Oman banking sector demonstrates healthy growth amid regulatory changes

Oman banking sector demonstrates healthy growth

Technological innovation and increasing demand for Islamic banking has the potential to positively disrupt the industry.


Muscat, Oman, 1 May 2019: The outlook for Oman’s banking sector is favorable and healthy profit growth has only been slightly tempered by the introduction of new accounting standards, according to the second edition of the KPMG Oman Banking Perspectives report. The report examines issues and trends affecting the global banking industry with a particular focus on Oman.

Emilio Pera, Partner and Head of Audit and Financial Services, KPMG Lower Gulf, said: “Shifting regulatory changes over the past year, combined with muted economic growth, have not adversely affected the Sultanate’s banking sector. Recent directives and policy changes issued by the Central Bank of Oman indicate Oman’s intent to align with global best practices in terms of prudent market regulation and consumer protection. Despite these developments, Omani banks have recorded a healthy increase in margins. So rather than taking a step back, banks can utilize this environment as an opportunity to innovate and fill gaps in the market, potentially improving operational efficiency and competitive positioning.”

The implementation of IFRS 9 in 2018 transformed the banks’ approach to assessing impairments in their loan portfolios. Coupled with higher current provisions, such as liquidity coverage ratio and net stable funding ratio calculations becoming more stringent, the cost of liquidity seemed to increase. Yet both net profit and total assets of the top eight Omani banks have grown by 11.5% and 7.3%, respectively.[1]

Increased digitalization and customers’ expectations for ‘superior experience’ have led many banks to adopt customer identity and access management (CIAM) in order to build stronger relationships with their clients. CIAM’s features help to address numerous customer needs, including delivering personalized experiences, intelligent solutions, protection against cyber fraud and ease of digital interaction.

Banks’ risk functions are also operating against a backdrop of regulatory evolution. The London Interbank Offered Rate (LIBOR) is being phased out, to be replaced by alternatives such as risk-free rate (RFR) benchmarks. Banks would be advised to reduce LIBOR exposures and build demand for RFR-linked products.

Operational risk also looks to be in the spotlight, given issues around anti-money laundering (AML) fines, third-party concern and cyber threat. Compliance is paramount with respect to fraud risk regulations laid out by the Central Bank of Oman (CBO), which enlist governance, identification and assessment, control and mitigation, business continuity management, information technology and systems, and reporting as focus areas.

Financial crime risk may be reduced by exploiting machine learning to maximize operational efficiency and risk mitigation measures to comply with regulatory provisions on AML and sanctions as Oman prepares for its Financial Action Task Force (FATF) Mutual Evaluation, scheduled for 2021.

Islamic finance is proving to be a key growth driver, as the GCC consolidates its position as a globally significant economic hub. Continued growth may be encouraged with greater transparency, the addition of more Islamic banking experts, and strengthening of the public’s confidence in Shari’ah-compliant products and services.

Finally, sustainability reporting appears to be emerging as an essential consideration. Sustainability disclosures may help banks access new markets and implement more well-rounded risk management processes. Increasingly, stakeholders seem to expect banks to not only exceed their financial targets, but to also formulate a canny, forward-looking strategy for the long term.

[1] Based on the GCC listed banks results report, analyzing the performance of Oman’s leading banks


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