Oman said yesterday it would not join the UAE in injecting cash into its banks on the grounds they have sufficient liquidity despite a festering global credit crunch.
The Central Bank of Oman (CBO) also expected inflation to ease in the next few months and again renewed Oman's position not to join a landmark monetary union to be created by its partners in the Gulf Cooperation Council (GCC).
CBO Executive President Hamoud bin Sanjoor Al Zedjali said Oman's banking sector is still strong and has not been affected by the US financial crisis that has caused panic in global markets. "The CBO is following these developments with concern and if there is a need to intervene, then we will do so," he told the Omani Arabic language daily Al Watan.
"Our banking system is in a strong position and enjoys good liquidity as is evident in the growth of its assets and profitability, and its ability to meet the credit needs of its clients. The banks' commercial operations are progressing normally and we don't see a need to inject liquidity into the banking system now."
But CBO figures showed credits extended by Omani banks have overshot deposits because of a sharp growth in loans, mainly to the private sector.
From around RO6.4 billion (Dh62bn) at the end of 2007, the combined credits by the Gulf country's banks jumped by 27 per cent to a record RO8.28bn at the end of July. The private sector accounted for nearly 93 per cent of the total, receiving around RO7.7bn.
Deposits grew by nearly 15 per cent from around RO6.49bn to RO7.48bn in the same period.
Like its partners in the GCC, Oman has taken measures to counter inflationary pressure, including issuing certificates of deposits to mop up liquidity.
"All indicators point to lower inflation rates in Oman from their record levels in the past few months following the decline in oil prices. I expect inflation to drop below 10 per cent by the end of this year or in early 2009," Zedjali said.
Zedjali was referring to an intensified drive by CBO over the past year to absorb excessive domestic liquidity by issuing CDs to local banks.
Official figures showed that over the past two years, the CBO has sharply boosted its borrowing from banks as it struggles to tackle domestic inflation in the absence of other effective fiscal options.
Asked about Oman's decision not to join the GCC monetary union, which is preliminary scheduled to be launched at the start of 2010, Zedjali said:"Oman is sticking to its decision not to be part to this monetary system."
The heads of state of the GCC, which comprise the UAE, Oman, Saudi Arabia, Kuwait, Qatar and Bahrain, are due to discuss the monetary union when they hold their annual summit in the Omani capital Muscat in late November.
