Asset growth for Omani banks on track to pick up

Asset growth in Omani commercial banks is set to accelerate over the rest of the year as well as in 2019 as higher economic activity spurs lending, according to research firm BMI.

“Higher oil prices and broader hydrocarbon production gains will enable higher capital spending by the government, and will support stronger business confidence,” BMI said in a note on Friday.

Oman, one of the two small non-Opec producers in the Arabian Gulf region besides Bahrain, derives much of its government revenue and liquidity from its hydrocarbons exports. Oil prices, which have recovered to $75 per barrel this year, have buoyed economic activity in Oman.

The Gulf nation has set up an oil trading unit and diversified into the large-scale refining and chemicals sector to promote growth. Real gross domestic product growth will gain momentum, growing 2.8 per cent this year and 3.5 per cent in 2019 from an estimated 0.6 per cent in 2017, noted the report.

Asset growth in the Omani banking sector, which has largely enjoyed a positive outlook for the first half of the year, will gather pace, growing at 5.5 per cent and 6.5 per cent this year and in 2019 from 3.3 per cent last year.

However, profitability at banks is expected to take a hit due to the central bank of Oman’s policy on capping commercial loan rates. This directive will encourage greater sectoral specialisation, the report noted.

Greater asset growth over 2018-19 comes in stark contrast to the tepid performance of the Omani banking sector during the second half of 2016 and first half of 2017, when it was hit by the slump in oil prices. Oman had been particularly susceptible, with prices falling to $29 per barrel levels after $100 per barrel levels in 2014 as the country has one of the higher break-even prices for oil in the Middle East.