The outlook for Oman’s banking system remains negative as loan quality weakens and access to funding is tight in a subdued economy, Moody’s Investors Service said in a report published on Monday.
“The challenging environment for businesses and households will lead to increased problem loans,” said Mik Kabeya, assistant vice president at Moody’s. “Our negative outlook for the sector also takes account of the government’s declining capacity to support the country’s banks in case of need.”
According to Moody’s, the problem loans in Oman’s banking sector are set to rise to around 3.2-3.7 per cent of gross loans in 2019-20, from 2.8 per cent in June 2019. Loan concentration to the stressed construction sector and to a few large borrowers heightens risk.
Still, Moody’s expects Omani banks’ capital to remain sound and profitability to be robust, though edging lower. Net interest margins will narrow slightly in line with declining US rates. Operating expenses will be stable, but loan loss provisioning needs will increase as problem loans start to rise.
Moody’s said that credit growth will remain stable at 6.5 per cent through 2019 and 2020.