islamic finance

Move to strengthen Sultanate’s Islamic banking sector

December 21, 2020

Seeking to build on the robust growth of the Islamic banking sector in the Sultanate, the Central Bank of Oman (CBO) is rolling out a number of initiatives designed to further underpin the role of sharia-compliant Islamic finance in contributing to the country’s economic development.

In addition to the formulation of a strategy for the growth of the Islamic banking industry, the banking and financial services regulator is also weighing the launch of sharia-compliant central bank liquidity facilities in line with its role as ‘lender of last resort’. Besides, it is looking at the introduction of financial safety nets for the Islamic banking sector.

“It is expected that these initiatives will pave the way for an even more resilient Islamic banking sector ready to serve the banking needs of the country for the diversification of the economy under the Tanfeedh Programme,” the Central Bank noted in its 2020 Financial Stability Report issued here last week.

The sector has grown rapidly since the advent of Islamic banking in the Sultanate in 2012 following the promulgation of Royal Decree 69/2012 amending the Banking Law, which also paved the way for the issuance of a comprehensive Islamic Banking Regulatory Framework and the establishment of a Sharia Governance Framework.

A pair of two full-fledged Islamic banks, coupled with six Islamic Banking Windows of conventional banks, now account for a combined asset base of RO 4.88 billion, as of December 2019, representing 13.87 per cent of total banking assets.

Commending the steady expansion of the sharia-compliant banking services industry, the Central Bank noted: “The Islamic Banking sector has been consistently recording double-digit growth in deposits, and gross financing for the last seven years. Despite the rapid growth, the asset quality of the Islamic banking financing portfolio remained strong with a low non-performance financing (NPF) ratio of 1.07 per cent at the end of December 2019, which is among the lowest in the region.”

The 2020 Financial Stability Report listed the retail and construction sectors as the biggest beneficiaries of funding support from Islamic banks and windows, accounting for 36.8 per cent and 20.2 per cent of total financial respectively. Manufacturing and other service sectors received just over 10 per cent apiece of total financing, it added.


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