Oman took a major step towards making Islamic Baking an important part of its banking sector with the inauguration of a department dedicated to overseeing Islamic banking at the Central Bank on Thursday.
Oman was the last country among the member states of the Gulf Cooperation Council (GCC) to authorize the establishment of Islamic banking. The new department will be responsible for building up resources and expertise and for centralizing all aspects of Islamic banking regulation and issuance.
Although commercial banks in Oman provide Islamic banking services through their ‘Islamic Windows,’ the country has only two Islamic banks. Fitch Ratings pointed out that “effective regulation and supervision of Islamic banks achieved through a dedicated unit is positive for the sector as it should strengthen early detection of risks and support growth.”
Total banking assets of Islamic banking in other GCC states has market shares that are between 20% and 30% while Oman is currently at 5%. This percentage is however poised to increase.
The country is also gearing up to issue its first Sukuk. Soverign Sukuks could help Islamic banks to place their excess liquidity in a lowly weighted risk asset, diversify liquidity portfolio investments as well as reduce concentration risks and boost profitability as they benefit from participation in Sukuk profit distributions.
Fitch Ratings said the Islamic banking would grow in the country because “demand for sharia-compliant products and services is growing in neighboring countries, driven by religious preferences” and they are now being “increasingly able to structure products that enable them to compete with those offered by conventional banks.”