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Foreign Exchange Exposure Limited to 40% of Tier 1 Capital

In a move to strengthen its banking sector, the Central Bank of Oman (CBO) has introduced new regulations limiting foreign exchange exposure to 40% of Tier 1 capital for licensed banks.

Restrictions on Real Estate Exposure

The new rules also place restrictions on real estate exposure, which must not exceed:

  • 60% of a bank’s net worth or all-time and savings deposits, whichever is greater.
  • Borrowings from banks abroad are capped at 300% of net worth, with sub-limits for time-buckets.

Investment Powers

The CBO has set limits on investment powers in shares and bonds, with overseas investments restricted to:

  • 25% of the ceiling limitation.
  • Underwriting obligations must also not exceed 20% of a bank’s net worth.

Housing Loans and Personal Loans

The regulations also impose restrictions on housing loans, which cannot exceed:

  • 15% of a bank’s total credit.

Other personal loans are capped at:

  • 35% of total credit.
  • Maximum tenors for non-housing personal loans and non-housing loans have been set at:
    • 10 years
    • 25 years, respectively

Anti-Money Laundering and Combating Financing of Terrorism

Oman is committed to complying with AML/CFT requirements and norms set by the Financial Action Task Force (FATF). The country has updated its laws, regulations and instructions in line with international standards.

The CBO has also established a separate AML/CFT Unit within the Banking Development Department for focused attention on the subject. Licensed institutions are monitored and supervised through:

  • Periodical reports
  • On-site examinations

Regulatory Framework

The CBO’s regulatory framework was recently assessed by the International Monetary Fund (IMF) and the World Bank as part of the Financial Sector Assessment Program (FSAP). The assessment found that the regulatory regime largely complies with international standards, but identified areas for further improvement.

In response, the CBO has established a high-level committee to identify action points and implement changes. Significant progress has been made in recent years, and the regulatory framework has been upgraded further.

Conclusion

The new regulations introduced by the CBO are aimed at strengthening the banking sector and ensuring its stability and resilience. The measures are designed to:

  • Limit foreign exchange exposure
  • Restrict real estate investment
  • Improve AML/CFT compliance

The country’s commitment to international standards and best practices is evident in its efforts to upgrade its regulatory framework.