Islamic banking sector’s share climbs to 15% of banking assets

Islamic banking sector in the Sultanate of Oman has accomplished a major milestone with a market share equating to over 15 per cent of the banking sector as of June 30, 2021.

International organisations International Monetary Fund (IMF) and Islamic Financial Services Board (IFSB) consider a jurisdiction with 15 per cent market share as a “systemically important Islamic banking system”. As per IFSB Stability Report 2021, Oman has become the 15th country in the world that has achieved this market share.

Since the issuance of the first Islamic banking license in December 2012, the sector has grown robustly. It presently includes two Islamic banks and five Islamic banking windows of conventional banks. Currently, Islamic banking entities operate a total of 94 branches in most geographical areas of the country.

Commenting on this growth, Tahir Salim al Amir (pictured), Executive President of the Central Bank of Oman (CBO), said: “I am glad that Islamic banking sector in the Sultanate of Oman has continued to expand its outreach and exhibited consistent growth since its introduction eight years ago. Backed by robust legal, regulatory and Shari’a governance framework for Islamic banking sector promulgated by the CBO, this sector has offered an additional option to public for meeting their saving and financial needs, which has enhanced financial inclusion and boosted national saving and investment in the Sultanate of Oman.”

He further noted: “The introduction of Islamic banking in the Sultanate of Oman has helped corporates and businesses to raise, manage and grow their capital and investment and diversify their funding sources, which has advanced entrepreneurship, competitiveness and diversification in the economy. Similarly, the licensing of new players has expanded the sophistication and range of products in the financial sector, leading to more efficiency through better service quality, product innovation and digitisation.”

Since its inception, the Islamic banking sector witnessed a combined average annual growth rate of 30.3 per cent between 2013 and 2020. As of June 2021, Islamic banking sector assets in the Sultanate of Oman have reached RO 5.679 billion (equivalent to over $14.7 billion), with a market share of 15.13 per cent.

Similarly, the market share of Islamic banking in gross financing and total deposits reached 16.9 per cent and 16.8 per cent respectively as of end-June 2021. This robust growth has been backed by high asset-quality with a low non-performance financing ratio of 1.93 per cent as at Dec-2020.

Moreover, other stability indicators of Islamic banking sector all exceeded regulatory requirements with average capital adequacy ratio at 15.61 per cent against CBO requirement of 12.25 per cent as well as liquidity coverage ratio and net stable funding ratio of 116 per cent and 119 per cent against 100 per cent requirement. Within the Islamic banking sector, two full-fledged Islamic banks contributed 41.3 per cent of assets as at June 2021 which was only 27.2 per cent as at December 2015.

In order to ensure sustained growth and optimum contribution of this sector to the Omani economy as well as banking sector, CBO is preparing a new strategy for Islamic banking sector development. Main pillars of this strategy outline initiatives that focus on improving the existing regulatory infrastructure and consumer protection frameworks, augmenting product range offered by this sector and strengthening stakeholder coordination. Similarly, initiatives are also being envisaged to expand the outreach, nurturing Omani talent and boosting the awareness about the value proposition of Islamic finance products and services.