Coronavirus adds to challenges facing Omani banks: Fitch – Saudi Gazette

Coronavirus adds to challenges facing Omani banks: Fitch – Saudi Gazette

LONDON “” The spread of coronavirus will add pressure to Omani banks and a domestic operating environment that was already increasingly challenging prior to the outbreak, Fitch Ratings said in a new report. Fitch expects the weakening operating environment to weigh heavily on the banking sector during 2020, particularly on asset quality, earnings and potentially capital.

Oman's GDP fell 1.3% in 2019 and growth prospects are even worse for 2020-2021 (2020: -5.6%; 2021: -0.6%). The economic disruption caused by the pandemic, combined with lower oil prices, is likely to accelerate the economic slowdown and result in further downward revisions of growth forecasts and higher risks to bank's asset quality.

Loan-book quality had been coming under pressure prior to the health crisis from an increasingly challenging operating environment, notably through lower government spending. The average Stage 3 loans/gross loans ratio was 4% at end-1Q20 and did not yet reflect the impact of the pandemic.

Measures introduced by the Central Bank of Oman to support borrower affordability will go some way to counteract the economic impact of the virus and mitigate asset-quality erosion at banks.

However, the full extent of asset-quality deterioration is likely to take time to emerge as loan classification normalizes, with higher problem