Credit available from Omani banks will grow by an average of 5 percent next year and 6 percent in the period between 2019 and 2022, on the back of an expected surge in projects co-funded by the public and private sectors, according to a new forecast report published last week.

Like many of its Gulf neighbours, the sultanate’s economy was badly impacted by the sharp drop in oil prices that slashed its revenues and slowed economic activity. Fitch Ratings has forecast Oman's 2017 budget deficit will reach 12.8 percent of the state’s gross domestic product (GDP), according to a Reuters report. However, the deficit, while still high, is down from 21.4 percent the previous year, mainly due to the recovery in oil prices.

On the back of this, a report released by the Oman-based U Capital investment company projected a 6 percent growth in the amount of credit banks will lend to companies or individuals either in the form of loans or credit in the coming years.

“The (International Monetary Fund) IMF forecasts Oman’s real GDP growth at 3.8 percent for 2018, with an average growth of 2.4 percent over the period 2018-2022 which we believe will translate into a credit growth of 5 percent in 2018 with an average growth of 6 percent over 2019-2022,” Ayisha Zia, a research analyst at U Capital, told Zawya in an email interview on Sunday.

Omani banks’ credit, including Islamic institutions, grew by 6.2 percent year-on-year until the end of October, the Times of Oman newspaper said, citing monthly statistics released by the Central Bank of Oman.

Zia said Oman is planning $2 billion worth of public-private partnership (PPP) projects that will be mainly in the infrastructure and real estate sectors and will be the catalyst for the growth in bank credit.

“Our assumption is based on an anticipation of improvements in macroeconomic situation as various government-led diversification efforts… bear fruition in addition to improvement in hydrocarbon revenues…and assuming oil prices remain at the current levels,” Zia added.

Oil prices climbed to a near two-and-a half year highs on Tuesday and Wednesday, boosted by an outlook for healthy demand due to ongoing production cuts, according to Reuters. 

Negative outlook

Ratings agency Moody's last September changed its outlook on Oman's banking system to negative from stable, which it said was due to a reduction in the government's capacity to support the country's banking system. It also cited overall soft economic conditions and tight liquidity. 

According to Zia, there has been some changes since Moody's rating action. “Oil prices have risen and Oman Crude oil price increased by 13.9 percent (from October until now). This improvement in state revenues is undoubtedly expected to enhance the government’s ability to support the banking system,” Zia said.

According to the U Capital report, Omani banks, like most of the other five countries of the Gulf Cooperation Council (GCC), will continue their heavy involvement in the financing of residential and commercial real estate. “A shift in investors’ sentiments, decline in rents or higher vacancy rates for built-to-rent real estate may rapidly jeopardise the stability of the banking sector,” the report said.

Zia explained that although banks may not be able to diversify their loan-books away from real estate in the current macroeconomic environment, the government’s recent push for credit growth to small and medium-sized enterprises (SMEs) is expected to increase the banks’ lending to this sector and hence help diversify their credit portfolio.

Bank Muscat's Islamic banking arm Meethaq, in partnership with Thomson Reuters, last October launched Accelerate SME, a digital portal to help start-ups and SMEs gain access to business resources and funding opportunities. The Central Bank of Oman, in an official statement in 2013, asked banks to allocate 5 percent of their total credit to SMEs.

(Reporting by Yasmine Saleh; Editing by Shane McGinley)

(Yasmine.saleh@thomsonreuters.com)



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