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Asset quality of banks remains strong: CBO chief
December 10, 2017 | 5:37 PM
by A E JAMES/[email protected]
Central Bank of Oman. - Times file picture
 
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Muscat: The asset quality, provision coverage and capital adequacy ratio of Omani banks are strong, despite a slowdown in economic activities in the country in the aftermath of low oil prices.

“Despite the low oil prices and slowdown in economic activities, gross non-performing loans of banks have been contained at below 2 per cent,” said Tahir Salim Al Amri, Executive President, Central Bank of Oman (CBO). “The CBO continuously monitors and adopts appropriate regulatory and supervisory measures, in accordance with the evolving conditions, to foster a robust and resilient financial sector in the Sultanate.”

Omani banks, including Islamic institutions, achieved a year-on-year growth of 5.7 per cent in total credit at OMR23 billion by September-end this year.

Credit to the private sector alone grew by 5.7 per cent to OMR20.8 billion, as of the end of September 2017, the Central Bank of Oman (CBO) stated in its latest monthly report.



“Banks in Oman have started implementing the liquidity coverage ratio, as well as the net stable funding ratio, developed by the Basel Committee. Further, specific provisioning requirements have been mandated on restructured loans to ensure the asset quality is maintained.”

Referring to small- and medium-sized enterprises (SME) funding, the CBO chief remarked that overall, banks have extended a little over 3.5 per cent of their total credit towards the SME sector, as of the end of August 2017, and efforts to raise the outlays continue. “With a view to enable banks to achieve the 5 per cent target, CBO has now allowed banks to reckon non-funded credit up to a maximum of 1 per cent of the total credit within the overall target of 5 per cent, effective from April 26, 2017,” he added.

In addition to the normal banking channels of access to finance, the Government has also created the SME Development Fund and the Al Rafd Fund, which will help young Omani entrepreneurs to develop SMEs.

The Government and the central bank have brought the development of the SME sector at the forefront, and several policy initiatives have been taken, including formal targets, for credit delivery to this sector. The apex bank advised banks to formulate liberal lending policies for the SME segment and mandated that they should allocate at least 5 per cent of their total credit to SMEs. The prudential requirement for banks to lend to SMEs has also been relaxed, in terms of general provisioning requirements and risk weightage.

Inflation

Al Amri also noted that inflation in the Sultanate, which had edged up in 2016, firmed up further in 2017 due to the increase in energy prices, user fees and global commodity prices. As per the data released by the National Centre for Statistics and Information (NCSI), the annual inflation rate measured by the movement in the average consumer price index for Oman increased from just 0.1 per cent in 2015 to 1.1 per cent in 2016, and thereafter, to 1.7 per cent in the January-September 2017 period.

Going forward, the expected introduction of value-added tax in 2018 may have some impact on inflation. However, the rate of inflation is expected to remain benign within the range of 2 to 3 per cent in 2017 and 2018.

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