In its 2013 outlook for GCC banks, the ratings agency said that the outlook for Omani banks remains stable this year.
“To date, Omani banks have achieved modest profitability due to a cautious growth strategy, but they are likely to grow more aggressively as they compete for market share now,” Fitch said.
According to Fitch, competition is likely to increase with the launch of Islamic banks and windows, which should generate some new business for both existing banks and new entrants.
“Margins are likely to tighten due to increased competition, CBO-imposed interest rate caps on retail lending and slimmer margins on government-related business,” it said.
The ratings agency said that the cost of funding is likely to increase in Oman due to competition for deposits and increased wholesale funding, unless this is offset by higher volumes of non-remunerated Islamic deposits. It added that fee incomes could improve, linked to increased trade finance and guarantee issuance.
Fitch said that asset-quality concerns, particularly relating to the domestic real-estate sector, still weigh on the viability ratings of Omani banks.
“Non-performing loans (NPL) ratios at some banks are relatively higher - although this has always been the case, reflecting write-off policies and significant interest in suspense - while concentration risk is also high in Oman due to the limited size of the corporate market. Household indebtedness is also significant, and measures have been introduced by the CBO to moderate this.”
It said that loan-to-deposit ratios are unlikely to improve in 2013, adding that banks are adequately capitalised and that it does not expect capital to be a concern in 2013.
“Customer deposits would grow, but overall liquidity remains tight with the banks. Despite improving confidence about Oman, Fitch believes that access to international wholesale funding will be expensive, partly reflecting the modest ratings of Omani banks compared with other GCC banks,” Fitch added.