Mubasher: Central Bank of Oman (CBO) decided to allow banks’ required reserves to include unencumbered Oman treasury bills, government development bonds (GDBs) and government Sukuk, according to a statement
The change, which took effect one April, will negatively affect Omani banks’ credit rating, asset quality and solvency, according to Moody's Investors Service,
The measure is designed to stimulate banks to replace cash reserves with government securities, as well as redeploying the freed up cash by purchasing more government securities and/or increasing private lending.
Although an increase in government securities would normally lead to an increase in the banks’ liquidity cushion, this occurs at a time when the credit quality of the Omani government (A3 review for downgrade) may weaken.
