Hamood Sangour Al Zadjali, Executive President, Central Bank of Oman (CBO), on ensuring stability and encouraging growth: Interview

Interview: Hamood Sangour Al Zadjali

What steps is the CBO taking to support liquidity within the banking system?

AL ZADJALI: With a view to augmenting liquidity and encouraging investment, it was decided to permit banks to invest in unencumbered Treasury bills, government development bonds and Oman government sukuk (Islamic bonds) as part of eligible reserves up to a maximum of 2% of deposits, effective April 1, 2016. The reserve requirements remain unchanged, at 5%.

It is envisaged that this move will have the effect of boosting banks’ liquidity by freeing up approximately OR400m ($1.04bn), thereby increasing the lendable resources of the banks in Oman. It will also increase the number of instruments available, with banks able to obtain liquidity from the CBO through discounting or repos of such instruments.

Are you concerned about delinquency rates and non-performing loans (NPLs) in Oman?

AL ZADJALI: The financial health of banks in terms of asset quality, provision coverage, capital adequacy and profitability remains strong. With regard to delinquency rates and NPLs, the ratio of NPLs to total advances remained well below 2%, as of the end of December 2015. Given the fact that banks in Oman are well capitalised and comply with international regulatory prescriptions, such as the Basel III capital and liquidity standards, there is not much concern regarding the potential impact of NPLs on the capital adequacy of banks in the sultanate.

How would you evaluate the dollar peg policy, and has there been pressure to revise it?

AL ZADJALI: The Omani rial has been pegged to the US dollar since 1973. The peg has worked well for Oman’s oil-dominated economy by providing a strong and credible monetary anchor and low exchange rate risk. Economic activity in Oman in recent periods has registered a slowdown, while inflation has remained generally low. The CBO and the government are always prepared to take any necessary action to maintain the stability of the exchange rate peg.

The CBO, for its part, remains firmly committed to the fixed peg, which has been sustained at $2.6008 per Omani rial since 1986. Our assessment has been that, despite concerns arising from imported inflation, the benefits of the fixed peg are substantial, given our economic structure and the high degree of openness in both current and capital accounts. The fixed peg provides the country with a stable exchange rate, which helps in promoting investment, growth and the diversification of the economy. The fixed exchange rate served the country well, so there is no proposal to change the pegged exchange rate.

What are some of the possible paths towards the growth of internet banking, mobile banking and other alternative banking channels?

AL ZADJALI: There have been great advances in the digital services banks offer in order to cater to different types of banking clients, including in online and mobile banking. Digital tools have allowed banks to explore the changing requirements of their customers and enhance their overall experience. Investment in technology transformation is enabling banks to respond to the evolving demands of the marketplace more quickly and more efficiently.

In the current environment, with customer needs and expectations changing rapidly, banks are facing challenges. An increasing percentage of customers want to do more of their banking via digital channels, and providers are starting to embrace the change.

To increase profitability, banks need to leverage available data to develop a more customised level of service and a deeper understanding of the customer. The goal of improved customer satisfaction and operational efficiency will depend on banks enhancing technological security, functionality and ease of use.