Islamic banking set to triumph

Adnan Ahmed Yusuf, Chief Executive Officer of Al Baraka Banking Group and Chairman of the Union of Arab Banks, said that the Islamic banking in the Sultanate will spread and will achieve more than 20 per cent of the domestic banking during the next five years.

Adnan Yusuf revealed in an interview with Oman Economic the interest of ABG to enter the Islamic banking sector in the Sultanate but due to factors related to the policy of the group towards the form of ownership, Al Baraka Group is currently considering the possibility of managing a bank in the Sultanate or engaging in Islamic finance if the new banking laws permit so.

Adnan Yusuf said that the Sultanate’s late entry to the field of Islamic banking is a positive factor, as the experience of Islamic banking has reached a state of maturity and the Omani market will benefit from the experiences of other countries that preceded it in this area.

He believed that the conditions of the Arab banking sector, whether Islamic or the traditional one are in good condition as they are not conflicting with what is happening in the international markets. The European countries, despite the crisis they are currently facing, they will be able to get out of the bottleneck, although it takes time to achieve this.

“For the ABG, we are currently available in 15 countries and we have our own policy in the form of ownership. We have our own way of practicing business as it is a must that the bank that we are collaborating with carries the name of the group and that the administration is in the hands of the group and we have the majority stake in the bank’s capital,” he said.

“We have the desire to assume the management of banks, as we have extensive experience in Islamic banking. We now have 450 branches in various parts of the world in 15 countries and 10,000 employees work in these branches in a volume business of $18 billion. We have the option of managing a bank in the Sultanate, but this is not the only option we have, we have another proposals. We now await the new laws, which are about to be issued in the Sultanate after allowing to practice Islamic banking for the first time and we’ll see whether these laws will allow us to exist across the Islamic finance companies,” he said.

“In general, all the options are on the table for us and for the past six or seven years, we have made studies of the Central Bank of Oman and the views of business on the Islamic banking, therefore our relationship is very old and good in the Omani market,” he said.

“I expect the success of this activity in the Sultanate, as it is known that the Omani people are conservatives and always have the desire of having Islamic banks in the country. I think the mistakes and risks will be less as there is the necessary expertise. It can request expertise in Islamic products and can find them easily, especially as some neighbouring countries to the Sultanate such as the UAE has gained much experience in Islamic banking,” he added. Expectations points out that the rate of growth of the global economy in the current year will reach about 3.4 per cent, and this calls for a kind of optimism despite the presence of many of the negative warnings.

What the world needs now is to restore confidence in the ability of the international financial system to take corrective actions sufficient to remove the fears of investors and to stimulate consumer for spending incentives to attract the owners of cash reserves to invest in the infrastructure of the developed economies.

This will help economies in trouble and will make them work to streamline their programmes that have been developed to solve debt and budget deficits.

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”.

Islamic banking draft moots five-member Sharia board

MUSCAT: 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 are the main highlights of the Islamic Banking Draft Framework (IBRF) presented by the Central Bank of Oman before chief executives of banks in Oman.

CBO has organised a consultative meeting for top officials of banks on January 25 for presenting the draft Islamic banking rules, which the apex bank’s consultants Ernst & Young termed as a ‘unique model.’ The banking regulator is still working on the regulation, and may incorporate changes on the basis of feedbacks from banks, before announcing it. Ernst & Young has advised the CBO on fixing of lending limits, single borrower limit, writing of rule books, procedures for reporting structure for Islamic banks and formation of Sharia board.

Of the five-member Sharia board, three should be experienced Islamic scholars and two should be from relevant field, either a professional in Islamic law or Islamic accounting, chief executive officers of two leading banks, who attended the consultative meeting, told Times of Oman. CBO’s draft regulation also stipulates on separate branches for Islamic banking window operation of conventional banks.

“There needs to be a separate team of people for accounts, information technology, marketing and compliance for Islamic banking line of business. There is also a separate head for Islamic banking. However, the back office support can be common for conventional and Islamic banking.

The whole idea is to create a perception among general public that these are two distinctly different lines of business,” said a chief executive of a bank, who does not want to be named. The draft regulation also insists on a 12 per cent capital adequacy, with a minimum paid up capital of RO10 million for starting window operation.

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 can not transfer money for using it in conventional banking. “This could create problems at the macro-level, at least initially.

For instance, if all banks put together transfer RO1 billion into Islamic banking initially and in case half of the total funds can not be deployed due to lack of demand for credit, then the money can not be transferred back to conventional line of business for effectively deploying in the financial system,” noted another CEO of a bank, who viewed it on a macro economic level.

Another major concern expressed by bankers is the lack of availability of Sharia scholars to become board members of Islamic banking. “Everybody is getting into Islamic banking now. We are talking about 30 Sharia scholars. It is difficult to get people with relevant experience and it is going to be a challenge.

