MUSCAT: Omani banks’ reasonable credit fundamentals and improved operating conditions will support lending growth and profitability in 2023, Fitch Ratings says in a new report.
Omani banks emerged from the pandemic with reasonable credit fundamentals which place the sector in a good position for improving profitability in 2023.
High oil revenues will continue to support economic activity and drive business generation for banks.
Fitch expects credit growth of 4 per cent in 2023, underpinned by high oil prices, healthy economic growth, a low inflationary environment and positive employment prospects.
Fitch revised the outlook on Omani banks’ operating environment factor score to positive from stable in May 2023 to reflect improved operating conditions, as well as the recent revision of the Outlook on the sovereign rating to Positive from Stable.
Omani banks are highly exposed to the sovereign through lending to government and government-related entities (GREs), holdings of Omani government securities, and high reliance on government and GRE deposits.
Exposure to the sovereign also considers banks' exposures to public-sector employees through their retail loan books.
“We continue to expect contingent asset quality risks in 2023. These could arise from the high stock of restructured loans (11 per cent of sector loans at end-2022) and high exposure to vulnerable sectors, particularly real-estate and construction (end-3Q 22: 26 per cent of sector loans)."
"However, banks’ pre-impairment profitability provides them with reasonable buffers to absorb shocks through the income statement without hitting capital. Overall, we believe any asset quality deterioration will be contained and manageable at banks’ current rating levels,” Fitch stated.