The Central Bank of Oman (CBO) has affirmed that risks to the Sultanate of Oman’s “financial stability have subsidy”, but warned nevertheless that “new vulnerabilities have appeared that may test the resilience” of the country’s financial system.
The apex bank made the observations in its Financial Stability Report 2022 (FSR), published here on Sunday. The report stressed the banking sector “retains the capacity to absorb a variety of shocks without adverse spillover effects on credit supply and the real economy”.
CBO Executive President Tahir bin Salim al Amri credited the Omani government and the Central Bank for helping craft a “swift post-pandemic economic recovery plan”, that was buoyed by favourable oil prices.
“Fiscal authorities and CBO took an array of fiscal, financial, and monetary measures to support businesses and households to ensure that the economy remains well-poised for a swift recovery once the pandemic subsides,” said the Executive President in his foreword.
“We realised the desired outcomes of our joint efforts without a lasting impact on our economy. As the Covid-19 related restrictions were gradually eased, the economy rapidly bounced back with a V-shaped recovery duly supported by improvement in oil prices,” he noted.
Significantly, the Financial Stability Report cautions that ongoing geopolitical tensions in Eastern Europe could fuel inflationary pressures that are evident around the world. It warns that ensuing monetary tightening may weigh on growth, especially for the sectors that are still in the recovery phase.
As for the overall health of the banking sector, the report notes that banks continue to hold large capital buffers which are supported by improvement in their profitability indicators. The asset quality of the banks remains well contained with a low non-performing level (NPL) ratio and adequate provision coverage, it said.
While the loan moratorium ended in December 2021, expectations of credit risk from deferred loans remains low, according to the report. It explained that the exit from this regulatory relaxation was timed to coincide with strong economic recovery and a provision to restructure the loans if necessary without affecting the risk classification.
In concluding, the report stressed that overall short-term risks to financial stability have significantly declined compared to the previous year. It voiced hope that “an amicable resolution of the ongoing European conflict” would help restore confidence and relieve some pressures, while any further escalation or a delay in the peace process will elevate downside risks for recovery and financial stability.”