The total bank credit of Oman's six listed commercial banks grew 22 per cent in the first quarter of 2012, driven by the expansion of project-based lending to the corporate sector and government entities.
As local banks bolstered their loan portfolios, total outstanding loans and advances extended by the six banks swelled to RO11.04bn as of March 31, 2012, compared to RO9.04bn in the same period last year, according to the financial statements of the banks.
Total bank lending does not include loans extended by Oman Arab Bank, which is the only bank not listed on the Muscat Securities Market (MSM) among the seven commercial banks in Oman.
Analysts said the recent growth in bank credit is largely supported by higher government spending which created demand for project-based loans in the corporate segment. They add that banks need to find long-term funds to match long-term loans.
Mahin Dissanayake, director of financial institutions at Fitch Ratings in Dubai, said that the recent growth in bank lending was largely backed by increased government spending on projects.
He said, "While profitability and liquidity are good overall, our key concern is the continuing pressure on core capital ratios as weaker capital buffers could lead to downward pressure on bank ratings. We also have moderate concerns about the widening asset-liability mismatch and rising risk concentrations in lending by sector, particularly real estate and single borrower.
"Oman's banks need to raise long-term funding to match long-term loans. However, longer-term funding could be a problem in the current global environment."
Joice Mathew, head of research at United Securities, said credit offtake is supported by big-ticket corporate lending.
He said, "2011 was the first year we have seen a serious growth in bank lending after the 2008 crisis. Bank loans to the retail sector also grew as a result of increased disposable income in the hands of consumers last year.
"We think we will see a similar trend for the rest of this year in terms of credit growth. The liquidity condition is favourable and the projects based lending is expected to continue with the momentum."
© Muscat Daily 2012
