Bank interest rates in Oman increase amid tight liquidity situation

Bank interest rates have shown a substantial yearly increase, in view of the tight liquidity situation within the financial system.

According to the latest monthly statistics released by the Central Bank of Oman, the weighted average interest rate of deposits in Omani rial increased from 0.904 per cent to 1.443 per cent in November 2015 and November 2016 period. During the same period, the weighted average of the lending rate grew from 4.763 percent to 5.081 per cent. 

Debt issues

The Omani government recently raised extra funds from the domestic market by issuing development bonds and sovereign sukuk, in order to partially ease its budget deficit. These measures had the effect of reducing liquidity within the financial system, with the banking sector being especially affected.

However, some relief was provided to the domestic market, as large portions of the government’s debt funds were raised from overseas markets.

This year local borrowing is estimated to reach OMR400 million, while another OMR2.1 billion will be borrowed from overseas markets in order to meet the projected deficit of OMR3 billion. These figures are part of this year’s budget.

The overall deposits for financial institutions in Oman registered a growth of 4.5 per cent, a total of OMR20.3 billion at the end of November, 2016.

However, the total outstanding credit extended by financial institutions increased by 9.6 per cent to OMR21.9 billion during the same period, with private sector borrowing increasing by 11 per cent to OMR19.7 billion. By comparison, private sector deposits registered a growth of 5.6 per cent to OMR13.1 billion, as of the end of November 2016.

The tight liquidity situation has also affected short-term money markets, with the domestic inter-bank lending rate increasing to 0.475 per cent in November 2016, from 0.153 per cent in the previous year. The average repos rate for the liquidity injection by the CBO stood at 1.048 per cent per annum during November 2016.

Source :Times Of Oman