Moody's sees Oman banks stable over coming 18 months

Oman's banking system would be stable over the next 18 months despite a likely rise in provisions and slower credit growth, ratings agency Moody's Investor Services said on Wednesday.

"Moody's believes that the more challenging credit environment will lead to lower volume growth and higher loan loss and other provisioning," said Christos Theofilou, a Moody's analyst, in a report.

"This should not lead to adverse pressure on Omani banks' ratings, unless it results in a substantial weakening of franchises."

The depressed economic climate will lead to lower credit growth at banks, Moody's said, while credit risk will rise and profitability will come under pressure from stiffer competition and lower interest rates.

But, Oman's diversification strategy would create growth opportunities for banks, and the economy's relative isolation from the worst effects of the global crisis is also supportive of banks, it said.

Lenders also have adequate capitalisation, which is a buffer against future unforeseen losses, it added.

"The system's stable outlook reflects the resilience and continued growth of the Omani non-oil economy, the still adequate domestic liquidity in the banking sector and the strong financial ratios of Omani banks," said Elena Panayiotou, a Moody's lead analyst.

The non-OPEC oil exporter is still heavily dependent on its oil sector, which accounted for 41.5 percent of gross domestic product (GDP) in 2007.

The sultanate has said it aims to reduce this to 9 percent by 2020. In the first quarter of 2009, nominal GDP fell 20 percent year-on-year as plunging demand sent oil prices tumbling and state revenues shrank.