MUSCAT: Islamic banks have demonstrated their ability to leave their mark in the Omani banking sector during the past six years, said Tahir bin Salim al Amri, Executive President of the Central Bank of Oman (CBO). In an interview with Oman News Agency (ONA), he said that the latest data shows the remarkable growth of Islamic banking business in the Sultanate during the last period. The total assets of Islamic banks increased from RO 3.299 billion in March 2017 to RO 3.991 billion in March 2018, comprising a rise of 21 per cent. The deposits with the Islamic banking sector also increased from RO 2.385 billion in March 2017 to RO 3.158 billion at the end of March this year, a growth of 32.4 per cent. He said that as a result of this, the balance of financing granted by the Islamic banking units increased from RO 2.632 billion in March 2017 to RO 3.183 billion at the end of March 2018, recording a growth of 20.9 per cent.
The market share of the Islamic banks and windows accounted for 12.4 per cent of the total assets of the banking sector and accounted for 13.2 per cent and 13 per cent respectively of the total financing and deposits in the banking sector as at the end of March 2018. He affirmed that the Islamic banks and windows were well represented through a network of branches distributed across the Sultanate. The total number of Islamic banking and Islamic windows operating in the Sultanate has hit 77 branches at the end of March 2018, distributed over various governorates of the Sultanate (30 branches in Muscat, 14 in the governorates of North and South Al Batinah, 8 in the governorates of North and South Al Sharqiyah, 12 in the Governorate of Al Dakhiliyah, 4 branches in the governorates of Al Dhahirah and Al Buraimi, and 9 in Dhofar). He said that the CBO urges banks and Islamic banking windows to open more branches to meet the needs of customers in all the governorates of the Sultanate.
On Omanisation rates in the banking sector in the Sultanate and the enhanced development programmes for the performance of national competencies, he said that the CBO seeks to achieve the highest rates of Omanisation in the banking sector in various posts in the higher and middle management by issuing instructions and following up the Omanisation rates achieved periodically, as well as urging banks to develop and qualify Omani cadre to hold positions at levels of leadership both in the banking sector and even for other financial sectors.
He said that the data indicates the growth of Omanisation rates achieved in the banking sector, finance companies, leasing companies and exchange companies according to the data recorded at the end of March 2018. The banking sector achieved 93.5 per cent, compared to 90 per cent, the finance and leasing companies sector achieved 82.3 per cent of the total, compared with 80 per cent of the required percentage. The exchange companies achieved 62.5 per cent, as 2.5 per cent left to reach the required Omanisation rate.
Al Amri said that the CBO looks with a comprehensive perspective all its decisions, including allowing Islamic banking activity in the Sultanate as it is keen to provide an equal opportunity for the banking sector by allowing traditional banks to open specialised Islamic banking windows, along with two banks offering Islamic banking services.
He said that these steps enhanced the competition and improved the quality of banking services provided to customers, in addition to attracting more deposits and funding, to raise the level of financial coverage in the Sultanate. He noted that both Islamic banks and windows have been able to achieve good growth in the last period. The combined Islamic banking units account for 12.4 per cent of the total assets of the banking sector at the end of March 2018.
The said that financial inclusion is closely linked to economic development and growth. Access to financial services plays a vital role in promoting entrepreneurship and supporting the development of national economy. He said that Islamic banking windows contributed 64 per cent of the total funding provided by the Islamic banking sector to the private and public sectors.
To a question on the role of Islamic banks in serving the national economy, he said that the Sultanate’s adoption of Islamic banking in 2012 was aimed at diversifying the banking and financial services in the local market and increasing the financial depth and coverage by providing opportunities to benefit from the financial and banking services to a community segment that wishes to benefit from the services and the Shariah-compliant products.
He added that CBO always urges Islamic banks and windows to focus on development projects and business initiatives that generate added value for national income and avail more job opportunities for Omani youth instead of focusing on personal finance and loans. He affirmed that the volume of funding provided to private sector institutions from Islamic banking and Islamic windows amounted to RO 1.747 billion, equivalent to 11.3 per cent of the total funding provided to the private sector from the banking sector.
“Islamic banking and Islamic windows are moving in the right direction by allocating more funding to productive sectors rather than to consumer sectors, which further boosts economic growth. Despite these difficulties, Islamic banks and Islamic windows have reached a break-even point and have significantly improved their performance and have been able to achieve positive growth in assets, deposits, finance and profits, and this has reflected an improvement in the performance of their shares in the Muscat Securities Market,” he said.
He pointed out that banking mergers are one way for institutions to survive, compete and achieve more success. Thus, any merger experience between two banks will have positive dimensions and a role in achieving the successes of the banking sector, whether Islamic or conventional. The objective is to optimise the size of banking institutions and enable them to compete with traditional local banks.
On promoting the Omani competencies in the field of Islamic banking, he said that the regulations issued in accordance with the regulatory and supervisory framework by the Central Bank of Oman oblige banks and Islamic banking windows to provide annual Islamic banking training programmes approved and prepared for all cadres of different degrees of employment according to a clear plan and timetable for implementation, as well as preparing annual training programmes for members of Sharia Supervisory Committees to increase knowledge in banking, finance, economics or other related disciplines.
On the role of the CBO in managing the risks of fraud and reducing its repercussions, he stressed that the apex bank is always seeking to provide a safe and reliable banking environment.
There is ongoing coordination with the banking institutions in the Sultanate to protect the financial and banking sector from the risks of piracy, cyber crime and fraud. Information security departments have been established, whether with the Central Bank of Oman or financial institutions operating in the banking sector, equipped with qualified personnel in this field.
He pointed out that the CBO and financial institutions are allocating substantial financial resources to acquire modern and safer technology systems and upgrade their basic electronic infrastructure in addition to developing their human resources to be able to deal with these systems and technologies and protect them from risks.
He added that the strategy of the Central Bank of Oman is based on securing banking transactions on several axes. It also aims to enhance the exchange of information, cooperation and continuous coordination between the Central Bank of Oman and the financial institutions of the Sultanate, the Telecommunications Regulatory Authority and the Economic Crimes Unit of the Royal Oman Police in the fight against crimes and electronic piracy related to banking transactions.
Banks are licensed to develop a technical security policy and risk management systems in the field of information technology, and to continuously educate customers about the potential risks of fraud and electronic piracy and precautionary measures for information security.
The CBO is also in the process of developing specialised controls on the technical aspects being carried out during the field inspection of banks in order to verify the availability of appropriate technical security and risk management systems and issuing instructions to banks to monitor and report suspicious financial transactions within the framework of combating money laundering and terrorism financing.
He pointed out that the electronic banking services are subject to the prior approval of the CBO. — ONA