Prospects and challenges of Islamic Banking Oman Economic

Prospects and challenges of Islamic Banking Oman Economic Forum 18 March 2014 Dr. Jamil El Jaroudi

Country Banking Sector Performance 14% 6% Ø Financing after robust growth in 2012 reduced to single digit in 2013 Ø 2014 outlook remains positive for growth in financing as major projects start 1 – CBO Monthly Publication December 2013 – www. cbo. oman. org 2

Country Banking Sector Performance 13% 10% 18% 11% Ø Growth in deposits outpaced growth in credit resulting in increased liquidity Ø Core capital growth continued to be in double digit ensuring sector capital adequacy ratios remained healthy 1 – CBO Monthly Publication December 2013 – www. cbo. oman. org 3

Country Islamic Banking Sector Performance Ø Growth in financing using Islamic modes has outpaced the growth in deposits. Ø The modest share in the first year of operations is an achievement as innovators have tested the waters. 2014 and 2015 will see acceptance across the masses. Published financial statements – 2013 - www. msm. gov. om 4

Country Banking Sector Prospects for Islamic finance are very bright Ø Clear appetite and desire for Shari’a compliant finance Ø Policy development § § Vision and Leadership shown Pertinent and effective change to Banking Act Comprehensive set of regulations for Islamic banking Country level Shari’a Board at CBO (first in GCC) Ø Positive response from Industry § § 6 Islamic Banking windows 2 Fully fledged Islamic Banks 2 Takaful companies – one more planned First Shari’a complaint Sukuk issued in 2013 Ø Performance of Islamic Banking in 2013 § Leading Indicators: Customer acquisition, Branch network, Product development § Lagging Indicators: financial results of the Islamic banking Industry 5

Country Banking Sector Prospects cont. Ø Financing is forecasted to grow at a cumulative aggregate growth rate of 7% Ø The sector is forecasted to remain liquid with deposits increasing at a CAGR of 7% Source: Business Monitor International 6

Challenges Facing Islamic Banking • Instruments for Liquidity Management • Harmonization of Shari’a standards and Product development • Awareness and Education • Geographical coverage • Fine-tuning of policies and rules to better align with nature of Islamic banking • Advantage for window’s vis-à-vis full-fledged Islamic banks (e. g. Parents’ networth) • Legal system in terms of defaults and Takaful claims have not been tested 7

“Thank You” 8