Oman: Banks Face Soaring Bad Loans Amid Struggling Economy

Oman: Banks Face Soaring Bad Loans Amid Struggling Economy

Omani banks' intrinsic credit profiles face pressure throughout 2021 due to economic disruption caused by the pandemic and the government's restrictive fiscal policy, said Fitch Ratings in a new report. The sector's Stage 3 loans ratio to increase by 100bp-150bp from 4. 4% at end-2020 as borrower support measures expire and loan classification normalises, the report said, adding that the proportion of restructured loans (4% at end-2020) is also likely to rise. 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% to 50% of gross loans, based on outstanding principal and related balances. The sector's expected credit losses increased to 4. 1% of gross loans at end-2020 as banks front-loaded provisions. However, some banks' loan impairment charges appear low given widespread payment deferrals and the likely extent of GDP contraction. Underlying profitability should improve modestly in 2021 due to a gradual pick-up in lending, but the slow economic recovery and the still-high cost of risk (loan impairment charges/gross loans) will limit the upside. "We expect regulatory capital ratios to be stable