BankMuscat assigns RO150m for Islamic banking window

MUSCAT — BankMuscat, the flagship financial institution in the Sultanate of Oman, has assigned RO 150 million of capital for its proposed Meethaq Islamic banking window.

The final allocation will be determined by business opportunities in the market and the Board has indicated that the assigned amount may increase if required. The capital allocation will be subject to necessary regulatory approvals.

Shaikh Khalid bin Mustahail al Mashani, Chairman of BankMuscat, said: “BankMuscat is proud to be the pioneer of Islamic banking in Oman. The bank is ready to launch its Islamic banking platform and has made headway by announcing a 3-member Shariah board and developing its Meethaq brand. This decision to assign RO 150 million capital for Meethaq reflects the determination of the bank to be the market leader of Islamic banking in Oman.”

The Chairman added: “BankMuscat has taken major strides as part of its proposed Meethaq window launch. Meethaq will reach out to customers by offering a full suite of banking products and services that fully comply with Shariah principles. Inspired by belief and a tradition of trust, Meethaq will assist customers in staying true to their values.”

Dr AbdulRazak Ali Issa, Chief Executive of BankMuscat, said: “As the nation’s leading financial services provider, BankMuscat is well positioned to provide Islamic financial expertise to diverse segments and thereby promote the good of society as a whole. The bank has in place a comprehensive strategy to effectively respond to the directive of His Majesty Sultan Qaboos on Islamic banking and thereby cater to the financial needs of people in accordance with the guidelines and regulatory framework prescribed by the Central Bank of Oman. The bank is proud to have on board some of the brightest minds in Islamic finance to chart the way forward.”

Sulaiman al Harthy, Group GM — Islamic Banking, said: “BankMuscat’s strategy is 1332246089800923400 to attract customers through innovative products and services. As always, BankMuscat takes the lead in offering value added services. The bank strives to increase the range of benefits for customers and we are confident that the proposed Islamic banking window operations will benefit various segments. The bank has always strived to fulfil the needs of customers with ground-breaking solutions and Meethaq is yet another proof of its commitment and dedication to meet customer expectations for Islamic banking. The Islamic banking operations will be managed by an experienced and professional team, independent and separate from conventional banking.”

The bank’s Islamic banking operations will be segregated from its conventional counterpart and led by its Shariah board, which consists of world-renowned Shariah scholars.

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A new era in banking

The banking and finance industry will witness further growth with the stage being set for the launch of Islamic banking in the Sultanate. Termed as a ‘unique model’,

The recent Islamic Banking Draft Framework of the Central Bank of Oman suggests to constitute a five-member Sharia board, exclusive branches for window operation, clear cut segregation of conventional and Islamic banking with separate teams of people and accounts and a 12 per cent capital adequacy ratio. Despite reservations being expressed by some bankers, the CBO model has received wide acclaims.

The draft has “outstandingly recapped the best practices in the Islamic banking and finance industry worldwide and combined them for a robust and incomparable model,” said Sulaiman al Harthy, Group General Manager of BankMuscat. The bank had earlier announced that its Islamic banking brand will be called Meethaq, and will comprise a three-member Sharia-board.

According to the Central Bank, the regulator is still working on the regulation and may incorporate changes on the basis of feedbacks from banks, before announcing it.

The draft model is expected to enhance customer confidence on Islamic banking and finance industry as stress has been laid on requirement of separate capital, single obligator limit, risk management tools, fund segregation, separate books of account, core banking system, separate Islamic banking branches and proper profit distribution mechanism.

The adoption of AAIOFI standard is also expected to streamline the banking and finance industry practices in the country. Researches and studies say that principles of transactions at the Islamic economy provide satisfactory and fair solutions for the society.

According to reports, more than 2 billion rials (over $5 billion) are semi frozen money or interest free deposits. This amount accounts for one-third of the total deposits at local banks. The reports also say that two-third of the Omani society prefer to deal with financial solutions that are Sharia compliant. The size of Islamic banking industry in the world is expected to touch around $1 trillion, a rise of 7 per cent, in near future. The projected growth is possible from the fact that Islamic banks managed to remain immune, while the traditional banks have been affected in the global financial crisis.

