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Oman: Branching into Islamic banking
Published in Daily News Egypt on 02 - 09 - 2011

MUSCAT: Since issuing a decree to establish an Islamic financial services sector in May, Oman has seen a flurry of activity as banks have started gearing up to move into the new market. As well as the establishment of new Islamic banks, the sector is also seeing an upsurge of sharia-compliant services at convention institutions as well as movements in other financial services to offer Islamic products.
Bank Nizwa was the first institution to be granted a license from the Central Bank of Oman (CBO) to become a fully-fledged Islamic bank. In mid-August, Bank Al Izz, which had been granted a conventional license in September 2010, followed suit and decided to pursue an Islamic license instead.
Ali Hamdan Al Raisi, vice-president of Oman's central bank, expects the banks to open in one or two years. “It takes some time for them to establish,” Al Raisi said. “They are in the process of being established and will become operational as soon as formalities such as regulatory requirements, raising of capital and constitution of management are met,” he told Reuters.
Preparations are now under way. Bank Nizwa is looking to open its doors by early next year at the latest, though there are some suggestions that it could launch before the end of 2011. It is expected to have a capital base of at least $390 million and will conduct an initial public offering next year, in line with CBO regulations, with 40 percent of its shares to be made available.
A number of Oman's conventional lenders are also preparing to offer Islamic banking products so as to broaden the base of their operations and take advantage of the new development. One of these is BankMuscat, the Sultanate's largest bank, whose chairman announced on July 30 that the bank would be entering the sharia-compliant sector.
“The bank has in place a comprehensive strategy to cater to the financial needs of people, subject to obtaining final regulatory approval,” Sheikh Khalid bin Mustahail Al Mashani said.
BankMuscat already offers sharia-compliant structured finance, and expects significant take-up of additional Islamic banking products and services, given the experiences in neighboring Gulf countries. “The recent royal directive on opening up of Islamic banking has provided new opportunity for the banking industry in Oman. BankMuscat is working on a strategy to leverage this opportunity,” said AbdulRazak Ali Issa, chief executive of the bank.
Oman International Bank (OIB) is also believed to be looking at branching into the Islamic banking segment, though it has not issued a statement of intent. Kanaga Sundar, the head of research at Gulf Baader Capital Markets in Muscat, sees the potential entrance by OIB as sound business practice, one that would provide the means to diversify revenue and help develop volume growth.
“It is a positive move,” Sundar told UAE daily The National on July 25. “The bank is clearly looking to find opportunities that will take them to the next phase of growth. They may look at strong regional players who have expertise in sharia-compliant offerings and other businesses.”
Bank Sohar is also looking into taking advantage of the changed banking landscape, with its chairman, Salim Said Al Fannah Al Araimi, saying in the lender's half-yearly report, issued on July 30, that it was “actively working on all fronts to place itself suitably in this new competitive environment and is carefully weighing all its options.”
As well as banking services branching out into sharia-compliant products, the investment bank Alpen Capital in mid-August became the first firm to be granted approval to offer Islamic advisory services in Oman.
“We believe it's a very large market,” said Rohit Walia, executive vice chairman and chief executive of Alpen Capital Group. “From the people we talk to, if we can give them sharia-compliant options identical to non-sharia-compliant advisory, there is definite interest.”
As new Islamic institutions and conventional banks gear up to launch their sharia-compliant services, the central bank is in the process of developing the regulations needed to provide the proper environment and oversight for Islamic banks.
“CBO specialists are currently studying the legal issues and required amendments on the banking law. It has implemented several measures, including a circular, which states the banks ability to practice the Islamic banking business as one of the licensed practices,” Hamoud Sangour Al Zadjali, the CBO's executive president, told the Oman Chamber of Commerce and Industry on August 20.
Training for staff is also beginning to be implemented by banks looking to establish Islamic finance services. BankMuscat, for example, recently offered customized courses for 250 staff to raise awareness of the principles of sharia-compliant finance as well as in-depth coverage of products and services. The training was delivered by US consultancy Shape Financial. According to Salim Al Kaabi, the assistant general manager of BankMuscat's human resources management team, “Organizing the comprehensive suite of Islamic finance reaffirms the bank's commitment to develop the competencies of its human capital.”
If Islamic financial institutions in Oman chart their own course, they could grow to become serious contenders in the regional Islamic finance industry, Mabid Al Jarhi, the president of the International Association for Islamic Economics and a member of the Dubai Financial Market's Sharia Board, told a conference on Islamic banking at the end of July. “Growth figures could match that of institutions around the world as funds that were invested in ethical institutions overseas will be repatriated.”
Some estimates put the potential share of the Islamic segment at around 10 percent of Oman's total banking sector, which currently has assets in excess of $40 billion. This figure could rise rapidly if, as officials hope, Oman is able to attract investments from abroad and entice local depositors to lodge their funds at home. With a wealth of experience to draw on and a sound regulatory base from which to work, the segment has good potential for development.

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