IMF hails Oman’s “resilient and strong” banking sector
Muscat – The International Monetary Fund (IMF) hailed the continued resilience of Oman’s banking and financial sector in the face of the economic slowdown caused by the COVID-19 pandemic.
‘Banks [in Oman] have ample capital and liquidity buffers, ”the IMF said in its Article IV Advisory Services report.
The fund said, “IMF Executive Directors have welcomed the continued resilience of Oman’s financial sector and ongoing capital market reforms. At the same time, while the banking system remains strong, continued vigilance is needed to contain risks to financial stability given the substantial uncertainties in the outlook. ‘
Omani banks, according to the IMF, are well capitalized despite the slight increase in non-performing loans and declining profits due to the impact of the pandemic.
Banks’ capital adequacy ratios averaged 18.5 percent and the liquidity coverage ratio stood at 199 percent at end-March 2021, well above minimum regulatory requirements, the IMF noted.
The NPL (NPL) ratio, the fund said, rose to 4.2% [from 3.5 per cent in 2019], with loan loss allowance coverage of 65 percent and NPL allowance of 100 percent.
“The loan moratoriums limited the impact on non-performing loans, with deferred payments amounting to 6.2% of outstanding bank loans at the end of March 2021. Profitability declined slightly, the yield on bank assets falling to 0.9% in 2020 [from 1.4 per cent in 2019], reflecting weaker economic activity, lower oil prices, loan deferral and provision charges, ”the IMF said.
He called for careful management of the sovereign-bank link over time to support the resilience of the banking system.
The fund welcomed the Mutual Assessment of Combating Money Laundering and the Financing of Terrorism (AML / CFT) in 2021 and the continued strengthening of the framework by Oman.
The IMF noted that the authorities’ bank stress tests indicate sufficient capital buffers to withstand severe scenarios.
“The Omani authorities have stressed that short-term policies will be guided by the Sultanate’s economic recovery plan. They expressed their cautious approach to phase out policy measures, while supporting vulnerable households and affected sectors. To mitigate the risks associated with the withdrawal of support measures, the timing and calibration of exit measures are carefully coordinated between government entities, ”he said.
“The Central Bank of Oman will remain vigilant and nimble to calibrate its policies, detect the first signs of a potential deterioration in asset quality and ensure adequate buffers,” added the fund.
The sultanate’s financial sector, the IMF said, continues to be well regulated and supervised, and regulatory frameworks could be further strengthened. The fund, however, advised that the link between sovereign banks and banks be carefully managed to avoid crowding out lending to the private sector.
“A limit on banks’ credit exposures to non-residents can be replaced by non-discriminatory prudential measures. The resolution framework should have legal certainty, based on banking law, to support effective implementation of the resolution. The promotion of Fintech would strengthen financial inclusion, especially for women, young people and SMEs, ”added the IMF.