Oman banks to remain stable over next year

Banks in Oman are expected to remain stable over the next twelve to eighteen months, with higher revenues and moderate credit growth, ratings agency Moodys said in a report Thursday. Lenders will benefit from an improved business environment, stable funding bases and high liquidity buffers, not to mention fewer non-performing loans, analysts from the firm said. "We forecast that Oman's real GDP will likely to expand by 2.9 percent in 2011, fuelled by high oil prices and increased oil production, whilst accelerated public spending will also stimulate economic growth outside the oil sector," said Elena Panayiotou, a Moody's analyst and author of the report."The improved operating environment will support banks' asset quality, drive credit growth - likely to be between ten percent and fifteen percent over the outlook horizon - and increase bank revenues. “Moreover, non-performing loans will likely remain at low levels over the outlook period, at three percent – four percent of total loans."Thus, for the time being, banks' earnings-generating capabilities will continue to be adequate, the report said.However, analysts warn that the banks are not out of the woods yet, and could face high credit risks in the future, especially given their exposure to suffering real estate and construction industries. They say the concentrated nature of private wealth in Oman and the small size of the banking system (valued at $41bn by the end of 2010) increases the risk of problems. Another key structural weakness stems from Omani banks' having limited geographic diversification and high dependence on the domestic economy, reliant on a volatile oil sector.Despite the government's long-term plans to diversify the economy, the hydrocarbon sector will continue to dominate the Omani economy over the medium term, leaving banks' earnings susceptible to volatility, the report concluded. From / Arabian Business News