Oman Central Bank Statement

Author: | Published: 5 Sep 2017
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Economic activity in Oman remained muted in 2016 in the wake of low oil prices and the slowdown in world growth. Preliminary national accounts data for the Sultanate of Oman pointed to a 5.1% drop in nominal GDP in 2016 as compared to a more pronounced decrease of 13.8% in 2015. The GDP component emanating from the petroleum sector registered a decline of 23.7%, while non-petroleum sector GDP rose by 0.6%.

The authorities have been taking policy measures to move ahead on the path of fiscal sustainability in the medium term. Reining in public expenditure, augmenting non-oil revenue and pursuing economic diversification are the key facets of the State General Budget 2017. The continuation of subsidy reforms and widening of corporate tax base and rates would go a long way in reinforcing fiscal prudence. In order to preserve fiscal buffers, and taking advantage of relatively low cost of funds in international markets, the government has resorted mainly to external commercial borrowing, which elicited positive investor appetite, and partly to borrowing from the domestic market, which would facilitate financial deepening.

The Central Bank of Oman (CBO) for its part continued its accommodative monetary policy stance, continuously monitoring the liquidity situation and ensuring the availability of adequate credit for productive activities. Inflation in the Sultanate remained benign in 2016 despite revision in energy prices, user fees and a firming up of global commodity prices. The combined balance sheet of the conventional and Islamic banks together registered impressive growth both in total credit and deposits. Total outstanding credit stood at OMR22.1 billion ($52 billion) as at the end of December 2016, a rise of 10.1% above the level witnessed a year ago. Total deposits also picked up, registering a growth of 5.2% to OMR20.4 billion. Liquidity conditions in the banking system remained comfortable, with modest upward pressure seen in local currency interest rates.

The CBO has also taken regulatory and supervisory measures so that banks remain well-capitalised and healthy in the face of incipient delinquency due to economic slowdown. Banks in Oman are adequately capitalised with the Basel capital adequacy ratio around 16.8% in December 2016 as against 16.1% at the end of the previous year. Non-performing loans (NPLs) increased to 2.1% in December 2016 from 1.9% recorded in December 2015. With a view to easing the challenges faced by borrowers due to weakened economic activity and ensuring the flow of credit to productive sectors, the specific provisions on restructured loans have been moderated from 15% to 5% for the year 2016, 10% for 2017 and 15% for 2018. Omani banks have started implementing the Liquidity Coverage Ratio (LCR) and associated disclosure requirements. Guidelines on Net Stable Funding Ratio (NSFR) have been issued recently and the NSFR will be implemented in 2018 as a minimum standard of 100%, as per the Basel Committee's timeline.

The CBO will continuously monitor and adopt appropriate regulatory and supervisory measures in accordance with evolving conditions to foster a robust and resilient financial sector to boost sustainable growth and development in the Sultanate.




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