STAY PRUDENTIAL

Oman 2015 | FINANCE | INTERVIEW

TBY talks to HE Hamood Sangour Al-Zadjali, Executive President of the Central Bank of Oman (CBO), on the state of the local finance industry, and his outlook for 2015.

HE Hamood Sangour Al-Zadjali
BIOGRAPHY
HE Hamood Sangour Al-Zadjali is the Executive President of the Central Bank of Oman (CBO). He has a degree in Business Administration from Boston University, and began his professional career in 1963 in the Administration and Personnel Department of the Sultan’s Armed Forces. He moved into the banking sector in 1969, working with the British Bank of the Middle East. In 1975 he became Director of the Oman Currency Board, which was transformed into the CBO later in the year. Between 1978 and 1979 he was the Vice-President of the CBO. After two years studying at Boston University’s School of Management, he returned to Oman and became a Senior Vice-President at the CBO. Between 1985 and 1990 he was General Manager of Oman Housing Bank, briefly then becoming Deputy Executive President of the CBO before being appointed to his current position in 1991.

Can you elaborate on the main policy measures that have allowed the Central Bank of Oman (CBO) to consolidate the financial environment and the banking sector in the Sultanate?

The CBO has been pro-actively taking measures to strengthen the banking system in the Sultanate. The CBO had initiated a number of regulatory and supervisory measures in the recent period, keeping in view the outcome of the recent global financial crisis and subsequent financial sector reforms suggested by the global standards-setting bodies. To mention a few of them, a financial stability unit has been set up within the CBO for macro-prudential supervision of the financial system. The minimum regulatory capital for banks was raised from 10% to 12% of risk-weighted assets. The CBO is well ahead in the implementation of the Basel III framework. In addition, new micro prudential norms have been introduced for personal loans. The ceiling rate on personal loans has also been reduced in stages and currently stands at 6%. Also, several steps are being taken to promote SMEs for the diversification and growth of the economy and the potential for increased job opportunities. The financial health of banks in terms of asset quality, provision coverage, capital adequacy, and profitability has continued to improve in recent years. The balance sheet of the commercial banks further strengthened in 2013 due to robust growth in both deposits and credit. The total assets of commercial banks increased by 7.2% to OMR22.4 billion in December 2013 from OMR20.9 billion at the end of 2012. The provisional figures on non-performing loans (NPLs) as a percentage of total credit stood lower at around 2% in December 2013 compared to 2.2% in December 2012. The CAR at 16.6% of risk-weighted assets (provisional) in December 2013 (compared to 16% in December 2012) was higher than the minimum regulatory requirement of 12% prescribed by the CBO. The provisional net profits of the commercial banks continued to remain high at OMR351 million in 2013 as compared to OMR305 million in 2012. The outlook for the Omani banking sector in the next few years remains positive taking into account the pace of economic diversification and the role of the private sector in the development process.

Banks are supposed to allocate 5% of their total credit to SMEs.What other measures have to be taken to support their development?

The relevance of the SMEs sector has always been recognized in Oman given its important role in the diversification and growth of the economy and the potential for increased job opportunities. In fact, in the past, several banks already had a SME finance base, while some banks were more active than others. However, now the government and the CBO have brought the development of the SME sector to the forefront and several policy initiatives, including formal targets for credit delivery to this sector, are being taken on a priority basis. The CBO has advised that banks allocate 5% of their total credit to SMEs to be achieved by December 2014. To encourage lending to SMEs, the prudential requirement for banks to lend to SMEs has been relaxed in terms of general provisioning requirements and risk weightage.

What is your economic and financial outlook for 2015?

The Omani economy has been growing at a sustained pace in recent years. The major drivers of growth in Oman have been recovery in the prices of crude oil in the international markets and increasing domestic demand, mainly supported by large public expenditure and accommodative monetary policy pursued by the CBO. All these factors are expected to remain favorable in the near future and given the expected strong fiscal position, the government would be in a position to pursue an expansionary fiscal policy so as to sustain the current growth momentum. The future prospects of the Omani economy in 2014 and beyond remains promising taking into account the pace of economic diversification, favorable oil prices, sustained domestic demand, accommodative monetary policy, large expenditure planned by the government, and the role of the private sector.