Moody’s outlook for Oman’s banking system is negative with the ratings institution predicting that problem loans in the Sultanate are set to rise to much as 3.7% of gross loans in 2019-20, from 2.8% in June 2019, especially with the construction sector feeling the pressure and adding to the risk.

Mik Kabeya, assistant vice president at the rating agency, was quoted as saying that the challenging climate for businesses and households will lead to increased problem loans. “Our negative outlook for the sector also takes account of the government’s declining capacity to support the country’s banks in case of need,” she said.

According to Moody’s limited government finances given the oil output cuts would possibly result in limiting banks’ access to funding and liquidity. However, it added that credit growth will remain stable at 6.5% this year and next. The credit growth will still be well below historic levels, it added, saying that the Sultanate’ real GDP growth will remain subdued at 1.6% in 2019, rising to 2.7% in 2020.

The Central Bank of Oman (CBO) has pegged the nation’s real Gross Domestic Growth (GDP) at 1.1% this year, down from an estimated 2.2% last year. The nominal Gross Domestic Product (GDP), fell by 1.6% during the first quarter of 2019, after having grown at an accelerated pace of 12% during 2018.

Earlier in July, official figures from conventional banks indicated an annual growth in total outstanding credit disbursement of 4.4 per cent at the end of April 2019. Credit to the private sector grew by 2.1% to OMR18.9bn.

READ: CBO predicts healthy economic outlook over medium term

However, a recent report from the Ministry of Finance shows that Oman’s deficit has decreased by a billion rials over the past year, according to the final state accounts, with Oman’s Central Bank’s Executive President, Tahir Al Amri, categorically stating that the nation was not looking for any aid or bail out packages from its Gulf neighbours in spite of the large deficit.

The country has been adopting new rules and regulations to ease the inflow of foreign investment into the country and according to statistics, released by National Centre for Statistics and Information, the Foreign Direct Investment (FDI) in the Sultanate for the year 2018 stood at OMR10.56bn recording a growth of OMR1.36bn from the same period of the previous year.