Oman's banking system outlook ‘stable’
Limassol, February 19, 2014
Oman’s banking system outlook remains stable, said a Moody’s Investors Service report.
The stable outlook primarily reflects the rating agency’s expectations of stable macroeconomic conditions that will support low levels of non-performing loans (NPLs) and healthy levels of capitalisation and earnings, said the new report entitled ‘Banking System Outlook:Oman.’
In addition, sound liquidity buffers, supported by a stable deposit funding base also underpin the stable outlook, said the report.
These supportive factors will continue to offset potential shocks from an unexpected drop in oil prices and risks stemming from high borrower concentrations, opacity surrounding local conglomerates and real-estate sector exposures, it said.
Oman's real GDP is expected to expand by 4.3 per cent in 2014, said the report.
Relatively high oil prices will fuel the government's ability to increase spending, stimulating the non-oil segments of the economy and the banking sector over the 12-18 month outlook period.
The stable macroeconomic conditions will lead to credit growth of around 10-12 per cent in nominal terms this year and create business opportunities for the banks, said Moody’s.
While structural challenges related to high single-party borrower concentration levels are expected, real-estate exposures and limited transparency surrounding local conglomerates will continue to leave banks susceptible to event risks, it said. It also acknowledged that the banks possess sizable cushions to protect against unexpected losses.
The Omani banks will maintain sound capital buffers over the next 12-18 months, as internal capital generation will largely match asset growth of 10-12 per cent, said the report.
The system will remain primarily deposit-funded and liquid over the outlook period, with customer deposits having amounted to 71 per cent of assets in September, while 28 per cent of total assets were in the form of liquid assets.
Moody’s also expects increased revenues from credit growth and stable provisioning requirements to offset pressure on profits from reduced interest rate margins and from rising operating expenses, as banks continue to build their Islamic banking franchises.
Omani banks will maintain strong profitability in 2014, with net profits to average assets ranging between 1.5-1.8 per cent, it added. - TradeArabia News Service