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IMF hails Oman’s ‘resilient and sound’ banking sector

19 Sep 2021 By GULAM ALI KHAN

Muscat – The International Monetary Fund (IMF) has welcomed the continued resilience of Oman’s banking and financial sector in the face of economic slowdown caused by the COVID-19 pandemic.

‘Banks [in Oman] have ample capital and liquidity buffers,’ the IMF said in its Article IV Consultation Staff Report.

The fund said, ‘The IMF executive directors welcomed the continued resilience of Oman’s financial sector and ongoing capital market reforms. At the same time, while the banking system remains sound, continued vigilance is required to contain financial stability risks given the substantial uncertainties in the outlook.’

Omani banks, as per the IMF, are well-capitalised despite the slight increase in non-performing loans and decline in profits due to the impact of the pandemic.

The banks’ capital adequacy ratios averaged 18.5 per cent and the liquidity coverage ratio stood at 199 per cent at end-March 2021, comfortably above the minimum regulatory requirements, the IMF noted.

The non-performing loans (NPL) ratio, the fund said, increased to 4.2 per cent [from 3.5 per cent in 2019], with loan-loss provision coverage of 65 per cent and provisions to NPLs at 100 per cent.

‘Loan moratoria limited the impact on NPLs, with deferred payments amounting to 6.2 per cent of bank credit outstanding at end-March 2021. Profitability declined slightly, with banks’ return-on-assets falling to 0.9 per cent in 2020 [from 1.4 per cent in 2019], reflecting weaker economic activity, lower oil prices, loan deferment, and provision charges,’ the IMF said.

It called for a careful management of the sovereign-bank nexus over time to support the banking system resilience.

The fund welcomed the Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) mutual evaluation in 2021 and Oman’s ongoing strengthening of the framework.

The IMF noted that the authorities’ bank stress tests indicate sufficient capital buffers to withstand severe scenarios.

‘Omani authorities emphasised that near-term policies will be guided by the sultanate’s Economic Stimulus Plan. They expressed their cautious approach to phasing out policy measures, while supporting vulnerable households and affected sectors. To mitigate risks from the withdrawal of support measures, timing and calibration of exit measures are being carefully coordinated among government entities,’ it said.

‘The Central Bank of Oman will remain vigilant and agile in calibrating its policies, detecting early signs of potential deterioration in asset quality, and ensuring adequate buffers,’ the fund added.

The sultanate’s financial sector, the IMF said, continues to be well regulated and supervised, and the regulatory frameworks could be strengthened further. The fund, however, advised that the sovereign-bank nexus should be carefully managed to avoid crowding out lending to the private sector.

‘A limit on banks’ credit exposures to non-residents can be replaced with non-discriminatory prudential measures. The resolution framework should have legal certainty, grounded in the Banking Law, in supporting effective resolution implementation. Promoting Fintech would enhance financial inclusion, especially for women, youth, and SMEs,’ the IMF added.

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