Can you share highlights of the financial performance of banking and non-banking financial institutions sector in 2020 and the outlook for the remainder of 2021?
The banking sector remained resilient and functioned smoothly despite the challenges endured during 2020. Total assets of the banking sector at the end of 2020 increased by 1.7 per cent on a year-on-year (y-o-y) basis totaling RO35.8bn, with credit showing a y-o-y growth of 3.3 per cent. Total deposits during 2020 increased by 2.9 per cent. The banks in Oman remained well capitalised with capital adequacy ratio of around 19 per cent and NPLs ratio around 4 per cent at the end of 2020. The outlook for 2021 is optimistic given the rollout of vaccines. While the country had resumed most of the economic activities, the recent resurgence in the infections has led to re-imposition of some restrictions on mobility and economic activities. The vaccination drive is, however, expected to facilitate normalisation of economic activities during the course of the year. As a result, the banking sector in Oman is likely to witness a healthy growth in business and improved financial performance during 2021.

The COVID-19 pandemic has impacted diverse sectors leading to massive contraction in economic activities? How has the banking sector in Oman responded to the challenges?
The pandemic has significantly affected the economic activities in Oman as has been the case across globe. The government and the central bank have taken pro-active measures to minimise the impact of the pandemic on businesses. The banks were given suitable regulatory forbearance so that the businesses and individuals facing cash flow problems due to the pandemic get time for recovery. The central bank also ensured adequate liquidity for the banking system. In these circumstances, the banking system effectively supported the government efforts and met the funding needs of the economy in a coordinated manner. The banks effectively implemented the CBO’s measures including the deferment of loans to borrowers impacted by the pandemic.

Are there plans to inject additional liquidity into the market?
The stimulus package announced in March 2020 by the CBO provided liquidity support through increasing the repo tenor, raising the lending ratio, and reducing the capital conservation buffer which together freed up liquidity of around RO8bn. The CBO has announced two more stimulus packages in September 2020 and March 2021, extending some of the measures such as deferment of loans up to September 2021. Overall, the liquidity conditions have remained comfortable. Furthermore, the CBO is monitoring the evolving conditions and stands ready to undertake sufficient liquidity release measures as and when needed.

Are banks digitising their customer experience? Is the digitalisation thrust facilitating banks to increase profitability?
After the onset of COVID-19, in line with the suggestions from the Central Bank of Oman, most of the banks are revisiting their digital strategies. We notice that the banks are taking steps to enhance their digital infrastructure too. In addition, they are urging their customers to use more of digital banking services by creating awareness drives. It is too early to analyse whether such strategies are resulting in increased profitability as the income from lending activities are causing adverse impact on profitability due to the impact of COVID-19 on the economy. However, increased digital adoption is expected result in significant reduction of cost of providing banking expenditure.

What are the new banking technologies that are being rolled out to spur banking sector growth?
Digital onboarding of customers, Virtual Banking Hubs, Voice ID for banking services, QR Code Payments, Money Transfer using mobile number or alias and so on are some of the new type of banking technology/products which are being contemplated and implemented already by the banks. In addition, the banks are also enhancing the existing digital banking products like mobile banking, net banking and mobile/electronic wallets.
Are Banks in Oman beginning to embrace blockchain to raise operational efficiencies?
Banks in Oman are continuously exploring the adoption of emerging technologies to support their digital transformation journey, raise their operational efficiencies and speed up their transaction processes.
In November 2019, a successful live end-to-end pilot blockchain trade finance transaction was conducted by one of the banks in the Sultanate for the issuance of a fully digitised letter of credit on a Distributed Ledger Technology (DLT). Another bank had also used the blockchain technology for conducting a pilot service of overseas remittances for its employees.

What are the challenges facing the banking sector?
The banking sector in Oman is well capitalised and having a sound financial position. Going, forward, one of major challenge could be to meet the credit demand as the recovery takes place and demand for credit picks up. The banks may have to meet financing requirement of the government as well as the private sector. The CBO is, however, monitoring the situation on a regular basis and will provide necessary liquidity support measures so that the banks don’t face any issues in meeting credit demand from the private sector.
Banks may also face some pressure on asset quality once the regulatory forbearance granted in the wake of the pandemic is withdrawn. The internal assessment, however, suggests that such impact is likely to be very small and banks have already made adequate provisions for meet any such challenge. With the vaccination programme and expected recovery of economic activities, the banking sector in Oman is likely to gain further resilience in the medium term.