Omani banks' credit fundamentals are recovering as pressures on the operating environment have eased and economic activity is gradually picking up amid higher oil prices, Fitch Ratings says in a new report.

Omani banks' credit fundamentals have been fairly resilient to the pandemic shock which caused a 3.2% GDP contraction in 2020.

Performance metrics recovered substantially in 2021 and this is expected to continue in 2022, supported by higher interest rates, capital metrics will remain reasonably sound, while pressures on banks' funding and liquidity profiles have eased. This has been underpinned by government support measures combined with the recent rebound in oil prices.

Outlook revision

Fitch revised the outlook on all Omani banks’ operating environment factor scores to stable from negative in January 2022 to reflect improved operating conditions as well as the revision of the Outlook on the sovereign rating to Stable from Negative in December 2021.

Omani banks are highly exposed to the sovereign through lending to government and GREs, holdings of Omani government securities, as well as high reliance on GRE deposits.

Exposures to the sovereign also considers banks' exposures to public sector employees through their retail loan books.

Asset quality will remain a key risk in 2022 with the run-off of payment holidays and a rising interest rate environment which could undermine borrowers' debt servicing capacities. However, Fitch believes the impact on the banks' financial profiles will be contained and manageable at their current rating levels.

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