System loan growth has remained stable at 6% Y-o-Y since the beginning of this year, driven primarily by state-owned corporates’ lending demand (+29% Y-o-Y). Public sector share of total loans widened to 12% in Jul 2019 vs. 10% a year ago. However, private sector loans (corporate + retail) rose 2% Y-o-Y as infrastructure and large project lending demand was partly offset by large repayments. On an M-o-M basis, system loans were broadly stable M-o-M (+0.1%) in July vs. +0.2% M-o-M in June. 
 
Deposit growth also stable at 3% Y-o-Y, down 0.2% M-o-M as demand deposits weakened: Deposit growth was broadly stable at 3.3% in July compared to 3.2% in June. System deposits declined 0.2% M-o-M in July, following an increase of 1.2% M-o-M in June, mainly due to a decline in private sector demand deposits of 3.4% M-o-M in July (19% of deposits), in addition to a contraction in public sector deposits of 0.5% M-o-M (33% of deposits). 
 
LDR remains elevated at 108%, lending ratio rose M-o-M: Liquidity continues to be stretched in Oman,  with the loan-to-deposit ratio unchanged M-o-M at 108% in July and up from 104% in Dec.-18. Banks have curbed their deposit collection domestically given the prevailing high funding costs and instead opted for interbank and EMTN borrowings overseas. System lending ratio, a Omani proxy of LDR calculated as loans over a broader funding base (which includes customers’ deposits, borrowings, foreign net interbank & equity), rose to 81.2% in June (latest), from 80.9% in May, well under the limit of  87.5%.
 
Deposit rates continue to rise, and so do lending rates: Weighted average OMR deposits interest rate was broadly flat M-o-M (+1bps) at 1.96% in July but up 22bps Y-o-Y and 6bps YTD. Deposit rates have been growing at a much slower pace since early 2017, following almost two years of upward trend. Lending rates also widened 1bps M-o-M, 18bps Y-o-Y and 10bps YTD. As a result, lending spreads (weighted average lending yields - deposit rates) were flat M-o-M and up 5bps YTD. The Omani Central Bank does not follow US Fed funds rate, unlike neighbouring Saudi Arabia and the UAE.
 
Investment growth accelerates, driven by gov’t bonds: Investment growth strengthened to 12% Y-o-Y in July, from 9% in June, due to an increase in gov’t bonds of 19% Y-o-Y. 

Rajae Aadel