Bank interest rates in Oman rise on tight liquidity

Muscat: Oman’s bank interest rates have shown a marked year-on-year growth due to the tight liquidity situation in the financial system.
According to the latest monthly statistics released by the Central Bank of Oman (CBO), the weighted average Omani rial lending rate increased to 5.132 per cent per annum in May 2017, from 4.835 per cent for the same period of last year.
Also, the interest rate of the Omani rial deposits increased to 1.611 per cent from 1.163 per cent during the period under review.
However, sources said liquidity in the banking system is slightly better than last year. The liquidity situation is also reflected in the short-term money market. For instance, the overnight Omani rial domestic inter-bank lending rate stood at 0.616 per cent in May, 2017.
The average repo rate for liquidity injection by the central bank stood at 1.507 per cent per annum in May 2017.
The Omani government has raised debt funds from the domestic market by way of development bond issues in the recent past to partially meet the budget deficit. This year, the government’s target is to raise OMR600 million, which is to partially cover the budget deficit, as well as to repay OMR200 million towards a maturing bond. Subsequently, the net local borrowing is estimated at OMR400 million. A major portion of this debt fund has already been raised from the domestic market in different tranches. This is expected to put pressure on liquidity within the financial system, in general, and the banking sector, in particular. Also, the government is heavily depending on external borrowing for funding its OMR3 billion projected deficit.
Since a major portion of the debt fund is from the overseas market, the domestic financial market does not have the pressure.
The overall deposits of financial institutions in Oman were up by 9.5 per cent to OMR21.5 billion by end-May 2017. Private sector deposits in the banking system registered a growth of 5.4 per cent to OMR13.7 billion as of the end of May 2017, according to the latest monthly report released by CBO.
The total outstanding credit extended by financial institutions grew by 5.8 per cent to OMR22.5 billion as of the end of May 2017. Of this, credit to the private sector increased by 7 per cent to OMR20.4 billion as of the end of May 2017.
Islamic banks
Islamic banks and window operations of conventional banks in Oman provided financing to the extent of OMR2.7 billion by end-May 2017, compared with OMR2.1 billion a year ago. Total deposits held with Islamic banks and windows also registered a significant increase to OMR2.6 billion in May 2017, from OMR1.8 billion outstanding as of the end of May 2016.
The total assets of Islamic banks and windows amounted to OMR3.5billion as of the end of May, 2017, which constituted about 11 per cent of the banking system assets.