BUSINESS REPORTER
MUSCAT: International ratings agency Moody’s Investors Service has upgraded its outlook on Oman’s banking sector from “stable” to “positive", citing strengthening economic conditions, improving loan quality and enhanced government support. This upgrade makes Oman the only Gulf nation with a positive banking sector outlook, setting it apart from regional peers that remain classified as “stable".
The improved assessment reflects steady non-oil sector growth, projected to expand by approximately 3 per cent in 2025-26. Key drivers include higher consumer and business confidence, a rebound in tourism and increased private sector investments in manufacturing, transportation and renewable energy.
Overall GDP growth is forecast to reach 2.4 per cent in 2025, up from an estimated 1.7 per cent in 2024, supported by an anticipated recovery in oil production.
The government's support for Oman’s banking sector has also strengthened, backed by the country’s reduced debt burden and improved debt affordability. This fiscal improvement provides a more stable foundation for financial growth and resilience.
Oman’s upgraded outlook underscores its improved economic fundamentals, stronger fiscal position and the banking sector’s ability to support sustainable growth. If these positive trends persist, Oman’s financial system could emerge as a standout performer among Gulf economies in the coming years.
Loan quality in Oman’s banking sector is also expected to strengthen as economic activity enhances borrowers’ repayment capacity. Moody’s anticipates a decline in problem loans and a reduction in higher-risk Stage 2 loans over the next two years.
Additionally, Omani banks maintain resilient capital positions, with tangible common equity to risk-weighted assets projected to remain between 13 per cent and 14 per cent, reinforcing financial stability.
Profitability levels are expected to stay steady, with net income likely representing around 11 per cent of tangible assets in 2025. The sector stands to benefit from lower loan-loss provisioning amid a more supportive economic environment, while cost efficiencies driven by digitalisation could help offset rising operational expenses.
Despite continued exposure to funding concentration risks, Oman’s banking system maintains solid liquidity buffers. Government and public-sector deposits account for one-third of total sector deposits, limiting diversification.
However, private sector deposits are on the rise, and the loan-to-deposit ratio has improved to 95 per cent as of September, down from 107 per cent in December 2022.
Oman Observer is now on the WhatsApp channel. Click here
