Oman’s banking sector successfully steered itself through COVID-19 pressures: Ali Hassan Moosa

MUSCAT — Oman’s banking sector has successfully navigated the immediate and critical pressures of the COVID-19.

How? 

Ali Hassan Moosa, Ceo, Oman Banks Association (OBA), explains to the Black & White: “The strategy for the banking sector driven by its regulator, the Central Bank of Oman (CBO), has always been to maintain a strong, sustainable and resilient sector, which has helped the Oman banking sector through these difficult times by absorbing the shock and enabling the economy to recover.” Banks have focussed on customer needs, while driving efficiency and building the resilience, he added.

Pillar of national economy
“The banking sector in Oman showed resilience. Being a pillar of the national economy, and a strong sector because of its prudent lending practice, its capital adequacy ratio, and other ratios, it has been able to sustain an adverse economic effect.”
Reflection of the economy
“The banking sector is a reflection of the economy. So when the economy shrinks, normally the business of the banking sector also shrinks. Last year, when the GDP (gross domestic product) went to negative mode, Oman still recorded a growth in the banking sector, which is unique; even the lending capacity increased, because of the stimulus packages and related actions. It is the growth in lending that reflects on the status of the sector and economy in general,” Ali Hassan Moosa said.
Savings have grown
“In terms of the deposits, the growth, last year, was indeed encouraging. Because of the lockdown, people did not actually spend money as they would have under normal circumstances, in fact, savings have actually grown.
Helped those needing help
“Banks, in general focussed on strategies to help support not just business houses and corporates in challenging times, but also in its own way supported individuals, who lost jobs; whose salaries were cut, and a few in the government sector who went into early retirement. Those three segments of individuals needed help,” Ali Moosa pointed out.

Excerpts:

COVID-19 has generated significant instability and high volatility in global capital markets. As markets try to determine the full impact, analysts note that it is expected that the adverse impact would likely to continue from the virus’ knock-on effects. Your comments on this plus your view on the virus’ impact on the banking sector in Oman.
The global market, financial and foreign trade across the world, not just in Oman, witnessed a slowdown. The world economies, even the new growth regions did not reflect significant progress, and in short it has been a negative effect globally. Oman is not different. However, the banking sector in Oman showed resilience; being a pillar of the national economy, and a strong sector because of its prudent lending practice, its capital adequacy ratio, and other ratios, it has been able to sustain adverse economic effect.
The strategy for the banking sector driven by its regulator, the CBO, has always been to maintain a strong sustainable resilient sector, which has helped the Oman banking sector through these difficult times by absorbing the shock and enabling the economy to recover.
Of course, the supply and demand equation has changed because of the pandemic locally. The delay in the arrival of vaccines and the mass public vaccination programme compared to some other countries, along with lockdowns, movement restrictions, and limited business hours has affected the economy in a significant way, with many macro, small, medium, and large companies facing closures. But, the banking sector was willing to help as much as possible for the businesses to survive and actually be ready for this year and the next year.

Currently, as we are still in the grip of COVID, what are the most impacted areas in Oman’s banking sector?
Banking sector is a reflection of the economy. So when the economy shrinks, normally the business of the banking sector also shrinks. Last year, when the GDP went to negative mode, Oman still recorded a growth in the banking sector, which is unique; even the lending capacity increased, because of the stimulus packages and related actions. It is the growth in lending that reflects on the status of the sector and economy in general.
In terms of the deposits, the growth, last year, was indeed encouraging, because of the lockdown people did not actually spend money as they would have under normal circumstances and in fact, savings have actually grown.
Banks, in general, focussed on strategies to help support not just business houses and corporates in challenging times, but also in its own way supported individuals, who lost jobs; whose salaries were cut, and a few in the government sector who went into early retirement. Those three segments of individuals needed help.
For the ones who lost their jobs, for whatever reasons, and had loans with the banks, were supported with suspension of interest and deferred the instalments with a grace period of a year, under the guidelines of the CBO. The entire loan repayment schedule came to a standstill for a year if the person was not able to find another job.
For those whose salaries were cut, and on a case-to-case basis, relief support was provided, by reducing /rescheduling their monthly loan instalments, while for loans of the early/forced retirees, provisions were made for extension upto 70 years, with insurance coverage with no additional medical check-ups for most cases, all once again under the clear guidelines from the CBO and CMA.
To put all the above support/relief strategies in place for the banking consumer, the banking sector has been working non-stop, diligently, from March 2020, throughout to help individuals and businesses, easing hardship caused due to the pandemic.

Contraction in economic activity always poses adverse consequences on credit quality as banks would then increase loan loss provisions. Some European banks had reported losses. How is the situation in Oman in this regard?
The Omani banking sector had been prudent in its lending practices over many years, and has taken good specific and general provisions to sustain micro and macro level adverse circumstances. The collateral coverage ratio for below satisfactory performing assets is healthy. As such, the Omani banking sector continued to grow and report healthy profit despite economic slowdown.

