...Key Message on 2017: A challenging operating environment resulted in weakening asset- quality metrics and higher interest rates pushed margins down. Asset Quality: Asset-quality metrics continued to deteriorate in 2017 with some pressure on contracting, real-estate, oil and gas, and private-sector consumers. Loan impairment charges- to-average gross loans ratios remained elevated for most banks and the improvement in the sector average ratio was attributable to Bank Muscat owing to recoveries, resilient asset quality and appropriate provisioning levels. Impaired loans ratios continued rising although they do not include increasing volumes of restructured loans. Loan-loss reserves are adequate as a proportion of impaired loans (at over 100%) and reasonable as a percentage of gross loans (3.5%). Performance: Due to rising rates and tight liquidity, funding costs increased further in 2017. This has added pressure on the banks' profitability metrics as interest-rate risk cannot be hedged in...
