Muscat: Islamic banking sector in Oman accomplished a major milestone at the end of June 2021 when the total assets of Islamic banking entities surpassed 15 per cent market share in the banking sector.
International organisations like the International Monetary Fund (IMF) and Islamic Financial Services Board (IFSB) consider a jurisdiction with a 15 per cent market share as a “systemically important Islamic banking system”. As per IFSB Stability Report 2021, Oman has become the 15th country in the world that has achieved this market share.
Since the licence of the first Islamic bank in Oman in December 2012, this landmark market share has been achieved in eight and half years with the active participation of two Islamic banks and five Islamic banking windows of conventional banks. Currently, Islamic banking entities are operating a total of 94 branches in most geographical areas of the Sultanate.
On this occasion, Executive President Tahir Salim Al Amir stated, “I am glad that Islamic banking sector in Oman has continued to expand its outreach and exhibited consistent growth since its introduction eight years ago. Backed by a robust legal, regulatory and Shari’a governance framework for the Islamic banking sector promulgated by the CBO, this sector has offered an additional option to the public for meeting their saving and financial needs, which has enhanced financial inclusion and boosted national saving and investment in Oman.”
He further mentioned, “Introduction of Islamic banking in the Sultanate has helped corporates and businesses to raise, manage and grow their capital and investment and diversify their funding sources, which has advanced entrepreneurship, competitiveness and diversification in the economy. Similarly, the licensing of new players has expanded the sophistication and range of products in the financial sector, leading to more efficiency through better service quality, product innovation and digitisation.”
The Islamic Banking sector in the Sultanate of Oman has witnessed consistent and rapid growth since its introduction, with a combined average annual growth rate of 30.3 per cent between 2013 and 2020.
As of June 2021, Islamic banking sector assets in Oman have reached OMR5.679 billion (equivalent to over $14.7 billion), with a market share of 15.13 per cent. Similarly, the market share of Islamic banking in gross financing and total deposits reached 16.9 per cent and 16.8 per cent respectively on this date.
This robust growth has been backed by high asset quality with a low non-performance financing ratio of 1.93 per cent as of December 2020. Moreover, other stability indicators of the Islamic banking sector all exceeded regulatory requirements with an average capital adequacy ratio at 15.61 per cent against CBO requirement of 12.25 per cent as well as liquidity coverage ratio and a net stable funding ratio of 116 per cent and 119 per cent against 100 per cent requirement. Within the Islamic banking sector, two full-fledged Islamic banks contributed 41.3 per cent of assets as of June 2021 which was only 27.2 per cent as of December 2015.
Central Bank of Oman, as a part of its efforts to contribute to global policy dialogue on financial stability and development of new international standards, has strengthened its partnership with Islamic finance standard-setting bodies and international organisations in the past few years, which has enabled CBO management and staff to become part of their key committees and working groups.
Similarly, these collaborations have allowed the Central Bank to host capacity building events, awareness and training programmes and policy development meetings in the Sultanate of Oman. The Central Bank will continue to build on these partnerships for strengthening its regulatory and supervisory framework for the Islamic banking sector and expanding its outreach to all segments of the population.
To ensure sustained growth and optimum contribution of this sector to the Omani economy as well as the banking sector, CBO is preparing a new strategy for Islamic banking sector development. Main pillars of this strategy outline initiative that focus on improving the existing regulatory infrastructure and consumer protection frameworks, augmenting the product range offered by this sector and strengthening stakeholder coordination. Similarly, initiatives are also being envisaged to expand the outreach, nurture Omani talent and boost awareness about the value proposition of Islamic finance products and services.