22 May 2012
MUSCAT -- On the back of the prospects for big ticket infrastructure projects and unprecedented investments in power and energy, the Omani banking sector is set for a 14 per cent growth in the next five years.
Oman banking sector has one of the lowest credit to GDP ratio among its GCC peers and remains one of the most lucrative markets for lending growth, with credit to GDP at 45 per cent. The corporate sector loans to GDP for Omani banks stands at 28 per cent, while retail credit to GDP is at 18 per cent, which is again below the GCC average.
Omani GDP growth is also forecast to be higher than that of many developed and emerging economies. The high GDP growth comes in the backdrop of a low rate of forecast inflation is also conducive for banking sector growth.
The government has envisaged a planned spending of RO 4.28 billion for various infrastructure projects in 2011-15.
"As high government spending on infra and other projects continue, we expect government sector to begin tapping the banking resources in the country and become the principal source of credit demand over the long term. The government spending is seen trickling down to private sector, which explains the high volume growth outlook going forward", says a research report of United Securities.
As evidenced by the acceleration in credit growth, and decline in lending and deposit rates, banks have been getting aggressive in the lending space from the second half of 2010. Credit demand from private sector for funding needs also has increased off late.
Liquidity within the economy has increased significantly during the last couple of years. The prudent measures from the central bank have resulted in such liquidity creation in the system.
Interest rate on time deposits and total deposits on Omani rials witnessed a decline of 80 and 53 basis points respectively. This clearly shows the lack of competition for mobilising deposits. Such a reduction in cost of funding is expected to be offset by lower yields on assets.
"The credit appetite for foreign currency loans are a clear indication of reduction in spreads and lack of pricing power in the hands of the lenders", says the report jointly prepared by Joice Mathew, Senior Manager, Research and Santhosh Balakrishnan, Analyst at United Securities.
Compared with the budget for 2011, the government has envisaged an increase of 11 per cent in the planned expenditures for 2012, anticipating a deficit of RO 1.2 billion.
The government has based its budget on average oil price assumption of $75 per barrel.
"However, on the back of prevailing oil prices higher than budgeted price, we expect the deficit to be much lower than that anticipated by the government. Also, the share of investment spending within expenditures continues to be high at 30 per cent with a sizeable part allocated for infrastructure followed by education and health", says the report.
With implementation of enhanced oil recovery systems, the government is trying to boost its oil production from 896,000 bpd to targeted 912,000 bpd in 2011.
With average oil prices hovering well above the budgeted price, the government has enough cushions to fund the excess current account spending from oil revenues.
"We do not expect the government to fund this overspending by cutting down on capital expenditure.
However, we do expect some delays to happen on budget execution during the first half of 2012. Tender awards and execution of infrastructure projects are gaining momentum during the current year, leaving 2012 as a good candidate for the timing of economic recovery", says the report.
Also another factor for the growth, the report point out, is the demography of Oman.
With more than 60 per cent of the population belonging to the working age group, the appetite for retail sector lending would be high. However, possible interventions by the central bank to curtail individual lending limits can act as a deterrent factor for retail sector lending growth.
Improving literacy rates and affinity towards quality education are increasing the chances of higher salaries leading to increase in discretionary spending by this group. The elevated levels of population growth would necessitate for continuous improvements in the infrastructure space.
MUSCAT -- On the back of the prospects for big ticket infrastructure projects and unprecedented investments in power and energy, the Omani banking sector is set for a 14 per cent growth in the next five years.
Oman banking sector has one of the lowest credit to GDP ratio among its GCC peers and remains one of the most lucrative markets for lending growth, with credit to GDP at 45 per cent. The corporate sector loans to GDP for Omani banks stands at 28 per cent, while retail credit to GDP is at 18 per cent, which is again below the GCC average.
Omani GDP growth is also forecast to be higher than that of many developed and emerging economies. The high GDP growth comes in the backdrop of a low rate of forecast inflation is also conducive for banking sector growth.
The government has envisaged a planned spending of RO 4.28 billion for various infrastructure projects in 2011-15.
"As high government spending on infra and other projects continue, we expect government sector to begin tapping the banking resources in the country and become the principal source of credit demand over the long term. The government spending is seen trickling down to private sector, which explains the high volume growth outlook going forward", says a research report of United Securities.
As evidenced by the acceleration in credit growth, and decline in lending and deposit rates, banks have been getting aggressive in the lending space from the second half of 2010. Credit demand from private sector for funding needs also has increased off late.
Liquidity within the economy has increased significantly during the last couple of years. The prudent measures from the central bank have resulted in such liquidity creation in the system.
Interest rate on time deposits and total deposits on Omani rials witnessed a decline of 80 and 53 basis points respectively. This clearly shows the lack of competition for mobilising deposits. Such a reduction in cost of funding is expected to be offset by lower yields on assets.
"The credit appetite for foreign currency loans are a clear indication of reduction in spreads and lack of pricing power in the hands of the lenders", says the report jointly prepared by Joice Mathew, Senior Manager, Research and Santhosh Balakrishnan, Analyst at United Securities.
Compared with the budget for 2011, the government has envisaged an increase of 11 per cent in the planned expenditures for 2012, anticipating a deficit of RO 1.2 billion.
The government has based its budget on average oil price assumption of $75 per barrel.
"However, on the back of prevailing oil prices higher than budgeted price, we expect the deficit to be much lower than that anticipated by the government. Also, the share of investment spending within expenditures continues to be high at 30 per cent with a sizeable part allocated for infrastructure followed by education and health", says the report.
With implementation of enhanced oil recovery systems, the government is trying to boost its oil production from 896,000 bpd to targeted 912,000 bpd in 2011.
With average oil prices hovering well above the budgeted price, the government has enough cushions to fund the excess current account spending from oil revenues.
"We do not expect the government to fund this overspending by cutting down on capital expenditure.
However, we do expect some delays to happen on budget execution during the first half of 2012. Tender awards and execution of infrastructure projects are gaining momentum during the current year, leaving 2012 as a good candidate for the timing of economic recovery", says the report.
Also another factor for the growth, the report point out, is the demography of Oman.
With more than 60 per cent of the population belonging to the working age group, the appetite for retail sector lending would be high. However, possible interventions by the central bank to curtail individual lending limits can act as a deterrent factor for retail sector lending growth.
Improving literacy rates and affinity towards quality education are increasing the chances of higher salaries leading to increase in discretionary spending by this group. The elevated levels of population growth would necessitate for continuous improvements in the infrastructure space.
© Oman Daily Observer 2012
