Oman's banking sector is well-positioned for sustained growth and will benefit from the Sultanate's systematic shift toward a more diversified economy.

Oman boasts a particularly liquid banking system supported by a prudent policy of cautious growth, and one that has been underpinned by apt monetary policy and a robust economy. Meantime, the arrival of new institutions—in part following a Royal Decree ushering in Islamic banks and sukuk windows at conventional entities for the first time in Oman—has spurred competition for market share, and in consequence a drive for innovation and product diversification.

The Omani banking sector comprises nine local banks, two specialized banks, nine foreign commercial banks, and two fully-fledged sharia-compliant banks. Official data reveals that the top three institutions contribute around 62% of total sector assets, while leading player BankMuscat accounts for 37.26% of total sector assets.


Oman's banking sector has seen strong revenue streams in recent years due to the relatively high interest margins of personal loans. Yet, prudence prompted the Central Bank of Oman (CBO) to safeguard personal debt levels among individuals and banks alike by introducing a regulatory change in 2012 to depress the level. The law stipulated that commercial banks could not deduct more than 50% of a borrower's salary as an equated monthly installment (EMI) for personal loans, while the figure for housing loans was 60%. Meanwhile a 10-year cap on loan repayment tenure reduced the repayment burden. In contrast, and reflecting official preference for stable investments, there was a move to increase the housing loan limit from 10% to 15%. The idea, too, was for increased mortgage finance to improve banks' loan quality, while fueling the real estate sector in a manner conducive to overall growth in the real economy.


Oman pegs its currency to the US dollar, and has maintained a conservative stance toward financial regulation, whereby many local banks predominantly cater to clientele within the Sultanate itself, or else the Gulf region, to curb exposure to external shocks. In a TBY interview, HE Hamood Sangour Al Zadjali, Executive President of the CBO, presented a bird's-eye view of CBO initiatives and the health of the sector at large. “The CBO had initiated a number of regulatory and supervisory measures in the recent period [among which] a financial stability unit has been set up within the CBO for macro-prudential supervision of the financial system. Additionally, the banks' minimum regulatory capital has increased from 10% to 12% of risk-weighted assets." And in terms of Basel III implementation, “New micro prudential norms have been introduced for personal loans. The ceiling rate on personal loans has also been reduced in stages and currently stands at 6%." And securing the system for sustained stable growth, financial health benchmarks of asset quality, provision coverage, capital adequacy, and profitability have continued to improve over recent years.

Yet the CBO has warned banks to diversify their funding base in light of the fact that around 30% of total systemic deposits belong to government and public sector enterprises. Risk is identified following official forecasts of rising fiscal deficits amid lower oil prices beyond 2015 that could precipitate substantial withdrawals from the banking sector.

Moody's Banking System Outlook: Oman 2014 report identifies a stable system, leveraging strong macroeconomic conditions. The report expects Oman's real GDP to expand by 4.3% in 2014, and stimulation of non-oil segments, and by extension the banking sector, where credit growth of around 10%-12% in nominal terms is expected in 2014.

Meanwhile, the IMF has suggested that Oman's public finances could lead to a deficit of 3% of GDP in 2015, widening to 11.4% in 2019 as cheap oil shaves export receipts. Indeed, Reuters reports that Oman is pondering a reform of its subsidy system. Oman's original 2014 budget plan foresaw state spending of $35.1 billion, where the seemingly slender 5% YoY rise on the 2013 budget came from a high base of a 29% climb on the 2012 budget. The prospect of such reform begs the question of how the Sultanate's public projects might alternatively be funded, begging the question…


Oman's Minister for Financial Affairs, HE Darwish al-Balushi, answering questions at a meeting of Gulf Central Bank Governors and Finance Ministers in Abu Dhabi on October 22, 2014, said that the government could return to the international debt market it has been absent from since 1997 to cover a budget deficit. It seems the priority is to first stage an Islamic bond issuance for the domestic market, potentially during 1Q2015. Industry insiders note that a sukuk issue would also fuel Oman's nascent sharia finance industry. Reportedly, the sukuk issue might be worth the equivalent of around $300 million or $400 million, with maturities of between five and seven years. An international bond issue is likely to follow later in 2015, with Balushi quoted by Reuters as saying that its size "will depend on our requirement based on our 2015 budget."