Even the region does not have that many people. This is what we are discussing with the Central Bank of Oman,” noted the official. It is also not clear whether a Sharia scholar can be a member of two boards.

Bankers also expressed their concerns on segregating risk management for Islamic banking line of business from conventional banking. “At the end of the day, risk is the same whether it is Islamic banking line of business or conventional line of business. And therefore, it should be on the parent bank and not separate it for Islamic banking,” noted the banker.

Sources also noted that there will be severe competition, with the imminent entry of two Islamic banks.

Islamic banking conference set

MUSCAT — The Sultanate’s first conference on Islamic banking and finance will be held next week in co-operation with the Central Bank of Oman (CBO).

The two-day conference, due to be held at Al Bustan Palace Hotel on January 23 and 24, will be organised by Al Iktissad Wal-Aamal Group.

The opening ceremony of the conference will be presided over by Darwish bin Isma’eel al Balushy, Minister Responsible for Financial Affairs.

The conference will tackle key issues on the Islamic financial industry, including policies and regulatory perspectives of Islamic finance, the growth of Islamic banking and its international propagation, Islamic finance and capital market activities, the supervisory and regulatory role of the Sharia code and socio-economic accountability.

Conference is also to consist of sessions revealing the latest research and studies accomplished by a group of prominent specialists, academics and senior staff in the financial and Islamic banking sectors, from diverse regional and international leading organisations and corporations in the industry.

The conference will bring together around 400 participants from various Arab and Islamic countries, including representatives of foreign banks and investment firms and commercial and consulting firms and a number of Sharia panels in the Arab and Asian countries.

Speakers include Hamoud bin Sangour al Zadjali, CBO Executive President, Sultan bin Nasser al Souwaidi, Governor of the Central Bank of the UAE, Ra’ed Charaf Eddine, First Vice-Governor of the Central Bank of Lebanon, Adnan Ahmed Youssef and Chairman of the Union of Arab Banks. — ONA

Event to shed light on latest trends in Islamic finance

MUSCAT: Under the patronage of Darwish bin Ismail bin Ali Al Balushi, minister responsible for financial affairs, the Sultanate of Oman will host the first ‘Islamic Finance & Banking Conference’, from January 23 to 24, at Al Bustan Palace Hotel, here.


The event, organised by Al Iktissad Wal-Aamal Group, in collaboration with the Central Bank of Oman, will highlight key issues relevant to the Islamic finance industry, which includes policies and regulatory perspectives of Islamic finance, Islamic banking growth and international expansion, Islamic finance and capital market activities, supervisory and regulatory role of Sharia boards and the socio-economic accountability of Islamic finance.

Prominent speakers who will speak on the latest trends in the sector include Hamood Bin Sangour Al Zadjali, executive president of the Central Bank of Oman; Sultan bin Nasser Al Souwaidi, governor of the Central Bank of the United Arab Emirates; Raed Charafeddine, first vice-governor of the Central Bank of Lebanon; and Adnan Youssef, chairman of the Union of Arab Banks.

Dr Ahmad Mohammed Ali, president of the Islamic Development Bank, will be heading a high-level delegation. He will deliver a keynote speech at the conference’s opening ceremony.

400 participants

Conference sessions will reveal latest research and studies accomplished by a group of prominent specialists, academics and senior staff in the financial and Islamic banking sectors, from diverse regional and international leading organisations and corporations in the Islamic financial industry.

About 400 participants will gather at the event from various Arab and Islamic countries including Islamic and commercial banking leaders, fund managers, Sharia and legal experts, representatives of foreign banks and investment firms and world-level consultants, in addition to a large number of participants interested in Islamic banking. The conference is sponsored by Al Ahli Bank, Oman, Diamond sponsor, among others.

Oman's Bank Muscat to launch Islamic banking arm

Dec 19 (Reuters) – Bank Muscat, Oman’s largest bank by assets, will set up a sharia-compliant banking arm, it said in a statement, becoming the latest financial institution to announce plans to operate in the sultanate’s fledgling Islamic finance sector.

Operating under the Meethaq brand name, the bank will function independently from the conventional arm and has appointed a three-member sharia board.

No timeframe for the start of operations was given, with the new bank still subject to the Central Bank of Oman’s approval, the statement added.

Oman said in May it would allow Islamic banking in the country for the first time, in an attempt to keep investment funds in the Gulf state and grab a share of the rapidly growing industry.

Earlier this month, Standard Chartered said it was studying whether to offer Islamic banking in Oman.

So far, two new Islamic banks have been granted banking licences – Bank Nizwa and Al Izz International Bank – while conventional lenders are also allowed to establish Islamic banking windows, as Bank Muscat has done.

