Strong Oil Prices Boost Oman Banks’ Q3 Profits

Author: 
Saleh Al-Shaibany, Reuters
Publication Date: 
Sun, 2004-11-28 03:00

MUSCAT, 28 November 2004 — Strong oil prices and lower bad loans have helped boost net profits for Oman’s biggest banks so far this year, but analysts warned that rising customer credit could hit profitability in 2005.

Most banks reported higher profits in the first nine-months of 2004. A Finance Ministry official said the government had spent about $2 billion on projects so far this year, most of which was channeled through local banks.

“Higher oil prices have strengthened banks because the government is pouring more money into development,” said Nasser Al-Mugheiry, analyst at Abu Timam Financial Consulting. “However, banks will need to restrict their loan portfolio since this may act adversely if oil prices go down in 2005 when deposits start to shrink,” he added.

Oman’s average oil prices surged by 40 percent to $35 per barrel up to September this year compared to the same period in 2003. The independent oil producer depends heavily on crude revenues, which make up 70 percent of its total income. “Most funds end up in banks because we pay our contractors through their accounts. I guess it’s a windfall for them, but how long it will last I don’t know,” the ministry official said.

Bank Muscat International, Oman’s largest, increased net profits in the third quarter by 20 percent to 24.5 million rials ($63.7 million). Credit to customers totaled 1.25 billion rials, and deposits increased 20 percent to 1.29 billion rials.

Oman International Bank’s net profit was 11 million rials versus 10.84 million rials in the same period a year ago. It trimmed bad loan provision by 31 percent to 3.4 million.

Its lending portfolio rose 7 percent to 438 million, while deposits rose 4 percent to 458.37 million rials.

Bank Dhofar profits rose 18 percent to 8.4 million rials in the first nine months and bad loan provisions edged down to 2.41 million from 2.43 million. Loans rose 23 million to 378 million, while deposits rose only 4 million to 356 million. Analysts said the banks could face a cash crunch in the near future unless they managed to increase deposits.

“The problem is that local banks have been lending more in the last five years, eclipsing deposit growth. This may result in asset and liability mismatch if the problem is not corrected,” Mohammed Al-Rahbi, economist at Muscat Securities Market said.

“Another thing is that deposits in Oman are short term, while loans are for longer periods, and the mismatch will widen when oil prices decline after the Iraqi crisis,” he added.

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