Best Banks 2016: Weathering challenges

Despite a tough economic climate, the banking sector was resilient overall and hopes of recovery are high in the industry with the government’s renewed efforts for economic diversification

Continued softening of crude oil prices had a deep impact on Oman's economy in 2016 but the banking sector was able to withstand the general economic slowdown to a great extent. According to the Central Bank of Oman's annual report, the banking sector managed to post healthy profit levels with return on equity above ten per cent during 2016, although its net profit declined by 3.6 per cent to RO379.3mn during the year with local banks contributing maximum 97.5 per cent of the profit.

Despite the economic slowdown, the core capital and reserves of conventional banks increased by eight per cent to RO4.1bn, the CBO report said. Capital adequacy ratio further improved to 16.8 per cent at the end of 2016 as compared to 16.1 per cent at the end of previous year. At the same time gross non-performing loans (NPLs) increased by 17.8 per cent in 2016. The ratio of NPLs to total advances also moved upward to 2.1 per cent at the end of 2016 from 1.9 per cent at the end of 2015.

The Islamic banking sector also showed some positive signs in 2016. Bank Nizwa, the country's first full-fledged Islamic bank, posted profits for the first time since its inception. Meanwhile Alizz Islamic posted growth in revenues though it hasn't made profits yet.

According to its annual report, CBO allowed banks’ investment in unencumbered treasury bills, Government Development Bonds (GDB) and Oman Government Sukuk to be a part of eligible reserves up to maximum of two per cent of deposits with effect from April 2016 in order to enhance liquidity with banks to meet the credit requirements. Conventional banks’ investments in GDBs and Government Sukuk increased by 17.2 per cent to RO970.9mn at the end of 2016. Banks also invested RO 305.4mn in government treasury bills at the end of the year. Banks investment in foreign securities stood at RO534.4mn at the end of the year. The various segments of the financial markets, viz. Money, capital and forex remained orderly and stable during the year.

The country's nominal GDP declined by 5.1 per cent in 2016, on top of a drop of 13.8 per cent in 2015, due to weakening of both external and domestic demand. The external demand fell sharply after Omani crude 's average price fell by 28.9 per cent in 2016, while declining government spending weakened domestic demand. The CBO report says that  the share of nominal GDP by the hydrocarbon sector in total exports decreased to 57.9 per cent in 2016 from an average of 66.3 per cent during 2011-2015, while its contribution to Oman’s GDP at market prices dropped to 27.4 per cent from an average of 47 per cent during this period. Non-petroleum industrial activities also contracted by 3.7 per cent in 2016, on top of a decline of three per cent in 2015.

Though crude prices have stabilised in 2017 post the Opec deal to cut production, the economic slowdown in Oman is expected to continue throughout this year, according to the CBO report. But fiscal reforms, foreign direct investment and introduction of value added tax are expected to shape up the medium term outlook of the economy. 

1. BANK MUSCAT
2. AHLIBANK
3. BANK DHOFAR
4. NATIONAL BANK OF OMAN
5. HSBC BANK OMAN
6. OMAN ARAB BANK
7. BANK SOHAR

Best Banks 2016: Weathering challenges
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