Oman’s Islamic banking assets crosses RO6bn mark

Muscat – Islamic banking is continuing to grow rapidly in Oman driven by growing awareness about Sharia’a-compliant products, strong retail demand and supportive regulations.

Total assets of the sultanate’s Islamic banks and windows grew by 10.7 per cent year-on-year to hit RO6bn mark in the first quarter of 2022, according to the Central Bank of Oman’s data released on Sunday.

In terms of market share, Oman’s Islamic banking assets now make up 15.4 per cent of total banking sector assets as of the end of March 2022, the central bank data showed.

Islamic banking assets in Oman recorded a strong 30 per cent average annual growth between 2013 and 2021, compared with around 5 per cent average annual growth for conventional banking assets, according to Moody’s.

‘Islamic banking continues to grow rapidly in Oman. Growth in Islamic banking assets accelerated in 2021, fuelled by economic growth and higher oil prices. Islamic banking assets grew by 14 per cent in 2021 versus 6 per cent in 2020, well above conventional banking assets growth rates (7 per cent in 2021 and 1 per cent in 2020),’ Moody’s said in a report.

The slowdown in 2020 growth was caused by the COVID-19 pandemic, combined with a sharp decline in oil prices that year.

‘Growth in the Islamic segment is now being driven, not only by capital injections from shareholders as was originally the case, but also by inflows of customer deposits,’ Moody’s said.

The CBO data showed that Oman’s Islamic banking entities provided financing worth RO4.9bn as of the end of March 2022, recording a growth of 9.6 per cent over that a year ago.

Total deposits held with Islamic banks and windows increased by 11.7 per cent to RO4.5bn at the end of March this year compared to a year ago.

Islamic banking segment in Oman consists of two fully-fledged Islamic banks – Bank Nizwa and Alizz Islamic Bank – and five Islamic banking windows at conventional banks, all established during 2012 and 2013.

‘Conventional banks leverage their existing franchise, expertise and infrastructure to run their Islamic windows, and this is driving the rapid growth of the Islamic banking sector,’ Moody’s noted.

‘Regulation in the country is supportive. A pipeline of new Islamic finance regulations will likely broaden the market in the coming years,’ the ratings agency added.

Moody’s further said that the consolidation has started in Oman’s Islamic banking sector and this could potentially boost the profitability of the segment by creating synergies, affording the combined entities greater pricing power and better deposit-gathering capability.

In its sector comment, Fitch Ratings recently had said that the Islamic banking in Oman is likely to sustain its positive trajectory in the short-to-medium term despite a number of structural challenges.

Echoing views similar that of Moody’s, Fitch Ratings said, ‘Growth will be driven by growing awareness, strong retail demand for Islamic products, supportive regulations, and a strong push from the Islamic windows of conventional banks. An improving operating environment, expected positive real GDP growth, higher oil prices, the easing of coronavirus restrictions, and the rise in interest or profit rates will also support growth in both Islamic and conventional banking.’

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