The risks to the outlook for financial stability in Oman remain low in the short term, says the Central Bank of Oman (CBO) in its 2024 Financial Stability Report (FSR).
Mr Tahir Salim Abdullah Al Amri, CBO executive president, states in a message in the FSR, “Since the release of the previous FSR, we have witnessed a period marked by significant global and domestic developments that have tested the resilience of financial institutions and markets worldwide. It is encouraging to note that, despite formidable headwinds stemming from global events, the Omani financial system has remained robust, demonstrating significant stability. Participants of our latest Systemic Risk Survey also expressed continued confidence in the Omani macro-financial system.”
Systemic Risk Survey and insurance
The CBO conducted the Systemic Risk Survey in January 2024 among a diverse group of market participants and stakeholders revealed increased confidence in the Omani financial system despite ongoing geopolitical concerns, although they perceived a slight increase in the perceived likelihood of a highly negative event over the short term.
Specialised banks and foreign commercial banks were viewed as the most robust, whereas insurance companies and capital market institutions were deemed more vulnerable by the survey participants.
The major distress points for Oman included global output and trade deterioration, geopolitical risks, and cyber attacks.
The optimism about Oman’s macro-financial stability is also reflected in the positive rating reviews from the three leading rating agencies since late 2021. These upgrades underscore the growing confidence of the international community in Oman’s economy and prospects, says the report.
Rising threats
Outlining rising threats that Oman is facing, the FSR reads, “With the rapid digitisation of financial systems, cyber security concerns present novel challenges to financial stability. The rise in cyber attacks, particularly targeting financial institutions worldwide can have systemic consequences if they erode the confidence of the users in the digital delivery channels. The CBO remains vigilant of the cyber risks, crafting policies to mitigate these risks and safeguard market integrity.
“Climate change presents another formidable threat, with its far-reaching impacts increasingly felt across the globe. The urgency of transitioning to a zero-emission economy is paramount, as physical shocks and the transition’s risks loom large. The CBO plays a proactive role, advising financial institutions to strengthen their risk management frameworks by incorporating climate risks and embracing green financing initiatives.”
Expectations
Nevertheless, the findings of the 2024 Systemic Risk Survey (SRS) indicate that there was a slight increase in the perceived likelihood of a highly negative event occurring in Oman’s financial system over the short term (up to one year). This increase can be attributed to heightened tensions in the Middle East. Approximately 7.7% of respondents considered this probability to be ‘High’ or ‘Very High’ in 2024, compared to 6% in the SRS 2023. Conversely, the percentage of respondents who perceived this probability as ‘Low’ or ‘Very Low’ slightly increased from 60% in 2023 to 61.5% in 2024.
The respondents’ perception of the probability of such an event occurring in the medium term (1-3 years ahead) was mixed due to the prevailing high degree of uncertainty. Around 27% of respondents viewed this probability as ‘Low’ or ‘Very Low’ in 2024, up from 18% in 2023. Conversely, the percentage of respondents who considered it ‘High’ or ‘Very High’ also increased to 42% in 2024 from 18% in 2023.
Respondents participating in the SRS 2024 displayed relatively higher levels of optimism when reflecting on their perception of the likelihood of an adverse event occurring in the near future, despite heightened global uncertainty stemming from supply chain disruptions and geopolitical tensions in the Middle East. In 2024, only 19% of respondents indicated a slight increase in this probability, compared to 20% in the previous SRS conducted in 2023. Furthermore, 42% of respondents reported that this probability remained unchanged in 2024.
However, there was an increase of 15 percentage points in the proportion of respondents who believed that this probability had decreased over the past six months, rising from 23% in 2023 to 38% in 2024.
Confidence in the Omani macro-financial system shows improvement
The SRS 2024 findings indicate an improvement in the level of confidence in Oman’s macro-financial system, despite persistent geopolitical concerns and ongoing uncertainty. The percentage of respondents who expressed being ‘very confident’ in the Omani macro-financial system increased from 14% in 2023 to 31% in 2024. The majority (65%) of respondents expressed a fair level of confidence in the system.
Conversely, the proportion of respondents who described themselves as ‘just confident’ decreased to 4% in 2024 from 14% in the previous year. Remarkably, despite the high degree of geopolitical uncertainty throughout 2024, nearly 58% of respondents reported an ‘unchanged’ level of confidence in the Omani macro-financial system compared to 40% in 2023.