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Oman soon to regulate Islamic banking sector

Last updated: Tuesday, September 18, 2012 4:31 PM


MUSCAT — The much-awaited regulation for Islamic banks and window operations of conventional banks will be announced through a Royal Decree at any time.

“It can come at any time. The Majlis A’Shura and Cabinet have already cleared the new regulation and now we are waiting for a Royal Decree, which can come at any time,” Central Bank of Oman Executive President Hamoud Sangour Al Zadjali, told Times of Oman.

It appears that the Royal Decree is for amending certain clauses to incorporate Islamic banking business. In fact, Bank Nizwa - the first Islamic bank in the country - and several other conventional banks are ready for starting Islamic banking business.

Bank Nizwa, which has a paid-up capital of RO150 million, has been ready with its key officials for starting its operations, while Alizz Islamic Bank is raising RO40 million from investors for forming the bank. Among conventional banks, Bank Muscat, Ahlibank, Bank Sohar and National Bank of Oman are expected to be the first ones to enter the market with their Islamic banking products. Ahli Bank is fully geared up start window operations through four branches.

“We are 100 percent ready for starting window operations. We have our Shariah board, accounting and auditing standards and risk management are in place and have already recruited staff. Also, we have established core banking system and devised Islamic banking products,” Abdul Aziz Al Balushi, CEO of Ahlibank, told Times of Oman. A five-member Shariah board, exclusive branches for window operation, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts and a 12 percent capital adequacy ratio were the main highlights of the Islamic Banking Draft Framework (IBRF), when it was prepared by international audit firm Ernst and Young. Ernst & Young advised the Central Bank of Oman for framing the set of new regulation. However, top-level officials in the banking sector are not clear whether the banking regulator has made changes in the draft report, after receiving their feedbacks.

“We are waiting for the regulation to come for allocating funds for Islamic banking window operation,” added Al Balushi. The bank would like to see the capital requirement for different types of Islamic banking products for taking a final decision on allocating capital. Ahlibank recently mobilized RO25 million through a rights issue, which took the paid up capital to RO120 million.

“We are prepared for starting window operations,” added Dr. Mohammed Abdulazz Kalmoor, chief executive officer of Bank Sohar. The bank is looking at opening five exclusive branches - two in capital area and three in interior regions - for offering Islamic banking services. Like other commercial banks, Bank Sohar has done enormous amount of work in terms of groundwork for launching Islamic banking services.

According to the draft Islamic banking framework, of the Shariah board, three should be experienced Islamic scholars and two should be from relevant field, either a professional in Islamic law or Islamic accounting. CBO’s draft regulation also stipulated on separate branches for Islamic banking window operation of conventional banks.

The draft regulation also insisted on a 12 percent capital adequacy, with a minimum paid up capital of RO10 million for starting window operations. Another major suggestion for window operation is that funds can be pumped into Islamic line of business by a conventional parent bank, but Islamic banking operation cannot transfer money for using it in conventional banking. — Agencies

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