Muscat – Oman’s banking sector is expected to witness improved credit conditions and stronger lending growth in 2023, a survey conducted by the Central Bank of Oman (CBO) has revealed.
The results of the Credit Conditions Survey have been published in the CBO’s recently released Financial Stability Report 2023.
The survey revealed a moderate increase in demand for household lending in 2022. Moreover, banks witnessed strong demand for loans from both the corporate and SME sectors. Looking forward, survey respondents expect higher credit approval rates and stronger lending growth in 2023.
Survey respondents expect SME lending growth to be at 9.6% in 2023 despite stringent lending standards, followed by corporate lending growth at 8.5%. Lending to state-owned enterprises and the household sector is expected to grow by 5.5% each this year.
The Credit Conditions Survey, carried out in December 2022, was addressed to senior credit officers of all banks and finance and leasing companies (FLCs) operating in Oman to assess loan demand, credit availability, changes in lending standards in 2022, and expectations for the year 2023. The survey covers lending to households, corporates, SMEs, and general questions on factors driving changes in credit demand or supply.
According to the responses to the Credit Conditions Survey, there was a moderate increase in demand for personal loans across all categories, with the exception of property investment loans in 2022 due to rising interest rates, which lower the appeal of real estate investment. Increased demand was strongest for credit cards and other unsecured consumer loans.
The survey revealed that, for the year 2023, an upsurge in demand is expected across all categories of household lending. The largest increase is expected in mortgage and auto loans. The demand for these segments is expected to rise the most as more nationals join the workforce. Moreover, these secured loans typically have lower equal monthly instalments (EMIs) and longer repayment periods than unsecured consumer loans.
Survey respondents believe credit availability for the household sector was somewhat eased in 2022, benchmarked against the past three years. With respect to overall credit availability for different segments of household lending, respondents reported that credit availability for both residential mortgages and consumer loans was eased in 2022.
‘Though banks remain cognisant of the heightened risks in their approach to lending, especially in certain high-risk segments for consumer lending as there were expectations about rising interest rates. Therefore, some tightening in pricing is expected for household lending in 2023,’ the report said.
Survey results pointed out that while the lending policies and credit terms were eased for owner-occupied residential mortgages in 2022, the collateral requirements and serviceability standards were tightened.
The results of the Credit Conditions Survey suggest strong demand for corporate lending in 2022, driven by an increase in loans for working capital and capital expenditure. The survey found that the appetite for corporate credit is expected to surge further in 2023.
By sector, survey respondents noted increased demand for corporate loans across all economic activities and industries except for construction.
For the year 2023, a further increase in credit appetite and demand for business loans is expected across all economic activities, predominantly in the services, manufacturing, and transport and communications sectors. Although the construction sector had been underperforming for a while, survey respondents expect a rebound in the credit demand for this sector as well in 2023.
Survey respondents believe credit availability for the corporate sector was somewhat tightened in 2022, benchmarked against the past three years. Nevertheless, a notable increase in credit supply for corporate loans across all sectors is expected in 2023, although the pricing terms will remain tightened, as per the CBO report.
Furthermore, the vast majority of survey respondents reported that their lending standards for corporates remained stringent in 2022. Most of the respondents expect lending standards for corporate credit to remain tightened in 2023 in terms of collateral requirements, serviceability standards, loan covenants, and risk pricing.
Survey participants reported that overall demand for loans from SMEs increased significantly in 2022, including both working capital and capital expenditure financing.
They expect strong demand for both working capital and capital expenditure loans from SMEs in 2023, reflecting a focus of the government on supporting entrepreneurship and job creation as well as confidence in the economic outlook for 2023.
In terms of credit availability, considering that COVID-19 has had a serious negative impact on the SMEs, respondents believe credit availability for the SME sector was still somewhat better in 2022, benchmarked against the past three years. However, tighter non-price factors (e.g. lending policies) and price factors (e.g. markup, risk pricing, and fees) were observed by respondents.