Oman banks outlook negative but economy set to rebound, Moody's says

Economy to grow 2.5% this year compared with 0.2% in 2017, according to Moody's forecast

A man counts Omani riyal currency banknotes after selling fish at the Mutrah fish market in Muscat, Oman. Moody's forecasts the economy will rebound this year. Bloomberg

Moody's Investor Services maintained a negative outlook on Oman's banking system but said the Gulf nation's economy is set to rebound this year.

The outlook reflects Oman's softening asset quality and relatively tight funding, the credit rating agency said in a report on Monday.

"Oman's economy will rebound from the sluggish growth rates experienced last year," Moody's said. "Moody's expects capital to remain sound, providing loss absorbency."

The Arabian Gulf is seeing increasing consolidation within the banking system, a byproduct of competitive pressure for funding and incentive to increase banks’ scale and revenue base. Alliances among financial institutions are also taking place across the region. HSBC and RBS’ affiliates in Saudi Arabia, and Bank Dhofar and National Bank of Oman are set to tie-up.

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Moody's expects Oman's government to continue to show a "high willingness" to extend support to its banking sector in case of any crisis. But the rating agency pointed out that the authorities may become more selective in providing support to banks.

Oman’s budget deficit narrowed to 12.8 per cent of gross domestic in 2017 from 21 per cent in the previous year because of an increase in oil revenues and spending restraints. The Arabian Gulf state, which is the biggest non-Opec Arab oil exporter, is undertaking economic reforms to raise its non-hydrocarbons revenue. This would bring the deficit to below 4 per cent of the gross domestic product in the next two years, the IMF said in April. The budget deficit is then expected to widen to 7 per cent of GDP by 2023, reflecting the IMF’s oil-price assumptions.