Financial markets of Oman and KSA
As an integral part of global economy, the uncertainties in the Europe and the USA have seriously impacted the financial market trends of Saudi Arabia and Oman along with their stock market, although the oil producing economy kept remarkable sustainability in the balance of payments (BoP), but still it is going through volatility in the inflation rate and price stability.
The stock market of Oman has organized with primarily equity along with less depth for bonds and evidenced with 2.1% trading turnover and the stock market growth reached at 18.6% in 2013, which is 15.7% less than the previous financial year; however, the following graph of Muscat Security Market will provide a real scenario:
After global financial crisis, stock market of KSA has recovered by 80% index points and its averaged 5146 Index points was from 1994 until 2014; however, SAMA reported that KSA will introduce US$530 billion stock market to foreigners with intent to develop infrastructure and ensure employment opportunities; Saudi Tadawul stocks index grows over 15% in this fiscal year.
According to the report of Woertz (2013), KSA is one of the world’s fastest emergent banking markets and this sector had experienced growth at the time of global financial turmoil; however, there are many factors influence this market, such as, a strong loan growth, higher capital adequacy, oil-based economy, and high efficient environment. On the other hand, Hasan & Ahmed (2013) said that Saudi Arabia has been the worst performer among the GCC nations and following figure demonstrates this issue:
The bond market of Oman illustrated very poor performance; there are very few issues, but not the regular trade or remarkable yield, moreover lack of portfolios of big governmental bonds there is enough risk of debt trapping and has emergence to reform the policy responses in this regard.
In 2009, Saudi Arabia established a Sukuk and bond-trading platform with intent to advance conventional and Islamic bond issues; however, KSA occupied more than 10% of the total share of global Sukuk market, but it has little presence in the overall bond markets since non-diversified and oil based economy of KSA has a negative influence on the capital market. However, the government had not imposed any restriction on foreigners to invest in government bonds, but the internal governance system has created hindrance to increase capital; therefore, this market is still in the development stage (Woertz, 2013).
In the financial market of Oman, there is significant space to promoting resourceful corporate debt market following the global standards although its monetary policy has provided less freedom to do so and the existing credit growth record of Oman is not satisfactory that evidenced 10.5% in last five financial years.
In contrast, Woertz (2013) stated that KSA captured more than 16% GCC debt market share in 2012; the policy makers are going to introduce a new legal framework for overseas investors to promote local currency bond; therefore, multinational companies are gradually turning to the debt market.
There are two full-fledged Shariah compliant banks in Oman along with six other conventional banks those offers Shariah compliant Islamic baking with 3% market share in the baking sector, but the shariah compliant financing system of Oman is not enough strengthened to encounter with its unique risk as well as challenges; however, the following graph illustrates the real market scenario:
According to the report of Woertz (2013), KSA offers various Shariah-compliant products and services and the market growth rate is more than 23% while Saudi Arabia is the global leader for Islamic financing, but in KSA, the conventional financing and Shariah-compliant financing have been working jointly and played their role as co-financier in the market.
The derivative market of Oman has trapped into 3% least amount of leverage ratio from the starting of 2014 in order to avoid double counting of financial transactions along with utilization of less corrective credit adaptation aspects to the ‘off-balance’ sheet publicity in order to attain sustainable condition to mobilize reasonable variety of financial derivatives.
Financial market development
Al-Zadjali (2014, p.7) argued in financial stability report of the Central Bank of Oman that in 2008, the bankruptcy of the US Lehman Brothers in the property mortgage-market has chained to collapse the US banking sector and it shocked the entire major baking sector and waved all over the world and compiled the global economy to experience a consequential recession. Oman, Saudi Arabia and no other GGC counties were capable of safeguarded its own economy or keep apart from the recessionary impact, although both the Oman and Saudi Arabia has rescued for their oil producing economy, but the counties needed to address appropriate measures to develop their Financial market in right direction. It is assumed that a well-organized monetary policy could keep diverse attention for stable growth of financial market and could ensure at least possible damage from any crisis with right direction for quick recovery.
Al-Zadjali, H. (2014). Central Bank of Oman: Financial Stability Report. Muscat, Oman: Financial Stability Unit.
Hasan, F. & Ahmed, N. (2013). Saudi Arabia Banking Sector. Riyadh, Saudi Arabia: Global Research.
Woertz, E. (2013). GCC Financial Markets: The World’s New Money Centers (The Gulf Region: Economic Development and Diversification). London, UK: Gerlach Press.