At the same time, experts say, Islamic banks, which have witnessed robust growth since their launch, are also facing challenges in developing a relationship among them, the central bank and other regulatory bodies.

Creating a proper supervisory system for the Islamic financial industry, diversification of Fatwas issued by Sharia Audit authorities, lack of standard criteria for contact, lack of efficiencies and talent crunch are also posing major challenges to these banks.

Lack of availability of Sharia scholars is a major challenge. Also people without relevant experience in Islamic banking can be major handicap.

Yet the Central Bank offers to review regulatory issues at the legislations and revise the legislations from time to time based on the developments at the local and world markets.

As Tun Abudllah Bin Haji Ahmed Badawi, former prime minister of Malaysia, pointed out at a recent seminar: “There is a need for global standards in Islamic banking and finance to help it emerge as an international alternative in the sector. Various countries have their own standards of Islamic banking and financial system. But this creates lots of difficulty in its progress”.

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Banks to benefit from loan growth next year

MUSCAT: Local banks are likely to benefit from a robust growth in loan book next year, although challenges are ahead due to the imminent entry of two Islamic institutions, said a brokerage house in a research report released yesterday.

With spending on mega projects, over RO10.4 billion investment planned in construction sector by 2014 and investments worth RO386 million in oil and gas projects in the pipeline, banks will comfortably show healthy loan books, said Al Maha Financial Services in its ‘banking sector – performance overview.’

“We believe that favourable demographics would continue to act as a key driver for growth in consumer lending segment and expect the banks to benefit from higher disposable income levels of the youth population,” noted the report.

However, Al Maha said next year is likely to be a challenging period for local banks as two new banks are expected to start Islamic banking services. “However, banks are gearing up and take this as an opportunity to offer new variety of products and services,” noted the report, which was jointly prepared by Suresh Kumar, Radhika Gadhia and Kushboo Badlani.

Though the expected reduction in the interest rates and the ceiling on consumer loans are likely to impact the banks’ interest income, it is likely to help the banks to minimise the default risk and in turn improve the asset quality.

Al Maha also noted that half of the listed banks are expected to raise new capital in order to comply with the regulatory capital requirement of RO100 million.

“The banks are also likely to raise additional capital through other means such as rights issue, private placements and subordinated debt to fund the growing credit demand.”

Al Maha report said the total loans and advances of the six listed banks stood at RO10.36 billion by end-September, 2011 as compared to RO9.07 billion a year ago, registering an increase of 14.2 per cent year-on-year. BankMuscat continued to remain as the market leader in terms of gross loans and advances.

The bank’s market share grew from 45.3 per cent by end-September 2010 to 45.8 per cent for the same period this year. Oman International Bank underwent a challenging phase during this time with its market share declining to 7 per cent from 7.65 per cent a year ago.

Healthy growth

The loan book of the banking sector witnessed a healthy growth, both in the corporate and consumer segments, during the last one year.

The corporate credit grew by 16.5 per cent year on year from RO5.22 billion to RO6.08 billion during the period under review, with major companies like Oman Cement, Raysut Cement, Renaissance Services, A’Saffa Foods availing credit to fund their capital expenditure programmes.

The consumer segment witnessed a growth of 12.9 per cent, year on year to reach RO4.28 billion by end-September 2011.

The increase in disposable incomes owing to the hike in remunerations of employees was one of the major drivers for the incremental demand in the retail segment.

Referring to liquidity, Al Maha report said the customer deposits, including certificates of deposits, of the six listed banks stood at RO10.24 billion by end-September 2011 from RO8.22 billion for the same period a year ago, showing a growth of 24.6 per cent year on year.

The banking sector witnessed marginal improvement in the interest spread irrespective of the drop in yield, as a result of the decline in interest rate. Cost of funds also showed a drop during the first nine months of this financial year compared to the same period last year as a result of banks’ endeavour to access low cost funds.

This has resulted in improvement of the spread from 2.73 per cent in the first nine months of 2010 to 2.85 per cent for the same period this year.

