While a well-functioning surveillance framework, sound regulatory structure and prudent banking practices have limited the concern relating to financial stability, the Omani economy has to contend with the challenges associated with the global and regional slowdown in economic activity, and the associated developments manifested in the form of sharp fall in oil prices, contraction in world demand and trade, and greater risk aversion influencing capital flows.
Domestic economic activity, however, continues to be resilient, drawing necessary support from appropriate fiscal policy and easy domestic liquidity conditions,” the apex bank said in a statement. On a year-on-year basis, commercial banks’ total assets for the fiscal year of 2008 increased by 33.3 per cent to reach RO 13,780.9 million on account of the exceptional growth of 42.3 per cent in annual credit, according to the CBO. From a monthly perspective, however, the pace of growth in total credit during December 2008 alone slowed to 1.1 per cent from 3.1 per cent during the month of November 2008 suggesting some signs of a credit squeeze in domestic markets. Investments in securities (both domestic and foreign), which accounted for 7.2 per cent of total assets decreased by 28.9 per cent to RO 996.8 million, in comparison to its level in December 2007.
In particular, commercial banks’ outstanding investments in CDs issued by CBO decreased from RO 1,083.1 million as at the end of December 2007 to RO 390.0 million at the end of December 2008, whereas outstanding investments in foreign securities increased from RO 92.6 million to RO 347.6 million during the same period, respectively. Assets held in the form of cash and deposits with the CBO increased to RO 1,430.4 million at end of December 2008 from RO 666.7 million a year ago. Significantly, commercial banks’ cash and deposits with CBO during the month of December 2008 alone increased by RO 698.2 million over its level of RO 732.2 million in November 2008. On the liabilities side, aggregate deposits (domestic plus foreign currency) increased significantly on a year-on-year basis by 32.1 per cent to RO 8,577 million at the end of December 2008, the CBO said.
In particular, government deposits rose by 87.0 per cent to a level of RO 1,696.6 million, representing 19.8 per cent of total deposits, whereas private sector deposits increased by 19.7 per cent to a level of RO 6,353.1 million. On a monthly basis, however, total deposits declined marginally by 0.4 per cent over its level at the end of November 2008. Core capital and reserves increased year-on-year by 7.3 per cent to RO 1,564.9 million and accounted for about 11.4 per cent of total commercial bank assets at the end of December 2008.
The overall monetary conditions continued to be characterised by high growth in domestic money supply, year-on-year. Broad money supply (M2) increased by 23.1 per cent in 2008 over the corresponding period in 2007. The main components of money supply, currency held by the public rose by 11.6 per cent, demand deposits by 0.5 per cent, and quasi money (comprising RO savings and time deposits, certificates of deposits issued by commercial banks, margin deposits and foreign currency designated deposits) by 31,9 per cent. Among the key sources of money supply, while combined domestic assets of commercial banks and the Central Bank of Oman surged by 42.7 per cent, net foreign assets of the same expanded by 11.8 per cent, primarily on account of higher central bank net foreign assets, which increased by 202 per cent, the CBO said.
Given the structure of the Omani economy and the fixed exchange rate arrangement of the Rial Omani to the US dollar, domestic interest rates are expected to closely track interest rate developments in the United States of America. Reflecting the sharp decline in the US federal funds target rate from 4.25 per cent in December 2007 to a range of 0 to 0.25 per cent in December 2008 — an outcome of severe monetary easing by the Federal Reserve in response to the financial crisis — domestic interest rates in Oman also moderated significantly. The weighted average interest rates on CBO CDs of 28 days maturity fell from 1.975 per cent in December 2007 to 0.910 per cent in December 2008, overnight RO domestic inter-bank lending rate also declined from 1.470 per cent to 0.292 per cent during the corresponding period.
With regard to the behaviour of domestic interest rates on RO deposits (demand, savings and time deposits of all sectors) increased from 2.065 per cent in December 2007 to 2.512 per cent in December 2008. In particular, interest rates on private sector time deposits in local currency have gradually increased from 4.050 per cent in October 2008 to 4.354 per cent in November 2008, and further to 4.639 per cent in December 2008 indicating some evidence of marginal tightening in the cost of funds for commercial banks, whereas average RO lending rate marginally declined from 7.290 per cent in December 2007 to 7.099 in December 2008, the apex bank added.
