"Islamic banking is considered as a new chapter in the banking sector in Oman, which would diversify banking services and augment financial inclusion," Al Zadjali said. "The advent of Islamic banking is expected to complement the current conventional banking in promoting growth in the economy during 2012 and beyond," the executive president stated.
Two new local banks, Bank Nizwa and Al Izz Islamic Bank, have been granted initial approvals while almost all local banks have evinced interest in establishing windows for practicing Islamic banking, Al Zadjali said, noting that Islamic finance will add further incentive to deepen and broaden the financial markets in Oman, thereby contributing to further financial inclusion.
Earlier, the executive president affirmed his firm conviction in the robust health of the Omani banking sector. "Oman's banking system remained sound, resilient and profitable due to appropriate regulatory and supervisory policy adopted by the CBO despite adverse impact on the banking sector across the globe due to the recent global financial crisis.
"A key element of the ongoing financial sector reforms has been the fine-tuning of prudential and supervisory framework through developing sound risk management systems, enhancing transparency, improving customer service and complying with international standards and best practices," he said. However, in line with the recommendations of global standard-setting bodies, the CBO has initiated a number of regulatory and supervisory measures recently to improve efficiency of the country's financial system in general and the banking system in particular, Al Zadjali said.
These include a measure to increase the minimum regulatory capital from 10 per cent to 12 per cent of the risk-weighted assets. The risk-based supervision, which has been introduced recently on a pilot basis, will cover the entire banking system by the end of 2012. Furthermore, the final guidelines on Pillar 2 under Basel II were issued to the banks in December 2011. Likewise, the Internal Capital Adequacy Assessment Process (ICAAP) will be operationalised by all banks in the Sultanate by December 31, 2012.
"The CBO is well within the time frame for the implementation of the Basel III capital adequacy framework. The draft roadmap for the same has been issued to the banks for deliberation. "Moreover, the CBO is currently working to develop a set of macro-prudential indicators to assess the vulnerability of the financial system in Oman. As financial stability has emerged as a global problem, a financial stability unit has been set up within the CBO for macro-prudential supervision of the financial system and to produce the financial stability report," Al Zadjali said.
Steps have also been taken to strengthen the Anti-Money Laundering and Combating Financial terrorism supervisory framework and processes, the Executive President said. "Banks in Oman have been advised to exercise prudence and caution in managing their business such as overseas exposures, internal counterparty limits, asset-liability management and distribution of dividend. Moreover, the exposure limit to non-residents has been recently reduced from 5 percent to 2.5 per cent of net worth for each borrower and from 30 per cent to 20 per cent of net worth at aggregate level," he stated.
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