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Bank provisions show growing trend in Oman.

MUSCAT: The combined specific provision and reserve interest of Omani banks showed a marked growth, indicating the deteriorating asset quality of banks.

The total specific provision and reserve interest (the notional interest accruable to banks from non-performing loans) touched RO298 million by end of March 2010, from RO235.3 million for the same period last year, the Central Bank of Oman said in its quarterly statistical bulletin.

In the first quarter of 2010, the incremental growth in specific provision was RO62.7 million, over the same period last year.

As a result, the ratio of provisions (which include general provisions) and reserve interest to total credit rose to 4.2 per cent in the first quarter of 2010 from 3.8 per cent for the same period last year.

The growth in provisions this year contradicts an earlier argument that banks have provided for all their non-performing assets last year itself and these institutions started the new year with a clean balance sheet.

A top-level official of a foreign bank said that Omani banksa€™ exposure to real estate sector and stock market might have resulted in banks setting aside more funds as provisions, on growing non-performing assets (NPAs). As far as portfolio investment is concerned, the local bourse is yet to fully recover from a steep fall in share values since the second half of 2008.

Real estate prices

Real estate prices, especially land values in prime localities like Al Khuwair, Ghubra and Qurum, have declined substantially.

In fact, sources said that the banking regulator last year asked commercial banks to reassess value of properties given by borrowers as collateral securities, after taking into account the existing market price. Accordingly, banks were asked to set aside additional money for those non-performing assets in the real estate sector.

The CBO bulletin said that the total general provisions of Omani banks by end-March 2010 moved up marginally to RO129.6 million from RO126.1 million for the same period of 2009.

According to Central Bank of Oman stipulation, banks are required to set aside 1 per cent of all standard commercial loans and 2 per cent of all retail loans as general provisions, which were prudent measures introduced in 2006 to improve asset quality of banks.

a€?As a result, general provision grows in line with the rise in overall loan book,a€Y said the bank official, who does not to be named.

Total bank credit moved up by 5.7 per cent to RO9,998.62 million by end of March 2010, from RO9,455.49 million for the same period last year.

Likewise, aggregate deposits of banks rose 13.2 per cent to RO9,788.8 million from RO8,650 million during the period.

Muscat Press and Publishing House SAOC 2009

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Publication:Times of Oman (Muscat, Oman)
Date:Jul 13, 2010
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