CBO released its seventh issue of the Financial Stability Report. The report highlights that the Omani banking sector remained robust with sound asset quality and strong capital buffers. Banks posted reasonable profits that allowed organic growth and strengthened capital buffers. The sector remained fairly liquid with both the liquidity coverage ratio and the net stable funding ratio above the regulatory requirements. The countercyclical measures adopted by CBO in early 2018 also helped banks stay on a strong footing, despite the rising interest rates in 2018 and the challenging operating conditions.
The key highlights of the report include the following:
- Deposits of government and public-sector enterprises to total deposits of the banking sector increased to about 37% in 2018, compared to 34.1% in 2017. While individual banks exhibit varying degree of resilience to deposit withdrawal by the government, on average the liquid assets (excluding inter-bank assets) of the banking sector almost cover the public sector deposits.
- Non-performing loans (NPLs) remained at low levels indicating the soundness of the credit portfolio of banks. Gross NPLs (or Stage 3 loans) of banks were OMR 683 million or 2.73% at the end of 2018. The net NPL ratio increased slightly from 0.66% at the end of 2017 to 0.95% in December 2018. The loans assessed as Stage 2 were over OMR 5 billion or 20% of the total lending portfolio of banks at the end of 2018. Given the volume of loans in this category, due attention is warranted to monitor and manage the rising trend and to keep them from slipping to NPLs.
- The concentration level in Oman is in line with the peer group of Gulf Cooperation Council (GCC) countries. To deal with the risks emanating from the presence of large institutions, CBO had issued guidelines to identify, supervise, and regulate the domestic systemically important banks (D-SIBs). Moreover, as a part of the preparedness to amicably resolve the systemically important banks, CBO has also recently published a Bank Resolution Framework.
- Capital to Risk-Weighted Assets Ratio (CRAR) of banks was 17.9% at the end of December 2018 as compared to 17.4% a year earlier. The stress tests show that, at the end of December 2018, the CRAR of the domestic banks would drop from 17.6% to 15.6% when banks are subjected to a battery of severe stress events. The reverse stress test showed that the current aggregate NPLs of domestic banks should increase by at least 200% before the CBO’s required CRAR of 13.5% could be breached.
- The total real estate exposure of the banking sector continued to be about 30% of the total lending portfolio. This is considered large as a weakening in the real estate market may expose the banking sector to considerable risks. Furthermore, mortgage financing to households formed about 15% of the lending portfolio or 50% of its real estate exposure. However, at present, there is no sign of any significant stress in the Omani real estate market.
Keywords: Middle East and Africa, Oman, Banking, Insurance, Securities, Financial Stability Report, LCR, NSFR, Concentration Risk, Stress Testing, CRAR, NPLs, CBO
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
The Financial Stability Board (FSB) and the Network for Greening the Financial System (NGFS) published a joint report that outlines the initial findings from climate scenario analyses undertaken by financial authorities to assess climate-related financial risks.
The Financial Stability Board (FSB) published a letter intended for the G20 leaders, highlighting the work that it will undertake under the Indian G20 Presidency in 2023 to strengthen resilience of the financial system.
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
The European Union has finalized and published, in the Official Journal of the European Union, a set of 13 Delegated and Implementing Regulations applicable to the European crowdfunding service providers.
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.