Monday, March 25, 2013

Positive developments for Islamic banking in Oman

The development of Islamic finance in Oman will be aided by several developments recently: the announcement of plans for RO200 million in Central Bank of Oman sukuk, the reported pricing of the country’s first corporate sukuk, and the easing of restrictions for Bank Nizwa (but not for Islamic windows) for foreign placements. Together these developments auger well for the development of Islamic banking in the Sultanate.

There remain challenges, such as the continuing illiquidity in local bond markets that will be accentuated by the demand for yielding assets that will make sukuk a hold-to-maturity type of asset for the Islamic banks. In addition, the lack of tawarruq as a liquidity management tool could lead Islamic banks and windows to hold more cash on their balance sheet than they otherwise would. However, despite these challenges, the roll-out of Islamic banking in Oman has so far proceeded relatively smoothly.

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