BUSINESS REPORTER
MUSCAT, Dec 23
Commercial banks in the Sultanate posted a six per cent decline in profits during 2019 on the back of a number of factors – growth in interest expenses, narrowing interest rate spread, and an uptick in non-performing loans, according to the Central Bank of Oman (CBO).
Net profit after provisions and taxes dipped to RO 396.2 million in 2019, down from RO 413.3 million, the regulator said in its 2019 Annual Report. Interest income, however, climbed higher to RO 1.413 billion up from RO 1.321 billion in 2018.
Commenting on the impact of the downturn on the banking sector, the Central Bank noted: “Commercial banks in the Sultanate managed to cope well with the slowdown in economic activities during 2019 and persisted to maintain healthy position. The slowdown had an adverse effect on both deposit and credit growth which moderated further compared to the previous few years.”
Profits of conventional banks shrank by 6 per cent in 2019 with a deceleration in the growth of net interest income, the apex bank noted. Despite interest income increasing by a strong 8.7 per cent, net interest income witnessed lower increase on the back of higher rise in interest expenses which increased by 13.7 per cent during 2019.
“The narrowing interest rate spread, especially on foreign currency lending, adversely affected the profitability of banks during 2019. Nevertheless, net interest income increased by 4.8 per cent and accounted for most of the banks’ income with other sources such as foreign exchange earnings and fees and commissions dropping considerably during the year. The efficiency gains, evident in lower increase in operating expenses and administrative costs, also helped banks in maintaining net profitability,” the Bank pointed out.
However, the provisions for non-performing assets that increased by 33.3 per cent, reflecting an uptick in non-performing loans, also dragged down net profits.
Despite the impact on bottom-lines, banks maintained an adequate level of capital, liquidity buffers, and stable funding, according the Central Bank.
The capital adequacy ratio (CAR) stood higher at 18.5 per cent as on end-2019 compared to 17.9 per cent a year ago and mandated at 13.5 per cent (11.0 per cent plus the 2.5 per cent capital conservation buffer), while Core Equity Tier 1 (CET1) stood at 14.7 per cent during this period.
Liquidity indicators, viz liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), stood at 220.1 per cent and 116.3 per cent, respectively, at the end of 2019, indicating adequate liquidity buffers and stable funding, it said.
Furthermore, the banks were also able to maintain the quality of their assets with a low delinquency rate. Gross non-performing loans (NPLs) inched up to 3.5 per cent in December 2019 from 2.7 per cent in December 2018. During this period, net NPLs also inched up to 1.4 per cent from 1.0 per cent. The share of restructured loans to total loans also increased to 3.8 per cent from 2.3 per cent, it added.
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