DUBAI, March 23 (Reuters) - A stimulus package announced by Oman's central bank will soften the coronavirus outbreak's economic impact but weaken banks' credit profiles, Moody's said on Monday.
The Gulf state's central bank said last week it was readying some 8 billion Omani rials ($20 billion) in extra liquidity to banks as part of a slate of stimulus measures which includes a reduction in capital conservation buffers (CCB) for banks to 1.25% from 2.5%.
"The central bank's reduction in (capital conservation buffers) is credit negative for Omani banks 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 the risk classification of loans and deferment of loan installments for borrowers affected by the outbreak will hinder banks' immediate recognition of problem loans arising from coronavirus-related disruptions, said Moody's.
Oman, an oil producer, is also dealing with the impact of plunging oil prices on its finances, burdened by high levels of debt. The cost of insuring against a potential government debt default inched up on Monday, while Omani international bonds continued to weaken.
According to Moody's, Omani borrowers in the tourism, transportation, trade, real estate and construction sectors will be the most affected by the coronavirus outbreak, and small and medium enterprises are particularly vulnerable.
"We expect Omani banks’ asset quality to materially deteriorate in the current difficult environment. The stimulus package will mitigate the extent of the deterioration by keeping some borrowers' liquidity issues from becoming solvency issues," said the agency.
But the proposed stimulus "will not fully offset loan quality challenges, particularly if the pandemic persists for longer than a few months." (Reporting by Davide Barbuscia and Yousef Saba Editing by David Goodman, Kirsten Donovan)