20/09/2017 07:31 AST

Leasing and hire purchase firms are showing signs of stability and overall asset growth is expected to be around 5 per cent this year, a top-level official from a non-banking finance company said. A recovery in economic growth in the first quarter is a positive sign for the sector. The Sultanate’s gross domestic product grew by 12.9 per cent in the first quarter of this year, driven by a rise in crude oil prices, as well as a growth in the non-oil sector.

“We expect a nominal growth, which could be under 5 per cent in terms of finance provided by non-banking finance companies. There has been an element of stability in 2017,” Aftab Patel, chief executive officer of Al Omaniya Financial Services, told the Times of Oman.

Patel said a growth in investment in infrastructure generally results in a ‘trickle-down effect’ as it will increase demand for capital goods and the general demand for credit will go up. In the first half of the year, the industry’s focus was on maintaining the growth achieved so far. Growth and profitability were subdued rather than robust in the first half.

“Provisioning levels will have to go up since we have seen quite a significant rise in non-performing loans for the sector as a whole,” stated Patel.

Therefore, he said, companies will have to maintain more than adequate provisions to ensure that the balance sheet is strong and quality of loan book is high.

“Non-banking finance companies (NBFCs) will also go through a period of consolidation, better management of receivables and better focus on the quality of assets. This has to be the focus rather than mere profitability,” Patel said, adding; “Our asset quality continues to be the best in the industry and our loan loss provisions are more than adequate.”

Referring to a recent growth in cost of funds, he said volatility had been witnessed in interest rates since the beginning of 2016, which had substantially reduced in the beginning of 2017. “Most of the NBFCs provide loans at fixed rates. Therefore, re-pricing of existing assets is not possible on the retail side. However, new loans are offered at a higher rate.”

As a result, interest margins of NBFCs are coming down. “The net margin is around 3 per cent now. The overall cost of funds has increased by 2 to 3 per cent now, compared with 2015 levels,” noted Patel.

Patel further said that since the overall growth in demand for finance has been reduced due to a slowdown in economic activity, the competition among NBFCs and other players is growing. The number of players in the market has gone up with the entry of Islamic banks and windows more than three years ago. “Asset-backed financing is suitable for Sharia-compliant institutions. As a result, we expect competition from that segment to be more intense.”

“It is a challenging environment now. So, NBFC’s have to adopt new strategies to overcome the challenges.”

Patel also noted that demand for equipment finance is little lower this year due to a slowdown in investment in infrastructure projects. “Therefore, we are diversifying into other areas, such as the hospitality, healthcare, education and retail sectors.”


Times of Oman

Ticker Price Volume
QNBK 123.10 227,432
SABIC 98.20 3,913,489
TAWUNIYA 97.08 74,172
BURUJ 31.63 334,647
PETRORABIGH 13.11 1,377,870
EXTRA 46.54 506,516
STC 68.61 286,754
Middle Eastern inbound M&A reaches all-time high of $7.3 billion

19/10/2017

According to estimates from Thomson Reuters, Middle Eastern investment banking fees totalled an estimated $669.2 million during the first nine months of 2017, four per cent less than the value of fee

CPI Financial

KAPSARC tackles challenges of electricity transition in GCC

19/10/2017

The King Abdullah Petroleum Studies and Research Center (KAPSARC) addressed the Climate Change Polices and Challenges of the Electricity Transition in the GCC, during the meeting of Association of En

Saudi Gazette

Arab Petroleum Investments Corp hires banks for dollar sukuk

19/10/2017

Arab Petroleum Investments Corporation (APICORP) has mandated banks to arrange a series of fixed income investor meetings ahead of a potential five-year benchmark U.S. dollar-denominated sukuk sale,

Reuters

Oman: Gas output to boost GDP next year

18/10/2017

NBK issues a research report where they expect real Oman’s GDP growth to weaken to 0.3 % in 2017 on oil output cuts and slower growth in consumption and investment, before picking up to 2.8% in 2018

GulfBase

Property Monitor to provide detailed real estate statistics and data

18/10/2017

Property Monitor just became the only real estate data source in the United Arab Emirates (UAE) to provide a real-time real estate index to Bloomberg to display on their terminal. As of October 2016,

Press Release