Islamic banks in Oman have made their mark in the banking sector since their adoption at the end of 2012.
They can no longer be considered a mere diversification of the banking system. Over the past few years, these banks have developed significantly and are now competing with their conventional counterparts, earning huge profits and enjoying high asset quality.
Strong presence and expansion in Oman
Over the past years, Islamic banks and windows have registered a strong presence across a network of branches throughout Oman. The total number of branches of Islamic banks and windows operating in Oman reached 77 licensed branches at the end of March 2018, according to data published on the Central Bank of Oman’s (the “CBO’s”) website. These branches belong to two Islamic banks, Bank Nizwa and Alizz Islamic Bank; in addition to these, there are six Islamic windows operated by conventional banks.According to recent data published by the CBO at the end of last month, the total Islamic banking assets in the country had increased from OMR3.3 billion in 2017 to OMR3.991 billion. In the third quarter of 2018 alone, there was 21% growth.
Combined Islamic finance institutions accounted for 12.4% of the total assets of the Omani banking sector at the end of March 2018.
The volume of financing provided to private sector institutions and companies from Islamic banks and banking windows amounted to OMR2.747 billion, equivalent to 1.3% of the total funding provided to the private sector by banks.
Continuing growth
In May 2018, Bank Nizwa, Oman's first Islamic bank, announced a net profit of OMR3.8 million at its annual general meeting, representing growth of 3.343% from the previous year.The bank’s total assets increased by 35% to reach OMR697 million, up from OMR516 million in the previous year.
Taher bin Salim Al Omari, chief executive officer of the CBO, said in remarks published by the official Oman News Agency (“ONA”) in July of this year, that Islamic banks and windows accounted for 13.2% and 13%, respectively, of the total financing and deposits in the Omani banking sector until the end of March 2019.
He explained that Islamic banks and windows generally require a period ranging between three and four years to achieve good results, and to draw level with other banks.
He also explained that Oman’s adoption of Islamic banking in 2013 was aimed at diversifying banking and financial services in the local market and increasing financial depth and comprehensiveness, in order to serve the national economy.
Islamic banks in the Gulf region hold approximately a third of the assets of their international counterparts, according to a study by the Arab Monetary Fund issued in June 2017.
According to the same study, the period following the global financial crisis in 2008 witnessed a remarkable growth in Islamic banking activity, with a compound growth rate of 17% during that period, reflecting widespread global interest in Islamic banking financing opportunities.
There are around 700 Islamic banking institutions worldwide, of which 250 are operating in the Gulf region.
Read more about Islamic Banking and Finance in Oman in previous Oman Law Blog articles:
Islamic Project Finance - Part 1 (March 2016)
Islamic Project Finance - Part 2 (May 2016)
Islamic Project Finance - Part 3 (September 2016)
Takaful in Oman (May 2015)
Shari'a-Compliant Investment Banking in the Sultanate of Oman (March 2013)
Sukuk in the Sultanate of Oman (February 2013)
Islamic Banking Law Decree in the Sultanate of Oman (January 2013)
Islamic Banking: Home Purchase Financings Part I - The Lease (August 2012)
Islamic Banking: Home Purchase Financings Part II - Musharaka Mutanaqisa (August 2012)
Islamic Banking: Home Purchase Financings Part III - Murabaha and Tawarruq (October 2012)
Islamic Banking: A Brief Introduction (July 2012)
Islamic Banking (November 2012)
Islamic Banking: Shari'a Governance (December 2012)
Islamic Banking in Oman - Part 2 (July 2011)
