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Oman’s Islamic banking growth robust, says Fitch

24 Mar 2021

Oman’s Islamic banking sector growth is likely to continue apace in 2021 and 2022 following strong momentum in 2020 despite the pandemic and lower oil prices, according to Fitch Ratings.

Islamic financing in Oman grew by 9.5 per cent in 2020 compared with the conventional banks’ loan growth of just 2.1 per cent. ‘This was driven by demand for Islamic products, support from conventional banks offering Islamic products through their Islamic windows, and regulations supportive of Islamic finance,’ Fitch said in a note.

The market share of Islamic banking and Islamic windows increased to 14.3 per cent of total banking system assets in Oman at end-2020, with total assets of RO5.1bn, Fitch noted.

‘This is high considering that Oman was the last GCC country to introduce Islamic banking in 2013. In contrast, Islamic banking has been present in Indonesia and Turkey for more than two decades but market shares there are below 8 per cent,’ the ratings agency said.

Omani Islamic banks, Fitch said, are adequately capitalised with reasonable profitability and asset quality indicators, reflecting conservative regulation and relatively low-risk business models. Payment holidays and flexibility allowing banks not to classify financing as impaired when payments are deferred mask underlying asset quality.

‘We expect the weakening operating environment to pressure profitability and asset quality in 2021-2022, particularly in the real estate, construction and manufacturing sectors,’ Fitch said. 

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