DUBAI- Rating agency Moody's warned on Monday that problem loans in Oman are set to rise to as much as 3.7% of gross loans in 2019-20, from 2.8% in June 2019, with the stressed construction sector heightening risk.
"The challenging environment for businesses and households will lead to increased problem loans," said Mik Kabeya, assistant vice president at the rating agency.
"Our negative outlook for the sector also takes account of the government's declining capacity to support the country's banks in case of need."
Problem loans are set to rise to 3.2%-3.7% of gross loans in 2019-20, it said, adding that the outlook for the Omani banking system remains negative.
Constrained government finances due to oil output cuts will limit banks' access to funding and liquidity, while credit growth will remain stable at 6.5% through 2019 and 2020, although well below historic levels, it said.
Despite its access to financial markets - with a well received $3 billion bond issuance in July - Oman's fiscal position remains weak and its debt is rated junk by rating agencies.
(Reporting by Saeed Azhar, editing by Louise Heavens) ((Saeed.Azhar@thomsonreuters.com; +971 44536787; Reuters Messaging: firstname.lastname@example.org))