Decreasing financial stability risks in Oman: CBO

Muscat: Risks to the Sultanate of Oman’s financial stability have eased, but new vulnerabilities have emerged that could test the resilience of our financial system, the Central Bank of Oman (CBO) said.

“However, the banking sector retains the ability to absorb a variety of shocks without negative spillover effects on credit supply and the real economy,” the CBO said in its tenth issue of the Financial Stability Report (FSR). , which was released on Sunday.

While highlighting the tax and financial relief provided by the government and the CBO, the FSR report recognizes the role of the financial sector in providing credit and financial services throughout the COVID-19 pandemic that has helped shape a rapid post-pandemic recovery plan duly supported by favorable oil prices.

The FSR says ongoing geopolitical tensions in Europe are fueling rising inflationary pressures across the world.

“The ensuing monetary tightening could weigh on growth, especially for sectors that are still in the recovery phase,” the central bank’s FSR report said.

Nonetheless, the outlook for inflation in Oman remains subdued and “as an oil exporter, rising commodity prices so far are a net positive for Oman, as higher hydrocarbon revenues have provided the government with sufficient fiscal space to offset any inflationary pressure through targeted interventions”. to complement the impact of monetary policy measures,” the report added.

With regard to the health of the banking sector, the FSR report mentions that banks have continued to hold large buffers of capital which are supported by the improvement in their profitability indicators “as the economy has on the growth trajectory” and “asset quality remained well contained with a low non-performing loan (NPL) ratio and adequate provision coverage.”

The report further states that the loan moratorium ended in December 2021, however, “the release of this regulatory easing has been timed to coincide with a strong recovery and a provision to restructure loans if necessary without affecting the classification of risks. As a result, credit risk projections for deferred loans remain low.”

The FSR report concludes that “the overall short-term risks to financial stability have diminished significantly compared to the previous year”, and that “an amicable resolution of the ongoing European conflict will help restore confidence and ease some pressures, while any further escalation or delay in the peace process will increase the risks to recovery and financial stability.”

FSRs are an important communication tool by central banks around the world to disseminate information about potential financial stability distress points. In Oman, FSR publications were integrated into the overall macro-financial surveillance system in 2013.