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Review of Banking and Monetary Developments - June 2016   (10/8/2016)

In the backdrop of low crude oil prices in the global markets and sluggish global growth, the Sultanate of Oman exhibited slowdown in economic activities during 2015. Nominal GDP contracted by 14.1 percent mainly due to the sizeable drop of 38.2 percent in the petroleum sector, despite the moderate growth of 2.3 percent witnessed in the non-oil sector. On the fiscal front, the Government of Oman introduced several positive reform measures supported by external borrowings in addition to other sources of funding to tackle the fiscal deficits. With oil prices continuing to remain low, the current account which registered a deficit in 2015 is expected to be in deficit mode in 2016 too. With inflation based on the average annual CPI remaining low at 0.74 percent during the first half of 2016, the CBO continued with its accommodative monetary policy stance and made revisions to the reserve requirement leaving more money in the hands of banks to facilitate lending requirements.

Despite the challenges facing the economy, the banking sector remained resilient supporting economic diversification initiatives and credit needs. The total assets of conventional commercial banks increased by 6.1 percent to RO 29.1 billion in June 2016 from RO 27.4 billion a year ago. Of the total assets, credit disbursement accounted for 66.6 percent and increased by 8.6 percent as at end June 2016 to RO 19.4 billion. Credit to the private sector increased by 9.8 percent to reach RO 17.1 billion as at the end of June 2016. Conventional banks' overall investments in securities stood at RO 2.6 billion as at the end of June 2016. Investment in Government Development Bonds and Government Sukuk increased by 37.9 percent over the year to RO 920.6 million at the end of June 2016. Banks also invested RO 420.5 million in Government Treasury Bills as at the end of June 2016. Conventional banks' investments in foreign securities stood at RO 667.4 million in June 2016. Aggregate deposits held with conventional banks registered a modest decline of 1.6 percent to RO 18.2 billion in June 2016 from RO 18.5 billion a year ago. Government deposits with conventional banks declined by 10.5 percent to RO 4.8 billion. Deposits of public enterprises increased by 4.2 percent to RO 1.1 billion during the same period. Private sector deposits, which constituted 65.8 percent of total deposits with conventional banks, increased by 2.1 percent to RO 12 billion in June 2016 from RO 11.7 billion a year ago. The core capital and reserves of conventional banks stood at RO 3.7 billion as at the end of the June 2016, a rise of 12.2 percent over the previous year.

Islamic banking entities provided financing to the extent of RO 2.1 billion as at the end of June 2016 when compared to RO 1.4 billion a year ago. Total deposits held with Islamic banks and windows also registered a significant increase to RO 1.8 billion in June 2016 from RO 1.1 billion outstanding as at the end of June 2015. The total assets of Islamic banks and Windows combined, amounted to RO 2.7 billion as at the end of June 2016 which constituted about 8.4 percent of the banking system assets. The combined balance sheet of conventional and Islamic banks (other depository corporations) taken together, provides a complete overview of the financial intermediation taking place in the banking system in Oman. The total outstanding credit extended by the other depository corporations stood at RO 21.5 billion as at the end of June 2016, a rise of 11.7 percent over the level witnessed a year ago. Credit to the private sector increased by 13.1 percent to RO 19.2 billion as at the end of June 2016. Of the total credit to the private sector, the share of the household sector (mainly under personal loans) stood at 46 percent, closely followed by the non-financial corporate sector at 45.9 percent, financial corporations at 5.3 percent and other sectors the remaining 2.8 percent.

Total deposits registered a modest growth of 1.8 percent to RO 20.1 billion as at the end of June 2016. Private sector deposits of the banking system registered a growth of 5.1 percent to RO 12.9 billion as at the end of June 2016. Sector-wise, the share of households was 50.1 percent of the total private sector deposit base, followed by non-financial corporations at 26.7 percent, financial corporations at 19.8 percent and the other sectors at 3.4 percent. As at the end of June 2016, narrow money stock (M1) when measured on year-on-year basis, registered a marginal fall of 0.9 percent to RO 5.4 billion. On the other hand, Quasi-money (RO savings and time deposits, certificates of deposit issued by commercial banks, margin deposits and foreign currency denominated deposits) witnessed an appreciable growth of 8.9 percent during the period. Broad money supply M2 (i.e. M1 plus quasi-money) stood at RO 15.55 billion at end of June 2016, up from RO 14.76 billion a year ago, registering an increase of 5.4 percent during the period.

In respect of domestic interest rate structure of conventional banks, the weighted average interest rate on RO deposits firmed up from 0.885 percent in June 2015 to 1.182 percent in June 2016, while the weighted average RO lending rate marginally decreased from 4.859 percent to 4.854 percent during the same period. The overnight Rial Omani domestic inter-bank lending rate firmed up to 0.412 percent in June 2016 from 0.131 percent a year ago.