Omani banks have enjoyed substantial insulation from the turmoil of the international financial crisis. Banks across the sultanate have reported robust, double-digit growth performance throughout 2008. “Whilst the non-fee income of these banks to some extent was diminished by the fall in the local market,” said Global Investment House (GIH), “core income growth supported their superior performance.” The Omani government’s economic diversification plans to move away from hefty reliance on hydrocarbons is a major driver the banking sector’s continuous success. Unlike its Gulf counterparts, the Central Bank of Oman has announced there is no need for it to lend money to domestic banks, seeing as the sultanate has no problems with liquidity. However, in order to ease a possible forthcoming liquidity crunch, GIH said the central bank has “relaxed the compliance to the lending ratio requirement of the banks by indefinitely deferring its earlier decision to implement a stricter lending ratio of 82.5% from 85.0% imposed in June .” In addition, the central bank authorized local banks to hold 3.0% of the 8.0% reserve requirement as CDs and cash portfolios of banks. “This move,” asserted GIH, “is expected to reintroduce liquidity worth RO300.0mn [$779 million].” The Economist Intelligence Unit expects Oman’s real GDP growth to fall to 5.7% in 2009, due to the inevitable downward motion of the global economy.
Top ranking banks in Oman are reveling in their combined profits and powerful performance in 2008. According to GIH, the combined profits of banks in the sultanate increased by 37.6% during the first nine months from $325.8 million to $448.3 million. The two leading banks — by market capitalization, market share of total sector credit, and deposits — Bank Muscat and the National Bank of Oman (NBO), posted significant year-on-year profit growth of 43.9% and 20.4%, respectively, by the end of the third quarter. None of the domestic banks reported any declines in profits. Although NBO and Oman International Bank (OIB) were “the two laggards in terms of profit growth,” noted GIH (NBO with 20.4% and OIB with 11.5%), it “is commendable that when some of the major regional banks in the GCC registered decline in profits, even the laggards in the Omani banking sector registered double digit growth.” Furthermore, “NBO commented that the growth in its profits for the nine month period reflected balanced growth across all the sectors and improvement in its cost to income ratio from 42.4% during 9M07 to 39.9% in 9M08.”
All in all, the persistent diversification and efforts to increase confidence by the central bank and Capital Market Authority of Oman will go a long way in boosting the local markets. In addition, GIH commented that “the strong performance of Omani banks backed by core income growth reflects [the general] positive outlook on the sector in the medium term.” After their robust performance in 2008, the sultanate’s banks should continue to operate quite nicely well into and throughout 2009.