NBFCs feeling the pinch of tight liquidity, lower margins
Oman’s non-banking finance companies (NBFCs) are concerned about the tightening liquidity situation in the market and rising cost of funds, which are squeezing margins and impacting profitability.
Most of the NBFCs operating in Oman have reported lower profits in the first quarter of 2019. Going forward, NBFCs, also known as leasing and finance companies, foresee a challenging year ahead with margin pressures continuing to remain high.
‘Diminishing margins due to intense competition from banks, liquidity crunch in the market and increasing trend in the cost of funds are the causes of concern’, Al Omaniya Financial Services (AOFS) said in its first quarter directors report submitted to the Muscat Securities Market.
AOFS reported 10 per cent decline in its net profit for the first quarter of 2019. The company’s net profit decreased to RO904,000 in the first quarter compared to over RO1mn in the same period of last year.
The impact of low credit offtake and slow economic momentum could affect business volumes and top-line growth on the one hand and the increase in delinquencies may reduce net margins, AOFS said.
‘We continue to foresee an extremely challenging year ahead. The company is resilient and cautiously optimistic of posting satisfactory performance in 2019. The company is well aware of the current economic scenario and has initiative proactive mitigating measures’, the company added.
Net profit of National Finance Company dropped 20 per cent to RO2.06mn in the first quarter of this year from RO2.59mn in the same period a year ago.
‘We expect the outlook to remain challenging. The economy has witnessed some tightening of liquidity, which has resulted in substantial interest rate increase and the medium term challenge would be to maintain pricing while achieving quality asset growth’, National Finance said in its report.
‘We anticipate a cautious outlook to our credit offtake in the medium term and overall, our reading is that the economic climate will continue to remain challenging’, the company added.
NBFCs are currently facing intense competition to maintain their market share and increase portfolio growth. The liquidity pressure in the market continues and banks have adopted a cautious strategy resulting in an increase in borrowing costs.
Muscat Finance Company’s net profit fell 60 per cent to RO370,000 in the first quarter of 2019 compared to RO927,000 in the same period of 2018.
“Tight liquidity on the back of rating downgrades has exerted severe upward pressure on cost of funds. Longer payment cycles for most industries have also resulted in the working capital requirements going up and repayment discipline getting adversely affected’, Muscat Finance said in its quarterly report.
Contrary to the sector performance, Taageer Finance Company improved its market share and reported a growth in net profit to RO910,000 in the first quarter compared to RO825,000 in the same period of last year.
‘The company has grown its portfolio quite aggressively in the first quarter of 2019 and has been able to maintain interest spreads reasonably well’, Taageer Finance said in its report.