Interest rate in Oman

Is it fair?

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

Purpose – The purpose of this study is to try to answer whether the banking system in Oman is fair for both depositors and entrepreneurs. Design/methodology/approach – The interest margin decomposition is based on the methodology proposed in Randall (1998). The income statement of banks defines profits before taxes (P) as interest income (II), plus non-interest income (NII), minus interest expense (IP), minus operating costs (OC) and minus provision for loan losses (Prov). After rearranging this identity, the net interest revenue can be expressed as follows: II – IP=OC+Prov+P – NII. The above expression decomposes the margin into the following cost and profit components: reserve requirement costs, operational costs, loan loss provision costs, profitability and non-interest income (with a negative sign). Findings – Atrend analysis of commercial banks’ interest rate spreads in Oman exposes the following facts: First, the implicit interest margin is relatively small (in the neighborhood of 1 percentage point); second, profits constitute a substantial proportion of the margin; third, the share of operating costs in the margin has been broadly constant over time; fourth, reserve requirement costs have been reduced following the decline of the reserve requirement ratio; and fifth, the weighted average interest rate on deposits base is lower than the rate of inflation. Originality/value – This work is original.

Original languageEnglish
Pages (from-to)330-343
Number of pages14
JournalHumanomics
Volume31
Issue number3
DOIs
Publication statusPublished - Aug 10 2015

Fingerprint

Interest rates
Oman
Costs
Interest Rates
Income
Reserve requirements
Margin
Profit
Operating costs
Non-interest income
Interest margin
Methodology
Loans
Expenses
Entrepreneurs
Profitability
Proportion
Loan loss provisions
Interest rate spread
Decomposition

Keywords

  • Decomposing interest margin
  • Interest rates on deposits
  • Interest rates on loans
  • Interest rates spread
  • Oman banking sector

ASJC Scopus subject areas

  • Economics and Econometrics
  • Philosophy

Cite this

Interest rate in Oman : Is it fair? / Al-Muharrami, Saeed.

In: Humanomics, Vol. 31, No. 3, 10.08.2015, p. 330-343.

Research output: Contribution to journalArticle

Al-Muharrami, Saeed. / Interest rate in Oman : Is it fair?. In: Humanomics. 2015 ; Vol. 31, No. 3. pp. 330-343.
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