Oman: Business conditions for Omani banks are expected to remain stable in 2025, supported by sustained high oil prices and robust economic growth, a new report revealed. 

Data released by Fitch Ratings indicates that the country’s growing economic diversification has strengthened its financial outlook and created new growth opportunities for banks.

Real gross domestic product is expected to accelerate, driven by expansion in both the hydrocarbon and non-oil sectors.

The report from the US credit rating agency comes after it revised Oman’s long-term foreign currency issuer default ratings to positive from stable in December, and affirmed the IDR at BB+, driven by the availability of fiscal tools to combat future shocks.

It also aligns with the positive outlooks for all Omani banks, which reflects the upgrade in the sovereign rating and expectations that better operating conditions may strengthen the fundamental profiles of some banks.

The latest Fitch analysis said: “We expect asset quality to gradually recover further in 2025, helped by write-offs and the favorable economic conditions. This should support sector capitalization. Stage 2 loans should continue to reduce, and we do not expect any material migration to Stage 3, despite the remaining pressures in the real estate, construction and hospitality sectors.”

It added: “We expect lower interest rates will have a limited impact on banks’ net interest margins and that loan impairment charges will remain moderate, along with reasonable cost discipline.”

The report also highlighted that most banks maintain solid capital reserves, primarily strengthened by healthy internal capital generation, while funding and liquidity environments remain steady.

“We expect oil prices to continue to support growth in customer deposits, which accounted for 90 percent of total sector non-equity funding,” it said.

Earlier in April, Fitch Ratings shed light on how strong economic growth and relatively high oil prices, despite a recent minor decline, are expected to sustain favorable business conditions for Omani banks in 2025.

At the time, the credit rating agency said that Oman’s dedication to economic diversification has enhanced its growth outlook and opened up new opportunities for the banking sector.

Oman achieved a 6.2 percent budget surplus and a 2.4 percent current account gain in 2024, driven by prudent fiscal policies, high oil prices, and nonhydrocarbon export growth. 

In its January 2024 Article IV consultation, the International Monetary Fund credited these figures to effective economic management.

At the time, the IMF noted that despite higher social spending under a new protection law, the nonhydrocarbon primary deficit as a share of nonhydrocarbon gross domestic product remained stable, highlighting the government’s commitment to financial discipline.