Government to issue bonds in Q1, 2015

Banks can’t be major investors in firms, says Al Zadjali –

By Vinod Nair –

Muscat — The Sultanate has benefited from high oil prices of the recent past while the competent fiscal policies have helped the country to build up assets, said Hamood Sangour al Zadjali, Executive President, Central Bank of Oman (CBO), yesterday. In the context of falling crude prices and to continue with its infrastructure and development programmes, for the first time since 1997, the government is exploring various debt instrument tools like the issuing of Sukuk, bonds or direct borrowing from the banks. Government should issue papers as it will help activate the capital market.

He added that bonds will be issued by the government in the first quarter of 2015.
Al Zadjali said that under the rules, banks are allowed only to use only five per cent of their deposits for investment in companies. This is aimed at stopping banks from not getting into conflicts with other investors. “By being a serious investor in companies, banks may get into the role of administration of these companies and may hold their deposits for future investment, thus moving away from their primary objectives.”
Meanwhile, Al Zadjali said that the macroeconomic situation in the Sultanate has remained favourable in recent years. After a negative growth in 2009 as a fall out of the global financial crisis, the average growth rate of Gross Domestic Product (GDP) at current prices during the four years from 2010 to 2013 was 13.5 per cent. “We have achieved such high growth rates despite some slowdown in the growth of nominal GDP during 2013 due to weaker crude oil prices in the global market. The major drivers of growth in Oman in the recent years have been increase in the price of crude oil in the international markets and sustained domestic demand, mainly supported by large public expenditure and accommodative monetary policy pursued by the Central Bank of Oman. While growth momentum has been sustained, inflation was also fairly contained in the Sultanate averaging around 2.8 per cent during the last four years from 2010 to 2013.”
He said that the average annual inflation further moderated to around one per cent during January-July 2014. Monetary policy in the recent period was formulated against the backdrop of easy liquidity conditions, lower inflation, low Omani rial interest rates on deposits and surpluses in fiscal and balance of payment positions. The evolution of monetary aggregates in Oman has been consistent with the accommodative policy stance of CBO aimed at ensuring adequate liquidity in the system, maintaining orderly conditions in the markets and supporting faster growth. The higher oil prices and increase in production resulted in comfortable fiscal situation which helped the Government and the CBO to build foreign assets as well as large domestic deposits. The external sector continued to remain in surplus in Oman.
In the midst of comfortable macroeconomic situation, the main challenge the Sultanate is facing is diversification of the economy along with increase in employment opportunities. The Government, Central Bank and the private sector are focusing on these two objectives, among others. The Eighth Five-Year Development Plan (2011-15) with emphasis on large public investment programme seeks to achieve these objectives through intensifying efforts related to developing the financial sector, financing the private sector, improving investment climate, social sector reforms, developing infrastructure and promoting Small and Medium Enterprises (SMEs).
It is expected that with continued focus on higher investment in these areas, domestic demand will be sustained and the economic diversification programme will be strengthened. Accordingly, there will be a gradual decrease in the contribution of the oil sector to the GDP while the contribution of the non-oil sectors to GDP will increase gradually.
Oman’s banking sector comprises 7 local commercial banks, 9 foreign banks, 2 specialised banks and 2 full-fledged Islamic banks together with 6 local commercial banks operating separate Islamic windows for banking operations. As at end 2013, commercial banks had 493 branches and 1100 ATMs. The financial health of banks in terms of assets quality, provision coverage, capital adequacy and profitability remained strong. The balance sheet of commercial banks further strengthened in 2013 due to the robust growth in both deposits and credit. The total assets of commercial banks increased by 7.2 per cent to RO 22.4 billion in December 2013 from RO 20.9 billion in the end of 2012.
The BIS capital adequacy ratio stood higher at 16.2 per cent at the end of 2013 as against the statutory requirement of 12 per cent prescribed by the CBO. Commercial banks earned a higher profit of RO 351.3 million in 2013 as compared to RO 305.3 million in 2012. The non-performing loans (NPLs) as per- centage of total credit stood lower at 2.1 per cent in December 2013 as compared to 2.2 per cent in December 2012. Consistent with accommodative monetary policy, the liquidity condition remained comfortable in the banking system during 2013 and up to June 2014. As a result, both deposit and lending rates softened during 2013 and in the first half of 2014.