Pandemic-induced involuntary savings boost household deposits: CBO

KEY TREND: Household deposits increased 14.8 per cent in 2020 as lockdowns and other restrictions inhibited spending

BUSINESS REPORTER

MUSCAT, Oct 30

Household deposits climbed, for the first time in nearly five years, by 14.8 per cent to well over RO 7 billion in 2020, buoyed by an uptick in savings as most people were locked down amid the pandemic mitigation measures that were in place for much of the year.

According to the newly released 2021 Financial Stability Report of the Central Bank of Oman (CBO), household deposits increased by 14.8 per cent “due to involuntary savings induced by mobility restrictions and precautionary savings triggered by the pandemic-led uncertainties about earnings and employment”.

Lending to households typically forms about 39 per cent of the total lending portfolio of commercial banks. Credit to households grew steadily over the past few years from RO 7.3 billion in 2015 to over RO 10.3 billion in 2019 (41 per cent increase during the five-year period), according to the CBO report. However, during 2020, the debt owed by households effectively remained flat (2020 growth: 0.24 per cent).

“This modest growth in lending to households reflects weaker demand, changing risk appetite of the banks for longer tenor loans, and stringent non-price credit terms,” the apex bank noted.

Consequently, net borrowings (loans minus deposits) of households declined by 39.3 per cent from RO 2.8 billion in 2019 to RO 1.7 billion at the end of 2020, it said.

Household indebtedness relative to nonoil GDP (2020: 56.5 per cent; 2019: 50.3 per cent) has risen during the past few years as the household credit grew at a faster pace than non-oil GDP. During 2020, the increase in this ratio was primarily driven by a large decline in nominal non-oil GDP, the report said.

It acknowledged that the pandemic has affected the income of some households. However, at the aggregate level, household savings have increased during 2020. This suggests that the economic fallout of pandemic has a dissimilar impact on different segments. “On average, the pensioners and higher-income households appear to have been less affected, with higher saving rates during the pandemic. In contrast, proportionally more low-income households appear to have witnessed a deterioration in their incomes and balance sheets. This introduces new fault lines for the vulnerable households whose income has been compromised,” the report pointed out, noting that supportive measures from the government and CBO have helped the more affected borrowers stay afloat. Nevertheless, prudential regulatory norms and prudent underwriting standards of banks have ensured that lending to households remained concentrated among borrowers with better credit profiles, according to the Financial Stability report.

As a result, the historically low non-performing loan (NPL) ratio for the household lending portfolio in Oman indicates a high level of credit quality.

In addition, the policy responses of the government and CBO during the pandemic have provided significant support to household balance sheets and income. Moreover, any possible credit losses are adequately covered by provisions, it noted.