The credit outlook for rated Omani banks remains stable, reflecting their continued franchise development amid a competitive and somewhat concentrated operating environment. It also recognises that the improved financial performance in recent years has been partly driven by the positive economic cycle, Moody’s Investors
Service said in its new Banking System Outlook for
The banks’ weighted average bank financial strength rating (BFSR) is C-, reflecting their good franchises in the Sultanate of Oman, robust profitability and good capitalisation levels.
“The rated Omani banks’ franchise development has been relatively balanced across segments and has entailed not only strong growth in personal lending but also continued growth in corporate and commercial banking. We expect the development of major infrastructure projects to contribute to the government’s diversification efforts while further boosting corporate activity in the country and thus the banks’ corporate lending,” said Elena Panayiotou, a Moody’s Associate Analyst and author of the report.
Omani banks generate robust profitability levels thanks to their low cost bases and healthy interest margins. Nevertheless, their quality of earnings remains weak in terms of diversity of income streams, with the bulk of the profits being generated from interest-related activities. As the Omani banking sector becomes increasingly competitive and overcrowded, Moody’s believes the banks should strengthen their fee-generating capabilities to offset the pressure on the profitability from compressed interest margins and sustain their earning power at the current levels.
Despite some improvements, Omani banks continue to operate in a challenging and rather concentrated economy that constrains their ratings’ upside potential. Although Moody’s recognises the success of the government’s efforts to expand economic activity beyond oil-related business,
“Another factor constraining the ratings of Omani banks is their tight liquidity positions. Although liquidity in
Omani banks also continue to face high credit risk. Despite some improvements in the system’s asset quality metrics over recent years due to generally improved credit risk management policies and good supervision, Moody’s cautions that the current asset quality benefits from a favourable economic environment and may not prove sustainable through the cycle.
