Islamic finance industry projected to soar to $40 bn

MUSCAT: Oman’s finance industry is set to grow by around 25 per cent, surpassing $40 billion in value over the medium term, up from $30.9 billion as of September 2024. Fuelling this growth are a combination of factors: rising public demand for Islamic finance, enhanced regulation, and the increased use of sukuk as a funding tool by the Omani government and the corporate sector, according to Fitch Ratings.

Another key contributory factor is the new Bank Deposit Protection Law, the New York based ratings agency stated on Wednesday. “The Central Bank of Oman (CBO) addressed a structural gap in October 2024 with the introduction of the Bank Deposit Protection Law, which would protect Islamic banks’ deposits. We expect this will aid confidence in Oman’s Islamic banking sector as the previous deposits insurance scheme only covered conventional banks’ deposits,” it noted.

Significantly, outstanding sukuk is expected to account for around 30 per cent of the Islamic finance industry’s anticipated growth in the medium term. Fitch rated $6.5 billion of outstanding Omani sukuk at ‘BB+’ in 3Q24, issued equally among corporates and the sovereign.

“Sukuk has a sizable share (21 per cent) of the outstanding Debt Capital Market (DCM mix at end-3Q24. The Omani DCM is still at an early stage of development, and is the second-smallest amongst GCC countries. However, sukuk issuance expanded by 86 per cent yoy to $2 billion in 9M24, outpacing bond issuance ($5.6 billion; up 53 per cent),” Fitch explained.

The growth of Islamic banks’ financing, on the other hand, continues to outpace conventional banking growth, according to the ratings agency.

At the end of 3Q24, Islamic banks grew 12.6 per cent versus a growth of 3.2 per cent yoy recorded by conventional banks. Islamic deposit growth was 23.7 per cent, versus 11.3 per cent for conventional banks.

“Islamic banking windows gain advantages from leveraging their parent conventional bank's established franchise and infrastructure, resulting in greater cost efficiency. Profit-and-loss sharing contracts are fundamental to Oman's Islamic banking, with diminishing musharaka comprising 43.1 per cent of total financing and wakala (23.6 per cent) at end-2023,” Fitch added.