Finance and leasing companies (FLCs) operating in the Sultanate reported a 43.6 per cent increase in their gross non-performing loan (NPL) portfolio last year – an uptick that the Central Bank of Oman (CBO) described as worrying.
There are currently five FLCs operating in Oman with a network of 39 branches between themselves. Total assets of the five companies grew 4.4 per cent to reach a value of RO 1.116 billion last year, up from RO 1.069 billion a year earlier.
Despite the uptick in assets, net profits declined on the back of an increase in non-performing loans, the apex bank noted in the Annual Report for the year. “As a matter of concern, the gross non-performing loans continued their upward trend and increased considerably by 43.6 per cent in 2018, with their ratio to total loans/lease portfolio reaching 12.9 per cent from 9.1 per cent in the previous year,” the Central Bank stated.
In actual terms, gross non-performing loans totaled RO 133.8 million last year, up from RO 93.2 million a year earlier.
FLCs — also known as non-banking financial companies (NBFCs) — are an importance source of convenient finance towards the purchase of vehicles and household goods, as well as all kinds of corporate finance, business loans and debt factoring services. Other provide lease facilities, asset insurance, and SME finance and funding towards home improvements. Some firms also specialise in providing Letters of Credit to facilitate the import or goods and services, as well as issue bank guarantees for the execution of projects or contracts.
Banks and other financial institutions are the main source of funding for FLCs in the Sultanate, accounting for the funding of around 62 per cent of total assets in 2018.
Underscoring the deteriorating asset quality of FLCs, net profits after provisions and taxes slumped 22 per cent to RO 22.6 million last year, down from RO 29.2 million a year earlier, according to the CBO report. “Following the existing trends, the weighted average interest rate charged on loans by FLCs also increased to 9.1 per cent in 2018,” it noted. This was the highest since 2014.