December 16, 2015

Muscat: Bank interest rates have started moving up and will strengthen further in view of the tight liquidity situation in the financial system, said a senior banker here on Wednesday.

"Given the low oil prices and limited liquidity available today, interest rates have started moving up gradually," said Rashad Ali Al Musafir, acting chief executive officer of Bank Sohar. He was talking to the media on the sidelines of an informal luncheon meeting.

"You will see the trends in deposit rates moving upwards. We are already seeing tightness in liquidity in the market. And that will result in an increase. It all depends on the extent to which liquidity is taken away from the market," added Al Musafir.

The Oman government has raised debt funds from domestic market by way of several development bond issues and a sovereign sukuk issue to partially meet the budget deficit.

He also noted that raising funds from the overseas markets would provide some kind of relief to the domestic financial market. "(However), whether it will be enough to reduce interest rate is something that we will have to see."

Al Musafir further said commercial banks would manage their interest margins by raising lending rates. "But there is always a time lag factor. So, there will be some kind of pressure on interest margins of banks." In the long run, the cost of funds in the corporate sector would increase, he added.

Referring to the recent sluggish trend in oil prices and its impact on the Omani economy, the Bank Sohar official said the Sultanate had faced similar challenges on several occasions, such as the one in 1998 when oil prices were pegged at around $9 per barrel. He said Oman is currently facing several challenges due to oil price drop and downgrading of sovereign ratings and bank ratings.

About Bank Sohar, Al Musafir said the bank has been able to raise funds by way of a rights issue this year. "We were able to raise syndicated borrowing of $250 million during the year. So, we are well positioned." The bank's capital adequacy ratio is above the central bank's regulatory requirement.

© Times of Oman 2015