Interview : Tahir bin Salim Al Amri
How would you respond to the argument that the US dollar peg restricts interest rate policy?
TAHIR BIN SALIM AL AMRI: The currency peg arrangement is the choice we made in view of the structure of our economy. At the same time, we recognise that this decision involves a trade-off with monetary policy independence. However, it is clear that the peg to the US dollar is working very well for Oman, providing the economy with a credible nominal anchor.
Nevertheless, prevailing monetary conditions in the US do get transmitted to the sultanate due to the peg, and, accordingly, interest rates have hardened following the US Federal Reserves’ monetary policy normalisation process. Since our economy continues to depend predominantly on hydrocarbons activities, our business cycle tends to follow a more diverse trajectory than that of the US. The US economy has been on an upward trajectory for the last few years, while Oman’s economy has, until recently, been on a downward trajectory due to lower oil prices. Therefore, in view of such diverse business cycles, one may arrive at a judgement that the interest rates prevailing in Oman are at a higher than ideal level.
What measures are being implemented in response to Moody’s lowering of Oman’s rating?
AL AMRI: Oman has witnessed large fiscal and current account deficits since 2015 due to the steep decline in oil prices. In response, the government implemented various fiscal reforms, including a reduction in subsidies, rationalisation of expenditure and the augmenting of non-oil revenues. Notwithstanding some improvement in fiscal and current accounts, rating agencies including Moody’s lowered Oman’s rating. Nonetheless, the government, as well as other stakeholders, is making concerted efforts to reduce the deficit in both fiscal and current accounts. Some of the measures under development are the implementation of value-added tax and an excise duty.
Given that the provision rate was normalised in 2018, how is the CBO dealing with the ongoing issue of delayed payments?
AL AMRI: In line with current international best practice, the CBO required a 15% specific provision on restructured loans that were not classified as non-performing assets (NPAs) – effective from the year 2015. With regard to delayed payments, banks have been allowed to not treat eligible loans as NPAs during the years 2017-18, even if the past due period is 90 days or more, subject to their obtaining a specific acknowledgement or undertaking from the government or a government-owned entity to pay the dues to the borrower for the project.
However, after 180 days the banks need to hold provisions of at least 5% on the outstanding balances of these accounts. The CBO is committed to the implementation of international best practice and global guidelines in order to ensure the safety and soundness of the banks of the sultanate.
What financial instruments are being considered to enhance the role of Islamic banking?
AL AMRI: Since its introduction in Oman in 2012, the Islamic banking segment has made rapid strides. The total assets of both Islamic banks and Islamic banking and financial services windows amounted to OR4bn ($10.4bn) or about 12.5% of the total assets of Omani banks in March 2018. However, the management of liquidity in the Islamic banking industry has remained a challenge given that conventional financial instruments do not suit them. This is the reason why Islamic banks manage their short-term liquidity requirements through inter bank transactions. Nevertheless, we are working on establishing specific liquidity management tools that are sharia-compliant. The provision of wakala (agency) arrangements and collateralised partnerships are a focus in our product review, and the CBO is working to address this gap in the market.
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