Muscat: The ongoing pandemic impacted all segments of the economy, but still Omani banking sector showed considerable resilience to this large multi-faceted shock, and its ability to withstand adverse shocks continued to be strong, said the Central Bank of Oman (CBO) in its 2020 Financial Stability Report.
The sector continued to help support the economy by providing relief to the affected borrowers in the form of deferment of loons besides extending additional credit to meet the financing needs of the economy, it said.
"The stress tests conducted using the end of December 2019 data showed that under the moderate scenario, all domestic banks would absorb the assumed losses from the credit, interest rate, and foreign exchange shocks without breaching the Basel-III regulatory capital requirement, and all but one of the domestic banks would withstand moderate stress without breaching the CBO's minimum required Capital to Risk-weighted Assets Ratio (CRAR) of 13.5 percent'. Reverse stress tests also showed the ability of bonks to absorb a sizeable increase in Non-performing loans (NPL), before any threat to their solvency."
The liquidity stress tests conducted using the end of December 2019 data display domestic banks' capability to face the assumed liquidity shock. All domestic banks would survive the assumed deposit run-off for more than five working days.
"Despite the considerable deterioration in the global and domestic conditions, the Outlook for the Financial Stability is Positive. The COVID-19 pandemic has deteriorated the economic outlook across the globe with massive contraction in economic activities, loss of employment, and a significant rise in bankruptcies," the report said.
Oman is not insulated from the impact of the pandemic. The dual shock caused by the pandemic and the deteriorating oil prices in 2020 highlighted the vulnerability of output in Oman, among other commodity exporters, to severe external shocks. It posed serious challenges to the stability of the growth path as well as the outlook for fiscal and external balances in Oman.
The Omani government responded promptly to these challenges. Besides providing temporary financial relief to the households and businesses, the government fast-tracked the work on its goal to modernize and reform the economy. It is expected that the reform measures will have a far-reaching positive impact on macro-economic and financial stability. Considering the renewed efforts to keep the economy on track, and a strong financial sector to support the real sector, balancing the risks to financial stability are assessed to be well-contained, the report said.
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