Consistent growth in Oman's Islamic banking

Muscat: The Islamic Banking Entities (IBEs) in Oman have witnessed consistent and rapid growth since their introduction in 2012, according to the Central Bank of Oman’s latest Financial Stability Report 2023.

“As of December, 2022, the growth is evident in the increase of total assets, which rose by 8.7 percent, reaching OMR6.4 billion, while conventional banks experienced a decline by 0.6 percent in total assets,” the report further said.

“The expansion of IBEs’ total assets is primarily driven by financing activities, with financing and investments both increasing by 12.2 percent and 12.8 percent, reaching OMR5.4 billion and OMR5.8 million, respectively.” 

“On the liabilities side, total deposits exhibited a similar pattern, recording a growth of 10.9 percent to reach OMR4.9 billion. To meet the funding demand and support the growing asset base, borrowings witnessed an increase of 14.6 percent, reaching OMR2.8 million,” the FSR further said.

IBEs play a vital role as intermediaries. The robust growth in financing has resulted in a slight increase in the financing-to-deposit ratio, reaching 111.4 percent at the end of December 2022, compared to 110.1 percent in the previous year.

The sector’s solvency remains robust, with the Capital Adequacy Ratio (CAR) rising to 16.42 percent as of December 2022, compared to 16.91 percent a year earlier, surpassing the regulatory requirement of 12.25 percent.

Credit risk, as indicated by asset quality indicators, remains under control. The non-performing financing (NPF) ratio increased to 2.1 percent in December 2022, compared to 1.8 percent in 2021. The stage 2 to total finance ratio, although slightly declining from 24.11 percent in 2021 to 23.93 percent in 2022, remains relatively high, reflecting the banks’ conservative approach to loan restructuring management.

The Islamic banking sector in the Sultanate of Oman consists of two Islamic banks and five Islamic banking windows. The sector has been experiencing growth in line with the ongoing economic conditions, which rebounded after the subsiding of the pandemic. Islamic banking’s importance is increasing as it steadily captures a larger market share. In December 2022, Islamic banking accounted for 16.5 percent of total banking sector assets, compared to 15.3 percent during the same period in 2021.