Risks to Financial Stability Subsided in Oman: Central Bank of Oman

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Muscat: The Central Bank of Oman (CBO) has released the tenth issue of the Financial Stability Report (FSR), which indicates that “the risks to financial stability have subsided in Oman”. Moreover, the banking sector “retains the capacity to absorb a variety of shocks without adverse spillover effects on credit supply and the real economy”.

While highlighting the fiscal and financial relief provided by the government and CBO, the report acknowledges the role of the financial sector in the provision of credit and financial services throughout the pandemic that helped craft a swift post-pandemic recovery plan duly supported by favorable oil prices.

The FSR states that the ongoing geopolitical tensions in Europe fuel inflationary pressures that are mounting across the globe. The ensuing monetary tightening may weigh on growth, especially for the sectors that are still in the recovery phase. Nevertheless, the inflation outlook in Oman remains moderate, and “as an oil exporter, rising commodity prices are so far a net positive for Oman as the higher proceeds from hydrocarbons have provided ample fiscal space to the government to counterbalance any inflationary pressures with targeted interventions to complement the impact of monetary policy actions”.

On the soundness of the banking sector, the report says that banks continued to hold large capital buffers which are supported by improvement in their profitability indicators “as the economy embarked on the growth trajectory” and “the asset quality remained well contained with a low NPL ratio and adequate provision coverage”. The loan moratorium ended in December 2021, however, “the exit from this regulatory relaxation was timed to coincide strong recovery and a provision to restructure the loans if necessary without affecting the risk classification. Therefore, projections of credit risk from deferred loans remain low”.

The report concludes that “overall short-term risks to financial stability have significantly declined compared to the previous year”, and that “an amicable resolution of the ongoing European conflict will help restore confidence and relieve some pressures, while any further escalation or a delay in the peace process will elevate downside risks for recovery and financial stability.”

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