Moody's: Oman's banking system outlook remains stable
Date: Feb 25, 2013
Categories: Results & Ratings
Limassol, February 20th 2013 - The outlook for Oman's banking system remains stable, says Moody's Investors Service in a new report published today. The outlook is unchanged from 2007 and reflects (1) Oman's supportive macroeconomic environment; (2) low and well-provisioned for non-performing loans (NPLs); and (3) ample liquidity buffers, underpinned by a stable deposit funding base.
These positive factors continue to be balanced by structural weaknesses related to the banks' dependence on the small, undiversified Omani economy, which is heavily reliant on the hydrocarbon sector, and the presence of significant funding and borrower concentrations.
The new report, entitled "Banking System Outlook: Oman", is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
Moody's expects Oman's real GDP to expand by 4.1% in 2013, fuelled by high oil prices and public spending, which will stimulate the non-oil economy and positively affect the banking sector over the 12-18 month outlook period. Oman's stable macroeconomic conditions will create lending opportunities for banks and support credit growth of around 10%-12% in nominal terms in 2013. However, whilst Moody's expects the operating environment to be supportive over the outlook period, the rating agency also recognises that Omani banks will remain reliant on the small local economy and the performance of the hydrocarbon sector (which accounted for over 50% of GDP in 2012), leaving the banks vulnerable to the risk -- although unlikely -- of a sustained drop in oil prices.
The banks' NPL levels will remain low, at around 3% of gross loans over the outlook period. Moody's bases this on (1) Oman's stable macroeconomic environment; (2) improved labour market conditions, buoyed by government spending creating jobs; and (3) regulations introduced by the Central Bank of Oman during 2012, linking maximum retail loan amounts to salary levels. However, Moody's expectations of solid asset-quality performance are counterbalanced by banks' asset exposure to event risks, given their high single-party exposures, and a still-problematic real-estate sector where delinquencies remain well above the sector average.
According to Moody's, the system will remain primarily deposit-funded, with customer deposits accounting for 86% of total funding or 72% of assets as of September 2012, whilst the banks will continue to benefit from a high level of deposits from government and government-related entities. The system will also likely maintain sound liquidity buffers, with liquid assets -- defined as cash, interbank balances and liquid securities -- amounting to 26% of total assets in September 2012. Nonetheless, Moody's also expects that the high concentrations in the banks' deposit bases will continue to leave the banks vulnerable to large deposit withdrawals over the next 12-18 months.
Re-disseminated by The Asian Banker