Muscat – Omani banks are well positioned to navigate potential challenges arising from the Middle East conflict, supported by diversified lending portfolios, strong capital buffers and stable funding profiles, even as private sector credit growth is expected to moderate in 2026, according to a new report by S&P Global Ratings.

The agency forecasts private sector credit growth in Oman will slow to around 3% in 2026, compared with an estimated 6–7% expansion in 2025, reflecting the current geopolitical backdrop and a more subdued investment environment. However, credit growth is expected to recover to about 5% in 2027 as economic conditions improve.

S&P Global on Friday affirmed Oman’s investment-grade sovereign credit ratings at ‘BBB-’ for the long term and ‘A-3’ for the short term, maintaining a stable outlook. The agency cited the sultanate’s strong fiscal buffers and continued resilience despite heightened geopolitical risks in the Middle East.

The agency noted that Omani banks’ asset quality has continued to improve from its peak in 2020. The non-performing loan (NPL) ratio stabilised at approximately 4.3% as of September 30, 2025, edging slightly higher to 4.4% by December 31, 2025.

‘This improvement reflects favourable oil sector dynamics in recent years, alongside stronger non-hydrocarbon output. Some of this was driven by domestic demand, while improved performance in key sectors such as transportation and utilities has also strengthened the quality of banks’ exposures’, S&P Global said.

The agency expects Omani banks’ credit losses to remain within 55–65 basis points over 2026–2027, close to Oman’s cyclical low.

‘While geopolitical risks could present challenges, Omani banks are well positioned with diversified lending portfolios and solid capital buffers, which we expect will help them manage potential pressures,’ S&P Global added.

Given the sultanate’s currency peg, S&P Global anticipates that the Central Bank of Oman will continue to follow the US Federal Reserve’s interest rate policy. In the fourth quarter of 2025, the CBO cut its key policy rate – the repurchase rate – to 4.25%.

‘The CBO is working to establish a more robust interbank market to support the use of open market operations. This is widely expected to be tested in 2026 and could improve the transmission of policy rates over time,’ the rating agency said.

S&P Global highlighted that the CBO has a strong track record of taking proactive and corrective measures to reduce banks’ vulnerability to financial stress.

‘Omani banks also benefit from a stable core deposit base, with limited reliance on external funding. As a result, funding risks remain well covered by robust liquidity buffers, as demonstrated in our stress test in February 2026,’ it said.

Commending Oman’s banking framework, S&P said regulations are broadly in line with international standards, while supervisory oversight remains adequate.

However, it noted that Oman’s monetary policy flexibility is constrained by the rial’s peg to the US dollar. ‘Nevertheless, as with the rest of the GCC, the peg has served as an anchor for inflation expectations, given that oil contracts are typically priced in US dollars.’

S&P forecasts that Oman’s inflation will remain moderate, averaging about 1.5% annually over 2025–2028, after remaining stable at 1.5% in 2025.

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