Muscat – Moody’s Ratings on Wednesday revised its outlook for Oman’s banking sector to ‘stable’ from ‘positive’, citing solid operating conditions, improving asset quality and sustained economic growth that is expected to support banks’ performance over the coming years.
In its Oman Banking System Outlook report, Moody’s said Oman’s non-oil economy is projected to expand by around 3.5% in 2026, helping to sustain loan growth and strengthen borrowers’ repayment capacity. Economic activity is expected to be supported by strong business sentiment, expansion in tourism, and a pipeline of projects in manufacturing, transportation and renewable energy under the country’s economic diversification strategy. Moody’s also expects overall real GDP growth to reach 3.7% in 2026.
Asset quality continues to improve
Moody’s highlighted improving loan quality across Oman’s banking sector, driven by economic growth and diversification of lending portfolios across multiple sectors. The agency expects strengthening borrowers’ repayment capacity and moderate loan growth to further reduce Omani banks’ Stage 2 exposures, which declined to 14% of total loans as of September 2025, from 20% in 2021.
“We expect loan quality to continue to improve as economic growth supports borrowers’ repayment capacity, while Omani banks will maintain good levels of profitability and solid capital buffers. Overreliance on government deposits remains a key risk for banks, but deposit growth is likely to be in line with government and private-sector loan demand,” Moody’s said.
It noted that Omani banks’ non-performing loans (NPLs) stood at 3.5% of total loans as of September 2025 and are expected to remain broadly stable through 2026.
Moody’s further said that Omani banks have also strengthened their provisioning buffers, with loan-loss reserves covering 129% of problem loans, compared with 110% in 2021. Despite these improvements, the ratings agency noted that Omani banks remain exposed to concentration risks linked to large borrowers and specific sectors, reflecting the economy’s still-evolving diversification.
Strong capital buffers and profitability
Omani banks are expected to maintain strong capital levels, supported by solid earnings and prudent profit retention. Moody’s estimates that tangible common equity to risk-weighted assets will remain in the range of 14% to 15% over the next 12 to 18 months, compared with 14.5% as of September 2025.
Profitability across the sector is also projected to remain stable, with banks’ net income to tangible assets ratio expected to hold at around 1.1% in 2026. While falling interest rates may place modest pressure on margins, growth in non-interest income – including fees, commissions, foreign exchange income and dividends – is expected to support operating income. Non-interest income accounted for about 30% of operating income during the first nine months of 2025, up from 25% in 2022.
Loan-loss provisions are expected to remain broadly stable at around 50 basis points of gross loans over the next year, supported by improving recoveries and continued provisioning for legacy exposures at some banks, the rating agency said.
Funding risks remain, but liquidity is strong
Moody’s identified funding concentration as a key structural risk for Oman’s banking system, noting that government and public-sector deposits account for roughly one-third of total sector deposits.
However, liquidity levels remain strong, with the sector’s loan-to-deposit ratio improving to 98% as of September 2025, compared with 107% in December 2022. Deposit growth outpaced credit expansion in 2023 and 2024, although credit growth strengthened in 2025 alongside the country’s improving economic momentum.
The ratings agency expects both loan and deposit growth to increase by around 6%, with funding metrics remaining broadly stable. Core banking liquidity stood at 15% of tangible banking assets, while reliance on less stable funding remained relatively modest at 16%.
Moody’s also said that the Omani government’s capacity to support banks in the event of a crisis has strengthened. “Oman’s reduced debt burden has enhanced its fiscal capacity, improving its ability to assist banks.”
