Muscat – Despite the pandemic-induced pressures and challenging operating environment, Omani banks are continuing to maintain strong capital buffers and sound asset quality and are resilient to severe shocks, the Central Bank of Oman (CBO) has said.

The sultanate’s robust banking sector, according to the CBO, proved to be a ‘source of strength’ for the Omani economy during the stress caused by the pandemic.

‘Banks maintain strong capital buffers and sound asset quality. Therefore, the CBO could leverage on the strength of the banking sector to support the economy,’ the central bank said in its Financial Stability Report released last week.

Omani banks’ profitability came under some pressure due to an increase in provisions after the pandemic. However, despite a rise in delinquencies, the banks’ asset quality indicators continued to be strong.

‘Some uncertainty remains for banks’ credit quality once the support measures are lifted. Nevertheless, banks’ capital position improved during 2020, and stress tests showed that banks are resilient to severe shocks,’ CBO said.

Despite the challenging operating conditions, Omani banking sector continued to be robust with strong soundness indicators, the sultanate’s central bank stressed.

It said, ‘The stress induced by the pandemic has created fragilities for the banks and the borrowers. However, due to the international regulatory reforms and domestic regulatory norms, banks in Oman entered the pandemic from a position of strength with large capital buffers, which helped them sail through the stressed period.’

The robust capital base of the banks, CBO said, provided them ample cushion to expand their balance-sheets while absorbing the shocks. ‘Resultantly, the sector supported the economy by providing relief to the affected borrowers in the form of deferment of loans besides extending additional credit to meet the financing needs of the economy.’

Adequate liquidity to support growth

During early stages of the COVID-19 pandemic, there was some tightening in liquidity conditions in Oman. However, measures taken by the CBO ensured adequate liquidity in the banking system.

‘The prudential indicators reflect that liquidity risks in banks are well managed. Funding risks remain low as banks do not rely excessively on wholesale funding and maintain sizeable holdings of high-quality liquid assets that can be used to secure short-term financing,’ the central bank said.

While the uncertainty about the course of economic recovery remains elevated, the CBO is confident that the Omani financial system is well poised to support the economy in absorbing any adverse shock.

It said, ‘We will continue to work hard to ensure that Oman’s financial stability remains intact, any impediments in accessing credit are resolved, and that banks maintain sufficient capacity to support economic diversification and sustainable economic growth’.

Despite some pressures, the risks to asset quality of Omani banks, the central bank said, remained largely well-contained with low non-performing loans and adequate provisions. However, the moratorium on loan repayments allowed by the CBO since March 2020 has somewhat obscured the visibility of problem loans.

As per the CBO, the sultanate’s banking sector showed considerable resilience to the pandemic related deterioration in operating conditions and appeared to have the ability to withstand adverse shocks.