How are banks succeeding in meeting the expectations of the young generation today?
The youth, specifically Generation Z, is a quarter of the population of the world and is increasing. In Oman, that percentage is even higher, because ours is a young nation.
Generation Z don’t necessarily see banking as the only provider of financial services. Their lifestyle varies and revolves around smart phones and social media and video streaming. The banking sector in Oman has to evolve, like everywhere else in the world to cater for the youth, their needs, and lifestyle.
You cannot expect this generation to walk into a bank or use the application; they expect digital onboarding, services through social media channels, through Whatsapp, messenger channels etc. Many countries today reach out through these channels to the youth; and banks in Oman also need to gear up to reach out and provide services to them.

How far has the recent injection of liquidity (in terms of the stimulus packages by CBO) into the market helped? Is there a requirement for more?
Any help in the form of stimulus will be welcomed by the businesses locally. They suffered severely last year and the recovery process is very slow. There were a number of stimulus packages announced by the CBO to help banks support local businesses. How does that happen? The regulators relaxed and revised a few rules. They have allowed banks more capacity to lend, because the more the lending capacity, the more the economy grows. There are so many other ratios, which the CBO have relaxed helping banks to raise liquidity and this will help the economy, supporting SMEs, individual customers, to name a few.

In the current COVID scenario and as per the CBO directives, most banks are revisiting their digital strategies; they have enhanced their digital infrastructure and are urging customers to use more of digital banking services – have these ventures reflected in better or increased profitability?
I would call it a ‘work-in-progress’. Digitisation is not only convenient to customers, but it also becomes a part of their lifestyle. In fact, it reduces operational cost to the bank. It’s all about technology, data, process, and organisational change. Currently cost-to-income ratio of doing banking business in Oman is high and to reduce costs, automation and digitisation of banking services paves the way. Eventually, it will reflect on the profitability of the banking business. Digital transformation is happening everywhere globally and in Oman too. We are now working with the CBO on regulations on cloud computing, Fintech and open banking. All these new technologies, new channels to deliver banking services are being discussed right now.

Other than COVID, which are the major challenges that the banking sector is tackling?
The banking sector is a reflection of the economy, if the economy doesn’t grow in a healthy manner in terms of diversification, creation of jobs etc, the banking sector will be widely affected. The major challenge for the bank is the economy itself.
One of the major challenges banks face is the sovereign credit rating. The sovereign credit rating of Oman over a number of years was downgraded by international credit agencies. That was a big challenge for banks, because even the local Omani banks do international business outside Oman. That credit rating has now stabilised because of various governmental initiatives that started last year and continue to be implemented during this year.
Government measure for structural reforms has reduced government expenditure. The government over the last one and half year has been paying off international debt, so the foreign debt has reduced in a significant way; the deficit has been reducing through fiscal initiatives. 

Oman has foreign trade partners that have recovered very quickly in the Covid scenario, like China, who is our second largest foreign trade partner.
With all these measures and macro-economic conditions, credit agencies have taken note of and the credit ratings have stabilised, which will help the banking sector of Oman. We are hopeful for an upgrade of the ratings.

The OBA is also into various CSR activities and giving back to the community. Could you please highlight a few upcoming ones?
The OBA has a very small crew, three full-time employees, but we have a combination of specialised committees (with annual plans) and working groups (for specific tasks or projects) comprising of bankers who volunteer under the OBA umbrella. One of the working groups is the CSR executives from banks that we engage when doing awareness programmes as part of the OBA CSR. Annually, we have the Arab Financial Inclusion Campaign that aims to deliver value to the society in terms of financial awareness, reach, and fairness. We do awareness sessions for school and colleague/university students throughout the Sultanate, as well as engaging other societies such as the Women’s’ Association. Furthermore, we have special workshops held with associations of the disabled to improve banking standards and services to the disabled. Lately, we have held an-online workshop under the patronage of the undersecretary of the ministry of social development, participants were the CBO, banks, and a number of associations for the disabled. The outcome that we are looking for from this event is to improve banking services for the disabled. Also, as part of our CSR initiatives, we carry out a number of awareness campaigns, such as,
Don’t be Deceived (addressing the problem of fraudulent calls/messages asking for bank details), COVID-19 Health and Safety, and Value Added Tax (VAT) explaining to the public what this tax is about and how it will impact the society. We are in discussions with the banking community and the Central Bank of Oman on matters of CSR and how the sector can improve sustainable CSR initiatives.

(*) The OBA is a non-profit professional association created to represent the banking sector, to promote Omani banking activities, coordinate with the regulators on matters of policy and strategy, and to support banking excellence in Oman.