Omani banks show healthy growth amid new regulations

May 02, 2019

The outlook for Oman’s banking sector is favourable and healthy profit growth has only been slightly tempered by the introduction of new accounting standards, according to the KPMG Oman Banking Perspectives report released on Wednesday.

The report said that the implementation of IFRS 9 in 2018 transformed the Omani banks’ approach to assessing impairments in their loan portfolios. Coupled with higher current provisions, such as liquidity coverage ratio and net stable funding ratio calculations becoming more stringent, the cost of liquidity seemed to increase. ‘Yet both net profit and total assets of the top eight Omani banks have grown by 11.5 per cent and 7.3 per cent, respectively’, KPMG report added.

It said Islamic finance is proving to be a key growth driver for the banking sector, as the GCC consolidates its position as a globally significant economic hub.

Emilio Pera, partner and head of audit and financial services at KPMG Lower Gulf, said, “Shifting regulatory changes over the past year, combined with muted economic growth, have not adversely affected Oman’s banking sector. Recent directives and policy changes issued by the Central Bank of Oman (CBO) indicate the sultanate’s intent to align with global best practices in terms of prudent market regulation and consumer protection.”

“Despite these developments, Omani banks have recorded a healthy increase in margins. So rather than taking a step back, banks can utilise this environment as an opportunity to innovate and fill gaps in the market, potentially improving operational efficiency and competitive positioning,” he said.

The report said that increased digitalisation and customers’ expectations for superior experience have led many banks to adopt customer identity and access management in order to build stronger relationships with their clients.

According to the report, Omani banks’ risk functions are also operating against a backdrop of regulatory evolution. ‘The London interbank offered rate (Libor) is being phased out, to be replaced by alternatives such as risk-free rate (RFR) benchmarks. Banks would be advised to reduce Libor exposures and build demand for RFR-linked products’.

It said that operational risk also looks to be in the spotlight, given issues around anti-money laundering (AML) fines, third-party concern and cyber threat. ‘Compliance is paramount with respect to fraud risk regulations laid out by the CBO, which enlist governance, identification and assessment, control and mitigation, business continuity management, information technology and systems, and reporting as focus areas’, KPMG report said.

The report said financial crime risk may be reduced by exploiting machine learning to maximise operational efficiency and risk mitigation measures to comply with regulatory provisions on AML and sanctions as Oman prepares for its Financial Action Task Force mutual evaluation, scheduled for 2021.