RIYADH: Improving economic conditions, stronger loan quality, and a resilient banking sector have led Moody’s Investors Service to upgrade its outlook on Oman’s banking system from “stable” to “positive.”
The agency cited steady non-oil growth, improving borrower repayment capacity, and the government’s enhanced ability to support banks as key factors in its revised assessment.
Moody’s expects Oman’s non-oil economy to grow by approximately 3 percent in 2025-26, supported by strong business and consumer confidence, a recovery in tourism, and private sector investments in manufacturing, transportation, and renewable energy.
The rating agency also projects overall gross domestic product growth to accelerate to 2.4 percent in 2025, up from an estimated 1.7 percent in 2024, partly due to a recovery in oil production.
Loan quality in Oman’s banking sector is expected to strengthen as economic expansion supports borrowers’ repayment capacity.
Moody’s anticipates a decline in problem loans — those at risk of default — in 2025-2026, along with a reduction in Stage 2 loans, which carry higher credit risks but remain performing.
Omani banks’ capital positions remain robust, with tangible common equity to risk-weighted assets expected to stay between 13 percent and 14 percent over the next 12 to 18 months.
Additionally, profitability levels are projected to remain steady, with net income likely to hover around 11 percent of tangible assets in 2025, Moody’s stated.
Loan-loss provisioning is expected to decline in a more supportive economic environment, while cost efficiencies from digitalization could offset rising operational expenses.
Liquidity buffers in Omani banks remain solid, despite continued exposure to funding concentration risks.
Deposits from the government and public-sector entities make up one-third of the sector’s total deposits, limiting diversification.
However, private sector deposits are increasing, and the loan-to-deposit ratio improved to 95 percent as of September, down from 107 percent in December 2022.
Government support for the banking system has also strengthened, according to Moody’s, driven by Oman’s reduced debt burden and improved debt affordability.
Gulf banking systems
Oman’s banking sector stands out as the only one in the Gulf region to receive a positive outlook, as Moody’s revised the banking outlooks for Saudi Arabia, the UAE, Qatar, Bahrain, and Kuwait to “stable.”
Saudi Arabia’s downgrade from “positive” reflects tightening funding conditions due to credit growth outpacing deposits. While government spending and economic diversification support growth, banks are increasingly reliant on market funding and term deposits.
In the UAE, Moody’s shifted the outlook to ‘stable’ as improving loan quality balances against moderating profitability. Non-oil GDP growth is expected to soften to 5 percent in 2025, and while strong business sentiment supports the sector, the easing rate cycle and higher corporate taxes are expected to weigh on bank earnings.
Meanwhile, Qatar’s banking system remains “stable,” with strong capital and liquidity buffers offsetting weaknesses in real estate lending and continued reliance on foreign funding.
Bahrain and Kuwait also maintain “stable” outlooks. Bahrain’s banking sector benefits from steady non-oil growth, though high exposure to government debt presents a risk.
Kuwait’s banks enjoy strong liquidity and expected credit growth from government infrastructure projects, but real estate lending risks and exposure to weaker foreign economies pose challenges.
