Oman's brighter banking sector (page 1 of 4)

Oman's financial sector has been considerably strengthened and transformed in recent years leading to a modern financial system consisting of commercial banks, specialized banks and other financial intermediaries.

Out of the 14 commercial banks, 5 are locally incorporated and 9 are the local branches of foreign banks. Together they operate a branch network of 330.

The banking sector however is dominated by three local banks (Bank Muscat, National Bank of Oman, and Oman International Bank) accounted for 69% of total banking assets, 65% of total deposits and 70% of total banking credits as of end 2002. These banks also dominate the Muscat Securities Market trading index.

The financial sector in Oman is supervised by the Central Bank of Oman (CBO) which was established in 1974 to act as the central bank and the depository agency for the government. The banking law was amended in 2002. The functions of CBO include issuing the national currency Omani Rial, act as the government's banker, supervise commercial banks operating in the country, formulate and implement the monetary policy and ensure the soundness of the financial system.

In addition to the above mentioned traditional functions, the CBO also act as the advisor to the Government in economic matters in general and monetary and financial matters in particular. The CBO has been urging the local banks to enhance their financial position and introduced new international accounting standards and corporate governance principles to reduce fraud and malpractices.

The mandatory application of International Accounting Standards (IAS 39) for the year 2001 required banks to set aside provisions for bad loans and the stringent provisioning policy has set the stage for comparatively better results in the subsequent years. Banks are also following new corporate governance principles by revealing related party transactions and balance sheet details.

The cumulative assets of Omani commercial banks have recorded a growth of 4.3% (CAGR) during the four years period 1999-2002 with most of the growth coming from the credit issues to the domestic private sector. In 2002, cumulative assets of banks increased by about 1.5% over the previous year. Total credit to private and public enterprises stood at RO3.27bn in 2002, an increase of 0.9% over previous year.

Amounts related to "due from banks abroad" showed the highest growth of 60.6% at RO325.2mn in 2002. Total securities, both domestic and foreign, accounted for about 10% of the total assets of banks in 2002. In the first nine months of 2003, total bank assets increased by 1.2% over 2002. During the period, securities held by the banks showed a growth of 15.4% over 2002.

On the liabilities side, total deposits, which consist of deposits from public and private sectors, have grown at a CAGR of over 5.7% during the four years period 1999-2002. In 2002 total deposits grew by 3.5% over the previous year, largely driven by deposits from the private sector which was higher by 4.1% over 2001.

Demand and Savings deposits exhibited a healthy growth of 18.9% and 21.3% respectively in 2002 which were largely offset by the time deposits which fell by 7.7%. The deposits of public enterprises grew the most, at a CAGR of about 23.5% during the period 1999-2002 to RO 229mn in 2002.

Oman witnessed rapid credit expansion between 1995 and 1999 both in domestic and corporate accounts. The distribution of credit facilities by sector shows that Personal loans constituted about 36%, Import trade 9.6% and Manufacturing 8.8% of the total credit of commercial banks at the end of 2002.