Omani banks showed an impressive performance in the first nine months of this financial year by improving their profitability, the report said, adding; “The six listed Omani banks together have achieved a year-on-year growth of 19 per cent in net profits in the first nine months of this year.”

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

BankMuscat / Islamic Banking Services Seminar

Muscat, October 5 (ONA)- BankMuscat  hosted an introductory seminar on Islamic banking services in the Sultanate today under the auspices of Sheikh Abdullah bin Salim bin Abdullah A’Salmi, Deputy-Chairman  of the Capital Market Authority.

Sulaiman bin Hamad al-Harthy, Group Deputy GM, Consumer Banking, said: this seminar will be followed by a number of introductory seminars at the different parts of the Sultanate in a bid to cast light on the Islamic banking services, the difference between them and the traditional banks, the main features of Islamic finance, the benefits of Islamic banking and other services.

He pointed out that the bank will organize a number other seminars in the different regions and wilayats of the Sultanate with participation from experts, specialists and researchers in the field of Islamic banking services. He called on everybody to attend and contribute to the success of these seminars.

He also pointed out that the organization of these seminars on Islamic banking services is part of the bank’s social responsibility and its keenness to take part in the different issues and events that contribute to the development and growth of the Omani society.

Ibrahim bin Nasser al-Sawafi and  Azan bin Nasser al-A’mri, researchers at Ifta’a office, Awqaf and Religious Affairs Ministry, gave an overview of the Islamic banking from Sharia and religious perspective,  the major differences between Islamic banking and conventional banking, the requirements that should be met and the common things between Islamic and traditional banking.

The lecture covered some of the products that could be introduced by the Islamic banks, such as Mudharaba, Eejar, Murabaha and Islamic bonds.

 

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BankMuscat will create awareness on Islamic banking

MUSCAT: BankMuscat, the leading financial services provider in the Sultanate, is hosting a seminar on Islamic banking tomorrow at Grand Hyatt Muscat.

Sheikh Ibrahim Al Sawafi and Sheikh Azan Al Amri, researchers at Ifta’a office, Ministry of Awqaf and Religious Affairs, will address the seminar aimed at raising awareness on customer benefits derived from Islamic banking.

Sulaiman Al Harthy, group DGM (Consumer Banking), said: “BankMuscat strategy is to attract customers through innovative products and services. As always, BankMuscat takes the lead in offering value added services. The bank strives to increase the range of benefits for customers and we are confident that the Islamic banking seminar will shed light on important aspects of Islamic banking from the Sharia perspective.”

As a follow-up measure, the bank will organise a series of presentations on Islamic banking across the Sultanate, highlighting the difference between Islamic banking and conventional banking.

The presentations will familiarise people with the main characteristics of Islamic finance. Experts and scholars will make the presentations and educate the public on the features and benefits of Islamic banking.

Financial expertise

“As the nation’s leading financial services provider, BankMuscat is well positioned to provide Islamic financial expertise to diverse segments and thereby promote the good of society as a whole. BankMuscat is proud to have been associated with all major national initiatives and developments in line with the directives of His Majesty Sultan Qaboos.

The bank has in place a comprehensive strategy to effectively r-espond to the directive of His Majesty Sultan Qaboos on Islamic banking and thereby cater to the financial needs of people in accordance with the guidelines and regulatory framework to be prescribed by the Central Bank of Oman (CBO),” Al Harthy added.

The CBO has initiated steps to incorporate Islamic banking legislation into the banking law and thereby create a legal framework for Islamic banks and Islamic banking branches in line with the best international practices.

Al Harthy said: “Since Islam is the religion of the Sultanate of Oman as stated in the Basic Law, Oman is ideally placed to play a leading role in Islamic finance. Omani commercial codes are completely supportive to Islamic banking structure without any conflict. The commercial code has a very strong Sharia foundation in the form of Article 2, 4 and 5 of Royal Decree 55/1990.”

In the run-up to introduction of Islamic banking, BankMuscat recently organised a series of customised Islamic banking courses for staff. The courses were conducted by experts with considerable international experience in Islamic finance best practices.

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