Oman's financial sector set to grow in 2012

"Oman's institutional framework is shaped by what we view as the regulator's good track record, and adequate regulation and supervision, which are increasingly aligned with international standards," S&P said in its findings, and fillips such as this will be vital in boosting Oman's financial sector, and to attracting both regional and international investors to Muscat.

With more than OR10.4bn worth of investments planned in the construction sector by 2014, and oil and gas projects worth OR386m in the pipeline, banks in Oman are expected to show healthy loan books through 2012 and beyond. They will have to fight hard to offset the impact of suppressed interest rates and a ceiling on consumer loans, although analysts believe that this should ensure higher asset quality and a lower default risk.

According to the Oman Central Bank, credit in the sultanate continued its forceful growth in 2011: overall bank credit as of end-October 2011 stood at OR12.1bn, a 13.6% rise on the year-earlier figure. Credit to the private sector jumped 10.8% year-on-year to OR10.6bn, while credit afforded to government and public enterprises soared a remarkable 41.8 percent, to QR1.3bn.

And banks aren't resting, either. In order to support funding and strengthen asset growth, they are increasing their capital: Bank Muscat recently announced its intention to raise OR100m through a rights issue in Q2 2012, while Bank Dhofar has already raised OR50m in a subordinated loan for a tenor of five years and one month.

The new capital will help the banks to expand their loan portfolios, and meet the demand for credit from large-scale development projects.
The Muscat Securities Market (MSM) has still to recover from the violence seen in Oman at the height of the Arab Spring.

The MSM 30 index lost 10.2% of its value in February 2011 due to unrest on the streets, and although the exchange's performance in the other 11 months of the year was steady, the index still registered a decline of 15.7% for full-year 2011.

In the wake of the regional unrest, Greek debt crisis and ensuing troubles in the eurozone, however, there was at least some better news towards the end of the year: the market closed in the red in the first three quarters of 2011, but broke back in Q4, rising 1.6% over the three months.

With the sultanate having announced a budget of OR26bn for 2012, investors will be hoping that the positive trend continues. While Oman expects to run a deficit of OR1.2bn in 2012, the government plans to cove some of that deficit by issuing domestic bonds worth around OR200m - and the response to that offering should reflect exactly how far Oman has come since the chaos of February 2011.