Muscat – In a sign of robust economic growth and growing demand for bank loans, bank credit growth in Oman jumped to 8.7% in the first seven months of 2023, compared to the below five per cent credit growth recorded in 2022, according to the Central Bank of Oman (CBO) data.

Total outstanding credit extended by the banking sector (both conventional and Islamic banks) reached RO30.3bn at the end of July 2023, compared to the same month in the previous year, as reported in the CBO’s monthly statistical bulletin.

Of the total outstanding credit, bank credit to the private sector demonstrated more robust growth of 9.3% year-on-year, reaching RO25.5bn in July. Non-financial corporations received the highest share of the total private sector credit, at approximately 45.9% as of end-July 2023, followed by the household sector at 44.5%. The share of financial corporations was 5.9%, while other sectors received the remaining 3.7% of total private sector credit.

Conventional banks’ total outstanding credit grew by 5.3% year-on-year in July this year. Conventional banks’ credit to the private sector increased by 5.2% to RO20.2bn, while their overall investments in securities dropped by 4.6% to RO4.4bn, according to CBO data.

Banks’ investment in government development bonds decreased by 10.4% year-on-year to RO1.9bn in July, while their investments in foreign securities dramatically rose by 89.5% to RO1.2bn.

Deposits grow 7%

Total banking sector deposits in Oman grew by 7.0% to RO27.6bn at the end of July 2023 compared to the same period a year ago.

Total private sector deposits increased by 6.5% to RO18.2bn. In terms of sector-wise composition of private sector deposits, the largest contribution came from household deposits at 51.1%, followed by non-financial corporations at 30.4%, financial corporations at 15.6%, and other sectors at 2.9%.

Aggregate deposits held with conventional banks increased by 3.4% year-on-year to RO22.2bn at end-July 2023. Private sector deposits, which accounted for 67% of total deposits with conventional banks, increased by 4.2% as of July 2023, reaching RO14.9bn.

Government deposits with conventional banks witnessed an increase of 7.0% to RO5.3bn, while deposits of public enterprises decreased by 9.7% to RO1.6bn.

Meanwhile, total assets of Islamic banks and windows in Oman increased by 13% on a year-on-year basis, reaching RO7bn at the end of July 2023. Islamic assets now constitute about 17.2% of the total banking system assets in Oman as of the end-July 2023.

Islamic banking entities provided financing of RO5.8bn at the end of July 2023, recording a growth of 12.3% over that of a year ago. Total deposits held with Islamic banks and windows increased by 12.9% to RO5.3bn.

Interest rates rise

The weighted average interest rate on local currency deposits with conventional banks witnessed an increase from 1.867% in July 2022 to 2.295% in July 2023. However, the weighted average lending rate slightly decreased from 5.442% in July 2022 to 5.396% in July 2023.

Meanwhile, the overnight Omani rial domestic inter-bank lending rate rose to 5.54% in July 2023 from 1.951% a year ago. The CBO said that the sharp increase in the inter-bank lending rate is an outcome of the increase in the average repo rate for liquidity injection by the CBO to 5.79% in July from 2.347% a year ago, moving in line with the US Federal Reserve rate.

Oman’s central bank has largely followed each rate hike by the US Fed over the last year and a half as the US central bank fought to curb inflation with the most aggressive tightening cycle since the 1980s.

In line with the US Fed’s rate hike campaign, Oman raised its key policy rate to 6.00% in 11 successive rate revisions since March 2022.

However, following the Fed’s announcement last week to keep the key interest rates unchanged, the CBO also decided to maintain its repo rate for local banks at 6.00%.

The sultanate follows a fixed exchange-rate regime, and as a result, its interest rates closely align with US rates. The CBO’s repo rate generally moves in tandem with the Fed’s policy rate.