UPDATE 1-Oman central bank’s stimulus to damage banks’ credit profiles -Moody’s

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DUBAI, March 23 (Reuters) – A stimulus package announced by Oman’s central bank will soften the economic impact of the coronavirus outbreak but weaken banks’ credit profiles, Moody’s said on Monday.

The Gulf state’s central bank said last week it was preparing some 8 billion Omani riyals ($20 billion) in additional liquidity for banks as part of a list of stimulus measures that includes a reduction in conservation buffers. of capital (CCB) for banks at 1.25% from 2.5%.

“The central bank’s reduction in (capital conservation buffers) is negative for Omani banks’ credit because it lowers their minimum regulatory solvency capital requirements during a difficult time,” the ratings agency said in a report.

A proposed six-month delay in loan underwriting and deferral of loan installments for borrowers affected by the outbreak will make it difficult for banks to immediately recognize problem loans stemming from coronavirus-related disruptions. coronavirus, Moody’s said.

Oman, an oil producer, is also grappling with the impact of falling oil prices on its finances, weighed down by high levels of debt. The cost of insuring against a potential government debt default rose on Monday, while Oman’s international bonds continued to weaken.

According to Moody’s, Omani borrowers in the tourism, transport, trade, real estate and construction sectors will be the most affected by the coronavirus outbreak, with small and medium-sized businesses particularly vulnerable.

“We expect the asset quality of Omani banks to deteriorate materially in the current difficult environment. The stimulus package will mitigate the extent of the deterioration by preventing some borrowers’ liquidity problems from turning into solvency problems,” the agency said.

But the proposed stimulus “will not fully offset loan quality challenges, particularly if the pandemic persists for more than a few months.” (Reporting by Davide Barbuscia and Yousef Saba Editing by David Goodman, Kirsten Donovan)

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