Sultanate's banking sector remains resilient, says IMF

Oman's banking sector remains strong and stable, supported by growing profitability, a strong liquidity situation, and low non-performing assets, according to the International Monetary Fund (IMF).

The IMF'S executive board recently concluded the 2023 Article IV Consultation with Oman.

'The banking sector remains resilient. Profitability has recovered to pre-pandemic levels, and capital and liquidity ratios are well above regulatory requirements, with non-performing loans remaining low and sufficiently provisioned,' the IMF said in its executive board's report on the 2023 Article IV Mission to Oman, released on Tuesday.

The IMF noted that the stress tests suggest that Omani banks are resilient to credit and liquidity shocks.

According to the report, the IMF directors welcomed the continued resilience of the sultanate's banking sector, while indicating that further efforts are needed to strengthen the regulatory framework to ensure financial stability.

'The directors encouraged the [Omani] authorities to return the capital conservation buffer to pre-pandemic levels, re-assess the list of domestic systemically important institutions, and further enhance the AML/CFT framework,' the IMF said.

'They also underscored the importance of further developing the financial sector to enhance access to finance and support economic diversification, including through enhanced digitalisation while being mindful of associated risks,' the IMF added.

Furthermore, the IMF directors agreed that the exchange rate peg [with the US dollar] continues to serve Oman well as a monetary anchor.

The IMF stressed that measures to strengthen the monetary transmission mechanism should continue to ensure that institutions are in place to support a more independent monetary policy regime in the future. In this context, directors emphasised the importance of sustaining progress under the sultanate's Monetary Policy Enhancement Project.

The IMF noted that supported by favorable oil prices and sustained reform momentum, Oman’s economic recovery continues while inflation remains contained. The economy grew by 4.3% in 2022, primarily driven by the hydrocarbon sector, before slowing down to 2.1% (year on year) in the first half of 2023 due to Opec+-related oil production cuts.

'Subsidies on basic food items, caps on domestic petroleum prices, and the peg to a strong US dollar helped contain inflation, which receded from 2.8% in 2022 to 1.2% during January-september 2023,' the IMF said.

Moreover, the IMF stated that the Omani government's prudent fiscal management and high oil prices have helped turn fiscal and external balances into surpluses since 2022. The IMF estimates Oman's overall fiscal balance at 5.5% of GDP and the current account balance at 2.8% of GDP in 2023.

The IMF acknowledged that Oman's sovereign credit ratings have been upgraded to one notch below investment grade, and its sovereign spreads have become broadly at par with the average for GCC countries and well below that of emerging markets.

Banking sector profitability has recovered to pre-pandemic levels, and capital and liquidity ratios are well above regulatory requirements, with non-performing loans remaining low and sufficiently provisioned INTERNATIONAL MONETARY FUND