Omani banks are likely to face further deterioration in asset quality in 2021 due to the lingering impact of economic disruption caused by the pandemic and the government’s restrictive fiscal policy, according to Fitch Ratings. “We expect the sector’s Stage 3 loans ratio [credit losses, classified under IFRS-9] to increase by 100 basis points (bps) to 150bps from 4.4 percent at end-2020 as borrower support measures expire and loan classification normalizes,” the rating agency said.

Oman’s GDP contracted by 4.9 percent in 2020. Challenging economic conditions are likely to result in deterioration in banks’ asset quality and earnings, and potentially capitalization. The proportion of restructured loans (4 percent at end-2020) is expected to rise this year.

Corporate loan deferrals are significant and, unless extended, will pose sizeable risks to asset quality when they expire in September. Total loan deferrals, either during or at the end of 2020, varied significantly among banks, ranging from 6 percent to 50 percent of gross loans, based on the outstanding principal and related balances.

Source Credit: Gulf News