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Oman's banking sector outlook stable: Moody's

February 19, 2014

Times News Service

Muscat: The outlook for Oman's banking system remains stable, as it has been since 2007, said Moody's Investors Service in a new report published on Wednesday.

The stable outlook primarily reflects the rating agency's expectations of stable macroeconomic conditions that will support low levels of non-performing loans (NPLs) and healthy levels of capitalisation and earnings, said a press statement.

In addition, sound liquidity buffers, supported by a stable deposit funding base also underpin the stable outlook.

These supportive factors will continue to offset potential shocks from an unexpected drop in oil prices and risks stemming from high borrower concentrations, opacity surrounding local conglomerates and real-estate sector exposures.

GDP growth

Moody's expects Oman's real gross domestic product (GDP) to expand by 4.3 per cent in 2014. Relatively high oil prices will fuel the government's ability to increase spending, stimulating the non-oil segments of the economy and the banking sector over the 12-18 month outlook period.

Moody's says that stable macroeconomic conditions will lead to credit growth of around 10 per cent-12 per cent in nominal terms in 2014 and create business opportunities for the banks.

While Moody's expects that structural challenges related to high single-party borrower concentration levels, real-estate exposures and limited transparency surrounding local conglomerates will continue to leave banks susceptible to event risks, it also acknowledges that the banks possess sizable cushions to protect against unexpected losses.

Moody's says that the Omani banks will maintain sound capital buffers over the next 12-18 months, as internal capital generation will largely match asset growth of 10 per cent-12 per cent. With a system tier 1 ratio of 12.6 per cent and a130 per cent coverage of non-performing loans by loan-loss reserves as of September 2013, banks have sizable buffers.

The Omani banking system will remain primarily deposit-funded and liquid over the outlook period.

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Source: Times of Oman

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