Muscat: Household debt to the banking sector has declined for consecutive year, according to the Financial Stability Report of the Central Bank of Oman (CBO).
Loans to households account for about 38% of banks’ overall loan portfolio at the end of 2021, according to the report.
During the run-up to the pandemic, it increased steadily, from 7300 million RO in 2014 to more than 10300 million RO in 2019 (a cumulative of 41% over the five years or a compound annual expansion rate of 7. 2%).
However, despite regulatory easing, banks tightened their lending criteria and were cautious about expanding their loan portfolios.
Lending to households recovered somewhat in 2021 with an expansion of 2. 8% after remaining largely solid (0. 24% expansion) in 2020. The relatively modest expansion of lending to households in 2020 and 2021 reflects weaker demand due to rising household savings, discretionary spending decline amid uncertainty, turning banks’ threat appetite for long-term fixed-rate loans and tight non-priced credit conditions. on loans if interest rates rise more than expected lately.
At the end of the spectrum, household deposits increased to 4. 2% in 2021 compared to 14. 8% in 2020, due to an easing in unintentional savings due to mobility restrictions being relaxed in 2021.
However, household net borrowing (loans minus deposits) fell by an additional 1. 1% in 2021 (down 39% in 2020), reaching RO 1. 7 billion to RO 2. 8 billion in 2019.
Rising living prices and interest rates have raised considerations about household debt sustainability. Low-income households are disproportionately more vulnerable to skyrocketing inflation because they have less room for their debt servicing capacity in the face of emerging prices.
However, similar dangers to these gains remain contained in Oman due to low inflation expectations, subsidies aimed at those most vulnerable to inflation, and private fixed-rate loans.
In addition, prudential regulatory criteria and prudent underwriting criteria through banks have ensured that loans to households continue to target borrowers with better credit profiles while maintaining sufficiently good provisions. As a result, the traditionally low NPL6 index for the family loan portfolio in Oman indicates a higher point of creditss quality.