Moody's Investors Service has affirmed the baseline credit assessments (BCAs) of seven Omani lenders and changed their outlook to positive in line with the sultanate’s sovereign credit ratings.
The affirmation of the banks' BCAs reflects that the lenders’ financial fundamentals “remain compatible with the current level of their BCAs following the affirmation of the sovereign ratings”, Moody’s said in a note on Tuesday.
“In the case of two banks, Bank Muscat and HBON [HSBC Bank Oman], their BCAs are in fact constrained at the level of the sovereign rating and these could be upgraded in the event of a sovereign rating upgrade,” the rating agency said.
Moody’s last week affirmed its Ba3 rating of Oman and changed its outlook to positive from stable as higher oil prices signal further improvement in the sultanate’s economy.
Bank Muscat, HBON, National Bank of Oman, Bank Dhofar, Oman Arab Bank, Sohar International Bank and Bank Nizwa are among the lenders in the sultanate whose outlooks were changed to positive from stable.
The rating agency said the affirmation of the Omani lenders' deposit ratings reflects Moody's unchanged opinion regarding the government's willingness to provide support to banks in case of need.
The likelihood of government support remains “high or very high, depending on the bank”, which reflects the importance of the country's banks in the domestic financial system and the significant government shareholdings and deposits in several financial institutions, Moody's said.
Oman’s economic recovery is gaining traction, supported by a revival of the hydrocarbon sector and the relaxation of Covid-19 restrictions, the International Monetary Fund said this week.
The economy is set to expand 4.3 per cent in 2022, supported by continued recovery of non-hydrocarbon economic activity, according to the fund.
The sultanate’s gross domestic product growth rebounded to 3 per cent last year, after a 3.2 per cent contraction in 2020.
Although Moody's expects oil prices to remain volatile and eventually decline, it expects crude prices to remain elevated for the next two years.
Oman’s non-oil economy has also bounced back strongly from the pandemic-driven slowdown that has eased operating conditions for lenders, who, like their GCC peers, are seeing a rise in profitability amid rising interest rates.
The country’s continued focus on expanding its non-oil economic base to cut its dependence on hydrocarbons is also expected to open up new business avenues for lenders in Oman.
The country, which recorded a budget surplus of 784 million rials ($2 billion) in the first half of this year on a more than 54 per cent jump in revenue to 6.72bn rials, aims to bring in more than 9bn rials a year from tourism by 2040 alone, according to government data released in August.
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
