Oman's commercial banks have raised their investments in foreign securities significantly this year amid surplus liquidity in the local banking system boosted by growth in deposits.
Commercial banks' investments in foreign securities surged 136 per cent as of July 2012 to RO550.5mn from RO233.8mn a year ago, latest statistics released by the Central Bank of Oman (CBO) showed.
CBO's total investment in foreign securities also increased 14 per cent to RO4.14bn in July 2012 as compared to RO3.63bn in July 2011, while the central bank's total foreign assets reached RO5.57bn in July 2012.
According to bankers, Oman's banks are investing mainly in short-term US Treasuries as they are considered safe in an uncertain global economic environment.
C B Ganesh, deputy CEO, commercial banking and treasury, Ahlibank, said that banks mainly deploy their surplus liquidity in short-term US Treasury bills and to some extent in GCC's fixed-income instruments.
“In the current uncertain global economic environment, people want safe investments and so turn to short-term US Treasuries. There is enough liquidity in the banking system due to good growth in bank deposits this year. So banks are managing short-term surplus liquidity by investing in these short-term securities.”
Ganesh added that once bank credit picks up further investment in foreign securities should come down.
V Balasubramanian, finance controller at National Bank of Oman, said short-term US Treasuries provide the flexibility for banks to manage their short-term liquidity.
“Local banks have some short-term surpluses and most of these foreign investments are going into short-term US Treasuries. Some banks also raise dollar money and they keep it in short-term Treasuries until they need it.”
“CBO's foreign assets might have gone up due to dollar inflows on higher oil prices this year,” Balasubramanian added.
However, as per CBO guidelines, commercial banks can invest only up to 2.5 per cent of their net worth abroad in government securities, while up to five per cent can be in equities.
Another banker, who did not want to be named, said that higher oil prices have boosted liquidity and US Treasuries are the safest available option to invest in.
“Bank deposits have gone up sharply this year and locally there was not much growth in credit demand for large projects as the tendering process remains slow. If deposits keep on growing and oil prices stay at current high level then the trend of investing in US treasuries will continue for the rest of this year,” the banker said.