Omani banks are well-capitalised despite the increase in non-performing loans and decline in profits due to the impact of the COVID-19 pandemic, according to the International Monetary Fund (IMF).

The IMF, in its statement of the Article IV Mission to Oman, said that the sultanate’s monetary and financial policy responses should strike a balance between supporting economy and containing risks to financial stability.

‘Banks are well-capitalised and liquid despite a slight increase in non-performing loans ratio and a decline in profitability, but credit risk is a concern going forward given the uncertain outlook,’ it said.

The IMF, however, warned that a prolonged pandemic could further intensify corporate vulnerabilities for the banking sector.

‘The Central Bank of Oman should continue to have a forward-looking assessment of banks’ asset quality and ensure adequate capital buffers to withstand credit risks if they materialise. Extending loan moratoria should be data-dependent and increasingly targeted to distressed but viable borrowers,’ the fund said.

According to the IMF, the banking regulatory framework in the sultanate could be strengthened further.

‘The Bank Resolution Framework, issued in 2019, should be grounded in the Banking Law to provide legal certainty in supporting effective resolution implementation. Though sectoral lending exposures are broad, risks relating to lending to the commercial real estate sector, which has been negatively impacted by the pandemic, should be carefully monitored,’ the IMF said. 

The IMF also noted Oman’s ongoing efforts to promote financial technologies (Fintech) to enhance financial inclusion while containing risks.