Gross loans and deposits of the banking system as of 1H2014 were respectively at $42.5 billion and $45 billion, and flat on the respective FY2013 print. The largest bank in Oman is BankMuscat, with a market share of 37.13% in asset terms ($24.5 billion) as of 1H2014, and a market capitalization of $3.85 billion. It also has the largest branch network, with 143 domestic branches, two overseas, and two foreign representative offices. Net profit for 1Q2014 stood at $224 million as operating expenses for the period declined 23.5% and deposits rose 10.7%. The capital adequacy ratio, too, was fractionally up YoY in 1Q2014 to 15.81% from 15.8%. The bank has been implementing Basel III regulations since January 2014. National Bank of Oman is the second largest with $9.10 billion in assets. For 9M2014, net profit came in at OMR37.1 million, up 19% on OMR31.2 million for the same period of last year. It is followed by Bank Dhofar on assets of $7.4 billion, leapfrogging HSBC Bank Oman ($6.2 billion). Abdul Hakeem Omar Al-Ojaili, Acting CEO of Bank Dhofar, gave TBY an insight into the bank's robust performance where, “From June 2013 to June 2014, in terms of total assets, we have grown by about 21.29%, and in terms of deposits we by 26.07% YoY over the same period. In terms of net loans and advances we have grown by 20.75%, and in equity we by 7.49%. Therefore, assets, liabilities, and the bottom line are all growing. On the other hand, in terms of operating income we have achieved an increase of 8.76%, and in net profit after taxes and deductions we have grown by 15.12%."

To promote job creation and entrepreneurism, HSBC Bank Oman has launched an International Growth Fund of OMR20 million to benefit Omani SMEs already trading internationally, or else keen to do so, and that have an annual turnover of OMR1 million and above. Rising competition has sparked a measure of consolidation in the sector. HSBC merged its Omani assets with Oman International Bank in April 2013, creating the Sultanate's second largest network in the new moniker HSBC Bank Oman. In asset terms, the above-mentioned banks were followed by Bank Sohar ($4.99 billion), Oman Arab Bank ($4.3 billion), and Ahli Bank ($3.9 billion). Bank Muscat led the profitability stakes for the period on $224 million, followed by National Bank Oman on $60 million, and Bank Dhofar on $53 million. In June 2014, Bank Dhofar opened merger talks with Bank Sohar, potentially set to create a new second-largest bank, at the time with total assets of $10.7 billion, and a market capitalization of around $1.8 billion.


Sharia-compliant banking was rather late in coming to Oman, heralded in by Royal Decree in 2012, the Sultanate being the last among the six-state GCC to do so. The law allows for the licensing of purely Islamic entities, or else for conventional banks to establish independent Islamic finance windows. According to Thomson Reuters, these operations in Oman already account for over 4% of total banking assets over the past two years, and could reach 8% by 2018.

Today, two pure Islamic banks and six Islamic windows provide service, with combined assets of $2.9 billion as of June 2014, according to the Times of Oman, thus markedly below the approximately 25% market share Islamic banks hold in the Gulf Arab region, and comparable to the 5% level seen in Turkey or Egypt. In 2014, the CBO established a centralized sharia supervisory board to oversee strict compliance among the Islamic banking community. Now, the finance ministry aims issue a $519.5 million sovereign sukuk—its first such issuance—early in 2015, according to Reuters. Meanwhile, the Islamic window of Bank Muscat, Oman's largest lender ($17.4 billion in gross loans YtD as of June 2014), plans a dual-currency sukuk deal worth around $300 million as part of a OMR500 million sukuk program approved in March of 2014.


Divided into 1,000 baisa, the Omani rial is the national currency of Oman. The name of the currency reflects the historical colonial presence of the Portuguese; the real, or royal, was the unit of currency of Portugal from around 1430 until 1911. Before 1940, the Indian rupee and the Maria Theresa thaler represented the main currencies; the rupee was circulating in coastal areas, while the thaler was used in the internal regions. In 1970, the rial Saidi, equal to the British pound, was introduced as the new currency in Oman, although it was soon replaced by the Omani rial in 1973 following a change in the country's name. Currently, the following denominations are circulating in the Sultanate; 100 baisa, 0.5 rial, 1 rial, 5 rial, 10 rial, 20 rials, and 50 rial. From 1973 to 1986, the rial was pegged to the US dollar at OMR1 to $2.895. In 1986, the rate was changed to OMR1 to $2.6008, which translates to approximately $1 to OMR0.384497. Before Malta's adoption of the euro in 2008, the Omani Rial was the world's fourth highest valued currency. Today it is the third highest, following the Kuwaiti dinari and the Bahraini dinar.