Best Banks & NBFCs in Oman


The OER-GBCM Best Banks in Oman survey 2019 shows a robust showing by the sector despite some strong headwinds. Mayank Singh reports

The financial services industry is one of the industries that has been most impacted by digital, economic and disruption and the same is expected to continue in 2019. Given the disruptive changes, banks and financial institutions are focusing on customer experience, data-driven marketing and personalisation. Given the fierce competition that established financial services companies have faced from upstarts, it’s not surprising that marketers in the industry are placing a lot of emphasis on things that will help them win new customers and retain and expand relationships with existing customers.

While there’s no doubt that established financial services firms are being impacted by fintech rivals, it would be incorrect to assume that entrenched companies and upstarts are enemies. To the contrary, established banks and fintechs are increasingly teaming up.

This was likely driven in part by growing interest in the so-called marketplace model. Under this model, established banks and fintechs create marketplaces in which their customers can discover and acquire financial services products offered by trusted third parties.

The fintech boom has been driven in part by consumers’ willingness to unbundle the financial services they need, but in 2018, even fintechs started making moves to expand their relationships with customers by offering broader suites of services. In other words, a ‘rebundling’ trend emerged.

Stable performance

The banking sector in Oman witnessed steady growth in 2018. The total outstanding credit of conventional banks grew by 4.7 per cent year on year at the end of November 2018. Credit to the private sector increased by 3.8 per cent to reach RO18.9bn.

Their overall investment in securities stood at RO3.1bn. Investments in government development bonds and government sukuk increased by 13.2 per cent over the year to RO1.4bn, while their investment in treasury bills stood at RO272.6mn. Investments in foreign securities by banks stood at RO1.1bn at the end of November 2018. Aggregate deposits held with conventional banks increased by 4.9 per cent to RO19.5bn in November 2018 from RO18.6bn a year ago. Government deposits went up by 11.1 per cent to RO5.4 bn, while deposits of public enterprises increased by 15.1 per cent to RO1.1bn. Private sector deposits, which accounted for 65 per cent of total deposits with conventional banks, increased by 1.3 per cent to RO12.7bn in November 2018. The core capital and reserves of conventional banks stood at RO4.5bn as of the end of November 2018, reflecting good provisioning.

The Islamic banking entities provided finance amounting to RO3.5bn at the end of November 2018, higher as compared to OMR3bn a year ago. Total deposits held with Islamic banks and windows also increased significantly by 11.2 per cent to RO3.2bn in November 2018. The total assets of Islamic banks and windows combined amounted to RO4.3bn billion at the end of November 2018 and constituted about 13 per cent of the banking system assets.

Banking Outlook

The GCC banking sector is set for improved profitability, better asset quality and stable balance sheet strength in 2019, thanks to a better operating environment supported by higher government spending, higher oil prices and government stimulus packages, according to rating agency Moody’s.

Moody’s 2019 GCC banking sector outlook predicts that banks in Kuwait, UAE, Qatar and Saudi Arabia will remain resilient, while fiscal pressures will weigh on banks in Oman and Bahrain, where oil prices will continue to remain below the fiscal breakeven level.

In the UAE, loan performance is expected to gradually stabilise, with capital levels remain strong and profits improving slightly as a result of rising interest rates. Higher oil prices are expected to support stable deposit funding and liquidity. For Saudi banks, Moody’s expects increased government spending to support the non-oil economy and asset risk to weaken marginally from a strong position with supportive capital buffers.

For Kuwaiti banks, government project spending and consumption will sustain non-oil growth. Profitability is expected to improve as margins widen and provisioning charges fall. The report expects banks in Oman and Bahrain to face some challenges, but overall the outlook remains positive. Despite some divergence among countries, analysts say the overall loan performance will weaken but will largely remain solid, overall. Problem loans are expected to increase due to the lagging effect of the economic slowdown in previous years. Moody’s has projected non-performing loans (NPLs) to stand at a still solid 3 per cent of total loans at the end of 2019 in the GCC.

Improved loan performance and ability to reprice loans in a rising interest rate environment is expected to ease profitability pressures of GCC banks in 2019; however, slow loan growth is expected to keep profit growth modest.

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