Oman's new Islamic banks to face challenges
06 Oct 2012 04:26 GMT
 

In a statement on its website, Fitch said that the combination of well-known brand, an established network, service quality and cost-efficiency sa (more)

In a statement on its website, Fitch said that the combination of well-known brand, an established network, service quality and cost-efficiency savings will give the incumbents a significant advantage over new Islamic banks.

"While there is demand for Islamic banking, and its growth across the Gulf region is likely to outpace that of conventional banking, recent experience from Qatar suggests that customers in Oman will opt to get these services from established banks."

"Newly created Islamic banks in Oman will face competition from incumbents such as bank muscat and HSBC Bank Oman, which are setting up Islamic banking arms in preparation for the upcoming rule changes. While the established banks will need to keep

their existing and Islamic operations separate at the point of contact with the customer, there will be plenty of opportunities for cost savings at the operational level," the ratings agency said.

"Evidence from Qatar shows the advantage that established banks have. When rule changes barred conventional banks from offering Islamic financial services, Islamic banks had expected an influx of customers as people with sharia-compliant accounts switched banks. In practice the impact was small and many customers decided to switch back to conventional accounts with their existing banks instead."

"Where established banks in Oman are allowed to offer both sharia-compliant and conventional products and services, we expect most customers to retain their primary banking relationship, assuming there are no significant differences in the terms on offer," Fitch added.

"We nevertheless recognise that substantial government spending and stimulus will create opportunities for the Islamic banks to expand, primarily in retail banking, where conventional banks are close to regulatory caps, and in real estate and construction related business."

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