banking & financial services report

Q2 2021www.fitchsolutions.com

OmanOmanBanking & Financial ServicBanking & Financial ServicesesRReporteportIncludes 10-year forecasts to 2030Report Summary

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ContentsKey View............................................................................................................................................................................................ 5

Banking Industry Risk Analysis ................................................................................................................................................ 7

Banking Industry Risk Indicator Scores ...............................................................................................................................10

SWOT ................................................................................................................................................................................................11

Banking & Financial Services SWOT ....................................................................................................................................................................................11

Banking ...........................................................................................................................................................................................12

Banking Snapshot ......................................................................................................................................................................................................................12

Forecast Scenario.......................................................................................................................................................................................................................14

Forecast Tables ............................................................................................................................................................................................................................17

Competitive Landscape ..........................................................................................................................................................................................................19

Regulatory Environment .........................................................................................................................................................................................................23

Insurance........................................................................................................................................................................................25

Insurance Snapshot...................................................................................................................................................................................................................25



Asset Management .....................................................................................................................................................................32

Asset Management Snapshot ...............................................................................................................................................................................................32



Stock Exchanges..........................................................................................................................................................................35

Stock Exchanges Snapshot ....................................................................................................................................................................................................35



Macroeconomic Overview ........................................................................................................................................................39

Fiscal Consolidation To Dampen Oman Growth In 2021............................................................................................................................................39

Oman Demographic Outlook ...................................................................................................................................................44

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Oman Banking & Financial Services Report | Q2 2021

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THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data included in the report are solely

derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

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Banking & Financial Services Methodology........................................................................................................................47

Banking Industry Risk Indicator Methodology ..................................................................................................................48


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Key View

Key View: Oman's banking and financial services sector was hit hard by the fallout from the Covid-19 pandemic due to volatile oil

prices, slowing business activity and a contraction in economic growth. We expect the sector to recover across a number of metrics

in 2021 but challenges and downside risks remain to our modestly positive forecasts. In the banking sector, the decreased demand

for credit will continue to weigh on both lending activity and asset growth in the near term. Future growth in the market will

stem from the increasing importance of Islamic finance. The underdeveloped insurance market, where penetration rates are low,

will endure a similar growth trajectory, with the non-life market rebounding at a faster rate.

After a challenging year in 2020, during which asset growth slowed to a recent low and client lending activity contracted, our

outlook for Oman's banking sector in 2021 and beyond is only marginally more positive. While we see asset and client loan growth

both accelerating once more in the near term, loan demand will ultimately remain low thanks to the ongoing headwinds from the

Covid-19 pandemic, low global oil prices and the likelihood of monetary stimulus failing to feed through to consumers. In turn, this

will translate into a deterioration in both profitability and asset quality for lenders - especially against the backdrop of the country's

poor macroeconomic outlook. Over the medium to long term, the rise of Islamic banking in the country will present considerable

opportunities for some players, but also increasingly challenge the status quo, offering headwinds to the growth of more

established banks. The sector's regulatory framework is relatively robust, ensuring local banks comply with international best

practices for risk management and financial stability. The sector may see a degree of consolidation as it emerges from the Covid-19

pandemic and as lenders continue to deal with the challenges created by the sharp slowdown in business activity.

2020 presented a year of softening growth for Oman's developing insurance market, however the forecast for 2021 is more positive

with the larger non-life sector driving the acceleration in broader industry premiums growth once more. We highlight that health

insurance, in particular, is expected to boom due to the mandatory health insurance coverage that started since 2018, especially

regarding the private sector. The life segment continues to have a very low penetration rate at just 0.2% of GDP, giving it

considerable upside room for growth over the medium and long term. Overall, the sector's progression may be hampered due to

Covid-19, and the related slowdown in business activity, which is expected to weigh on the economy, especially with the low oil

prices due to the resulting limited demand. Broadly speaking, however, we believe that 2020 was the market's nadir amid the

current headwinds.

Oman's asset management sector is relatively underdeveloped, without the same level of regulatory reform and growth dynamics

of other financial service sectors. Local banks are the key players in a limited market, and are beginning to introduce more

sophisticated investment vehicles, though this development will be impeded by regulatory constraints until guidelines are updated.

