Interest rates rise as credit growth picks up

March 11, 2019

Interest rates on bank lending and deposits in Oman slightly increased in December, following the four rate increases by the US Federal Reserve in 2018.

The weighted average interest rate on Omani rial deposits increased to 1.899 per cent in December 2018 from 1.667 per cent a year ago, while the weighted average Omani rial lending rate increased to 5.329 per cent from 5.203 per cent in the same month of the previous year.

The overnight Omani rial domestic inter-bank lending rate rose to 2.141 per cent in December, much higher as compared to 1.263 per cent a year ago, according to the statistical bulletin released by the Central Bank of Oman (CBO).

‘Tight liquidity conditions in the country combined with higher US interest rates are challenging Omani banks’ funding cost. Moreover, because Oman’s local currency is pegged to the US dollar, rising US interest rates have historically translated into higher Omani rial interest rates and funding costs’, Moody’s Investors Service said in its sector comment report released last week.

The ratings agency said that the tight liquidity in Oman reflects the solid private credit growth (6.4 per cent in 2018) primarily driven by project finance lending and retail mortgage demand, as well as higher domestic government borrowing amid low oil prices in recent years.

Total outstanding credit extended by Oman’s banking sector reached RO25.1bn in the end of December 2018, recording a year-on-year growth of 6.4 per cent. Total deposits grew by 7.8 per cent to RO23.3bn.

Average interest rate on private sector Omani rial lending rose to 5.430 per cent in December from 5.314 per cent a year ago.

Following the four US Fed rate hikes in 2018, Oman continued to link its policy rate to the one-month Libor rate by keeping the 50 basis points spread, the Institute of International Finance said in a recently released report.