party ex­po­sures, and a still- prob­lem­atic real- es­tate sec­tor where delin­quen­cies re­main well above the sec­tor av­er­age.

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