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Central Bank of Oman sees drop in GDP growth



Muscat: The Central Bank of Oman (CBO) on Tuesday said that Oman's gross domestic product (GDP) growth may fall to 1.9-2.5 per cent and 1.6-2.2 per cent in 2014 and 2015, respectively, in case of  worst scenarios  like a lower global growth and an adverse oil price movement.

Oman's growth scenario continued to look comfortable in 2013 with global activities on the track, backed by comfortable economic recovery in the advanced economies, said the apex bank in its financial stability report.

"A sustained growth process in Oman was a manifestation of an improved diversification of the economy reflected in terms of increase in the excess of contribution of non-oil sector to GDP growth vis-à-vis the oil sector," said the report.

"Corporate profitability has been on an uptrend since 2011 while the stock market was buoyant in 2013, backed by investors' confidence, both domestic and overseas," said the apex bank in its report.

Inflation falls
According to the CBO, Oman's consumer price inflation on an average basis fell to 1.1 per cent in 2013 from 2.9 per cent in 2012. With a positive fiscal balance for 2013 (0.8 per cent of nominal gross domestic product) and low debt-GDP ratio (6.9 per cent), the fiscal sector risk continued to remain low. The Sultanate's current account continued to be in surplus for four successive years consecutively from 2010 to 2013.  

The CBO also said that the financial sector showed robustness with capital position and asset quality remaining healthy during 2013. The current year is set to repeat the position even under severely stressed hypothetical scenarios.

Total loans business, including Islamic institutions, increased by nine per cent and the component of the private sector credit to non-oil GDP also rose by six per cent over the last year. The gross non performing loan (NPL) ratio marginally declined to two per cent over the course of the year with the net NPL ratio staying put at around 0.58 per cent. The existing loans portfolio of banks was well covered against expected losses through adequate provisions with coverage ratio (provisions to NPLs) of 72 per cent (138 per cent including general provisions). The benchmark Capital to Risk Weighted Assets Ratio (CRAR) of the banking sector stayed steady at 16.4 per cent. At system level, even the core capital segment was sufficient enough to meet both the stipulations of the CBO (at 12 per cent).

The apex bank undertakes stress testing exercise for the banking sector which indicated no immediate threat to the solvency of the banking sector in Oman. Should all the applied stressed scenarios materialise, the banking system would face a shortfall of capital which worked out to be only about 0.37 per cent of the risk-weighted assets and 19.39 per cent of the net profits of the banking system.

Similarly, the results of the macro stress tests showed that under severe concurrent negative shocks for GDP growth, interest rates, inflation, stock market prices, the default rates in the banking sector will tend to rise but only a few banks will feel the pressure of capital requirements. The liquidity stress tests, too, indicate a comfortable position. Under assumed liquidity shocks, given the position as at end-December 2013, banks would be able to sustain for an average of 19 days with cash and 21 days with cash and securities.

The apex bank also said that leasing companies posted increased level of pre-tax profits last year. Their profitability indicators remained healthy at three per cent and 12.8 per cent, respectively.

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