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Oman’s Banking Sector: Strengthening Regulations to Ensure Financial Stability

Muscat, Oman - In a bid to ensure the stability and security of its banking sector, the Central Bank of Oman (CBO) has implemented a range of regulations aimed at limiting risk and promoting financial inclusion.

New Regulations for Licensed Banks

According to new rules, licensed banks are restricted from borrowing abroad to 300% of their net worth, with sub-limits for time-buckets. Similarly, investments in shares and bonds are capped at:

  • 20% of net worth for shares
  • 10% of net worth for bonds

Underwriting obligations are limited to 20% of net worth.

Lending Restrictions

The CBO has also imposed restrictions on lending, limiting:

  • Housing loans to 15% of total credit
  • Personal loans to 35%
  • Debt service ratios:
    • Cannot exceed 50% for personal loans
    • Cannot exceed 60% for housing loans Interest rates remain de-regulated for personal loans, including housing loans.

Strong Capital Base and Risk Management

The regulations are designed to ensure that banks maintain a strong capital base and do not take on excessive risk. The CBO has also implemented international standards for:

  • Customer due diligence
  • Internal audit
  • Risk management
  • Compliance
  • Corporate governance

Islamic Banking Entities in Oman

Islamic Banking entities (IBEs) in Oman will be governed by the Islamic Banking Regulatory Framework (IBRF), which emphasizes sound Sharia’ Supervisory Framework and Practices in reality and perception. IBEs are required to have a minimum capital of RO 25 million and limit outside liabilities to five times their net worth.

Financial Stability Unit

The CBO has established a dedicated Financial Stability Unit to monitor financial stability and identify potential risks. The unit conducts regular reviews of all relevant factors, including:

  • Market trends
  • Economic conditions
  • Institutional frameworks

Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT)

Oman is committed to international initiatives in combating money laundering and financing of terrorism (AML/CFT). The country has updated its laws and regulations to conform with international standards, including those set by the Financial Action Task Force (FATF).

The CBO has implemented a range of measures to combat AML/CFT, including:

  • Customer due diligence requirements
  • Regular reporting of suspicious transactions
  • Information-sharing
  • Periodical reports and on-site examinations to monitor licensed institutions

Conclusion

In conclusion, Oman’s banking sector is subject to a range of regulations aimed at ensuring financial stability and security. By limiting risk-taking and promoting financial inclusion, the CBO is working to maintain confidence in the country’s banking system and support economic growth.