OIB plans 300 ATMs, mulls Islamic window

MUSCAT: Oman International Bank (OIB), in a major initiative to connect its ATM network to Oman Switch, has decided to install 300 new automated teller machines (ATMs).

Of this, 105 new ATMs will replace the existing machines, which will be completed by the year-end. “We will be able to connect our ATMs to Oman Switch within three months, probably by the end of January next year.

For connecting to Oman Switch, we need to make some changes in our system,” a senior OIB official told ‘Times of Oman’. In fact, OIB is the only Omani bank that is not a member of Oman Switch.

“Our first focus is to change the existing ATMs in different locations. However, at the same time, priority will be accorded to some new locations.”

The official, on condition of anonymity, said as part of a pilot project, seven ATM machines have been successfully replaced with the new ones. Another 12 to 15 new ATMs will be installed by the end of next week.

“As all these machines are going to be installed in separate cabins. The bank has to spend a lot of money for refurbishing the locations.”

OIB, which is in serious discussions with HSBC Oman for a merger, also commenced work on a feasibility study to open an Islamic banking window for the bank.

Further, the bank will open two new branches — one each in Duqm and Mabellah — which will take the total branch network to 87.

OIB said its net profit for the first nine months of 2011 was slightly lower at RO12.18 million as against RO12.94 million posted for the same period of last year.

This was mainly due to a growth in other operating expense, which was higher at RO17.86 million, mainly on account of staff costs, improvements to network of branches and marketing costs, as compared to RO15.21 million for the same period last year.

The interest income stood at RO27.27 million as against RO27.39 million for the same period last year, while interest expenses were reduced to RO4.13 million as against RO5.09 million. Other operating income increased to RO8.24 million from RO7.45 million for the comparable period of last year.


“This was on account of a dividend received for the first time from Investment Stabilisation Fund – Oman. Thus the total income of RO31.39 million was higher than the same period of last year’s level of RO29.75 million,” stated the bank’s chairman Dr Juma Ali Juma Al Juma.

Gross loans surged ahead to RO722.87 million by end ofSeptember 2011 from RO693.77 million. “The bank has committed to a long term loan of RO75 million to partially finance 10 Very Large Crude Carriers starting in the last quarter of this year,” Al Juma noted.


Referring to the bank’s merger proposal, he said if negotiations proceed to an agreement, the combined entity will be a leading player in the fast growing Omani market.

Total deposits rose by 8.7 per cent to RO795.87 million by end-September, 2011 compared to RO732.08 million for the same period last year.

“The bank maintains one of the strongest liquidity positions in the banking sector in the Sultanate.”

The provision for loan impairment came down to RO2.22 million from last year’s level of RO3.32 million Recoveries were lower than last year at RO2.37 million as compared to RO3.46 million for the same period last year, as the bank had a major bad loan recovery last year.

The share capital of the bank stands at RO96.81 million, an increase of RO5.48 million as a result of 6 per cent bonus shares. The net asset per share is 171 baisas which is almost the same as at the end of September last year.

The capital adequacy ratio stands at 14.87 per cent as compared to 15.78 per cent a year ago, on account of the higher loan book. The minimum regulatory limit required by Central Bank of Oman is 12 per cent.

As far as the international operations are concerned, the India operations and the Pakistan operations, continue to be closely monitored to improve negative results. Indian operations are expecting a major recovery in the last quarter of the year.

Rolling out Sharia products requires backing Sangour

MUSCAT: A successful rolling out of Islamic financial products requires support from all parties concerned and formulation of just rules and regulations alone will not help, Hamoud Sangour Al Zadjali, executive president of the Central Bank of Oman, told a seminar here yesterday.

“Islamic finance cannot proceed just by the rules set by the regulators. It will be the culmination of efforts of all concerned.

There should be support, contributions from many and diligence and discipline from all,” he added, while addressing a seminar on Islamic banking organised by KPMG.

While conventional banking has been built mainly around monetary intermediation, interest with maturity between lender and borrower, Islamic finance is trying to break this by incorporating banking practices based on Sharia.

He said Islamic finance is trying to charter into new areas in a big way. While on the one side, it has to break the predominance of conventional banking and offer a range of products.

However, market acceptance, credibility and confidence are important. “There is a need to carry the people along, particularly on expectations and progress in a measures way.”

The CBO chief said Islamic finance is not money oriented, and it evolves around activities and caters to genuine financial needs in an equitable way.

Sangour said both CBO and the Capital Market Authority are working on a framework of regulation and guidelines.

“We should see the proposed Islamic banks and window operations of existing banks commencing operation in the first half of 2012.”

Several experts on Islamic finance, including Neil D Miler, Global Head of Islamic Finance, presented papers on various topics at the seminar.