Bank interest rates in Oman rise on tight liquidity

CBOOman’s bank interest rates have shown a substantial year-on-year increase due to the tight liquidity situation in the financial system.

According to the latest monthly statistics released by the Central Bank of Oman, the weighted average interest rate of rial Omani deposits increased to 1.582 per cent in January 2017 from 0.948 per cent during the same period last year. Also, the weighted average rial Omani lending rate increased to 5.104 per cent, from 4.760 per cent during the period under review.

The Omani government has raised debt funds from the domestic market by way of development bond issues in the recent past to partially meet the budget deficit. This year, the government plans to raise OMR600 million, which is to partially cover the budget deficit, as well as to repay OMR200 million towards a maturing bond. Subsequently, the net local borrowing is estimated at OMR400 million, and another OMR2.1 billion in funding will come by way of external borrowing from overseas markets to meet the projected deficit of OMR3 billion.

This is expected to put pressure on the liquidity within the financial system, in general, and the banking sector, in particular. However, a major portion of the debt fund was raised from the overseas market, which provided relief to the domestic financial market.

The overall deposits for financial institutions in Oman was OMR20.6 billion, as of the end of January, registering a growth of 6.7 per cent over the same period last year. Private sector deposits in the banking sector system rose by 5.3 per cent to OMR13.4 billion by the end of January, according to the latest monthly report released by the Central Bank of Oman.

However, the total credit extended by Omani banks, including Islamic financial institutions, grew by 8.9 per cent year-on-year to OMR22.1 billion as of the end of January this year.

Credit to the private sector alone increased by 10.6 per cent to OMR19.9 billion by the end of January, the report noted.

The tight liquidity situation is also reflected in the short-term money market. For example, the overnight rial Omani domestic inter-bank lending rate increased to 0.370 per cent in January 2017, from 0.271 per cent one year ago.

The average repo rates for liquidity injection by the central bank stood at 1.268 per cent per annum in January 2017.


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