TBY talks to HE Hamood Sangour Al-Zadjali, Executive President of the Central Bank of Oman (CBO), on the factors behind the country's strong banking sector, the growth of Islamic banking, and a new law on foreign investment capital.

HE Hamood Sangour Al-Zadjali
HE Hamood Sangour Al-Zadjali was appointed by Royal Decree as Executive President of the CBO in 1991. He began his banking career with HSBC in 1969. He has a degree in management from Boston University’s School of Management.

The banking sector in Oman has achieved consistent and even robust growth. What are the main factors that have contributed to this growth?

The CBO plays a crucial role in maintaining financial stability, pursuing appropriate monetary policies, developing and strengthening financial institutions and markets, and supervising and regulating the banking sector. Despite the recent challenges faced by the hydrocarbons sector with the drop in crude oil prices, the banking sector in Oman continued its positive growth during 2015 and the trend has been maintained during the early months of 2016. The financial profile of banks in terms of asset quality, provision coverage, capital adequacy, and profitability has remained strong. The combined balance sheet of conventional and Islamic banks show that the total outstanding credit extended stood at OMR21 billion at the end of March 2016, a rise of 12.6% compared to the level witnessed a year ago. Total deposits also registered a growth of 6.5% to OMR19.9 billion at the end of March 2016. The BIS capital adequacy ratio averaged 16.1% at the end of 2015, which is significantly higher than the 15.4% recorded in the previous year. A well-calibrated and progressive approach to banking sector reforms has led to the emergence of a strong and resilient banking system over the years.

To what extent does the CBO work with the Islamic Financial Services Board (IFSB) for Islamic banking in Oman?

An important milestone in the banking sector in Oman was the introduction of Islamic banking in December 2012. Within a short span, two fully fledged Islamic banks were established, and six local banks have opened dedicated windows for practicing and offering Islamic banking products. All these institutions have established their own sharia supervisory boards to guide them in sharia-related matters. Islamic banking entities provided financing to the extent of OMR1.93 billion as at the end of March 2016, compared to OMR1.2 billion a year ago. Total deposits held with them also registered a significant increase to OMR1.68 billion in March 2016 from OMR0.7 billion outstanding as at the end of March 2015. The total assets of Islamic banks and windows combined amounted to OMR2.5 billion as at the end of March 2016, which constituted about 8% of the banking system's consolidated assets. CBO interacts with the IFSB, an international standard setting organization for the Islamic banking industry. The Islamic Banking Regulatory Framework issued by CBO has adopted guidelines issued by IFSB. It is widely acknowledged that the standards and guiding principles of IFSB enhance the soundness and stability of the Islamic financial services industry. CBO receives updates on market developments of regulatory and supervisory relevance and participates in research as well as round tables, seminars, and conferences organized for regulators and industry stakeholders. They are particularly relevant as the market share of Islamic banking increases in Oman and we will be concerned with financial stability as a whole.

What effects or benefits will the passage of the foreign capital investment law have for Oman?

In recent years, with a favorable investment climate, Oman has emerged as an attractive destination for FDI due to its free market system, stable macroeconomic environment, and political stability. The policy is to encourage foreign capital that will enhance the overall development of the country. The government is in the process of finalizing the proposed new foreign capital investment law to attract further foreign investment. The key features of the new law will address the major concerns and shortcomings in the current law by removing restrictive provisions, providing greater clarity, and enhancing investment security for investors. Additionally, foreign investors' rights and obligations will also be clearly defined. The proposed investment law provides for dispute resolution and includes international arbitration. Banks in Oman will also benefit from the new foreign capital investment law because transactions will be routed through them and greater financial intermediation will take place for the benefit of the economy.