The Covid-19 pandemic will slowdown the progression of the sector, however, in line with the wider economic contraction

estimated for 2020 due to the lockdown that the country was under through to the start of August 2020. More recent temporary

restrictions, such as a two-week complete night time lockdown in October 2020, have provided a further headwind against the

backdrop of a forecast return to economic growth in 2021. In addition, the ongoing downside risks to the price of oil, resulting from

the consequences of the virus on the other countries, looms large over both the asset management industry and the banking and

financial services sector more broadly, in our view.

Oman's only stock exchange, the Muscat Securities Market, has struggled in recent years as falling oil prices weigh on the economy

and depress liquidity in the capital market. A recent drop in oil prices, following the spread of Covid-19, and resulting weak

economic growth has not helped the exchange improve. Considerable headwinds remain in the short term, although the market

itself continues to expand as regulators develop frameworks for new products and services. An increasing number of IPOs would

deepen the liquidity of the capital market, with the insurance market a likely provider of such deals.


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Latest Trends And Developments

• We expect bank profits to continue to struggle with reduced demand for credit and weaker deposit growth. The expectations of

ongoing poor external and domestic demand in 2021 will continue to create a challenge for lenders.

• We forecast that public expenditure is set to decrease causing a slowdown in business and public borrowing.

• In July 2020, Oman Arab Bank announced the finalisation of plans to acquire rival Alizz Islamic (AIB). This included the

acquisition of a 12% stake in AIB from local investment fund Omnivest. Further mergers in the banking sector may be

forthcoming if the region emerges more slowly from the current crisis than expected.

• In Oman's insurance market, the larger non-life market will drive the recovery in premiums growth in 2021 and across the

remainder of our five-year forecast period. Medical insurance became mandatory in Oman’s private sector in mid-2020, resulting

in a likely boom to the health insurance sector.

FINANCIAL SERVICES FORECASTS (OMAN 2019-2024)

Indicator 2019e 2020e 2021f 2022f 2023f 2024f

Finance nominal GVA, USDbn 5.20 5.11 5.34 5.94 6.34 6.77

Finance nominal GVA, OMRbn 2.00 1.96 2.05 2.29 2.44 2.61

Finance OMR nominal GVA growth, % y-o-y 4.1 -1.7 4.6 11.3 6.8 6.7

Finance nominal GVA, % total GVA 6.48 7.71 7.48 7.60 7.68 7.78

e/f = Fitch Solutions estimate/forecast. Source: NCSI Oman, Fitch Solutions

FINANCIAL SERVICES FORECASTS (OMAN 2025-2030)

Indicator 2025f 2026f 2027f 2028f 2029f 2030f

Finance nominal GVA, USDbn 7.27 7.74 8.28 8.85 9.40 9.98

Finance nominal GVA, OMRbn 2.80 2.98 3.19 3.41 3.62 3.84

Finance OMR nominal GVA growth, % y-o-y 7.5 6.5 6.9 6.8 6.3 6.2

Finance nominal GVA, % total GVA 7.94 8.10 8.28 8.44 8.58 8.71

f = Fitch Solutions forecast. Source: NCSI Oman, Fitch Solutions


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Banking Industry Risk Analysis

Banking Industry Risk Indicator

Note: Scores out of 100; higher scores imply lower risk. Source: Fitch Solutions

Key View: Oman's Banking Industry Risk Indicator (BIRI) score of 3.63 (out of 100) for Q420 reflects the high levels of risk present

in the sector. We rank each market 122, where first is lowest risk and 122nd is highest risk. Oman is in 117th position.


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BIRI Slipping Well Below Long-Term Average

Oman - BIRI Scores & Historical BIRI Average


BIRI Overview: Oman's BIRI score of 3.63 out of 100 in Q420 is down from 41.17 in Q119. This reflects the banking sector's deep

vulnerabilities compared with most other markets that we rank, with the Covid-19-induced plunge in oil prices having negatively

impacted both the Government Finance and International Linkages scores. The Financial score has also fallen (implying higher risks)

from weaker domestic liquidity and worsening asset quality. Oman is situated in 117th place out of the 122 markets that we assess

in our rankings.

Fiscal And International Linkages Scores Falling Sharply

Oman - BIRI Component Scores


Financial: The Financial component score for Oman stands at 16.84 in Q420, down from 43.25 in Q119, implying higher risk. This

partly comes down to oil prices. Lower crude prices have significantly inflated Bank Credit To GDP, which stood at 88.5% in Q420,

as nominal GDP has taken a severe hit from the lower price of oil exports. Liquid Assets To Total Assets have also fallen over the past


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