Oman – Islamic banks will lead industry growth

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A new report shows Islamic banking in Oman is expected to support the financial sector in the Sultanate.

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A new Moody’s report shows Islamic banking in Oman is expected to capture 8% of the financial sector market within the Sultanate.

Published by the rating agency Moody’s, the report is titled ‘Islamic Banking in Oman: Solid Growth Prospects Moderated by Industry Challenges’.

It says the banking sector will benefit from the expansion of Islamic banking through the strengthening of franchises and diversification in revenue generation. Moody’s Investors Service is also quick to point out that there is no room for complacency as the industry is facing considerable pressures to achieve the anticipated growth.

Islamic banking in the country is forecast to capture a market share of about 8 percent of the banking system’s assets within the next three to five years. As Islamic banks begin to offer a wide range of services, they are expected to win a larger number of customers. On the whole, Oman’s banking sector may enjoy growth on the back of an increase in general credit demand and wider appeal of Islamic banking to a majority Muslim population.

However, the report underlines the need to manage risks to establish new Islamic banking franchises and build operational risk management infrastructures to ensure Shariah-compliance. At the same time, these institutions will also be challenged to attract customers from diverse industries and overcome constraints in liquidity management due to lack of domestic Islamic instruments.

As Islamic banking gains a strong foothold in Oman, the central bank has given the Islamic financial institutions a one-year relaxation on stringent rules related to holding of foreign assets. The decision has been made to facilitate the domestic development of Islamic financial instruments. Last year, Bank Nizwa and Al Izz Islamic Bank began operating as Oman’s first full-fledged Islamic banks.

Under the current rules, the central bank limited the holding of foreign currency-denominated assets to no more than 40 percent of their net worth. The limit has now been raised to 75 percent for the first six months but will be reduced to 50 percent in the next six months.

Photo courtesy: Bank Nizwa

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