A central bank official said applications were open for the creation of Oman’s first standalone Islamic bank, after a decree from ruler Sultan Qaboos bin Said.
“His Majesty approved the establishment of an Islamic Bank and allowing the banks in the Sultanate to open new branches if they wish so,” a circular posted on Oman News Agency said.
Existing banks in Oman will not be allowed to switch to become Islamic banks, the official added.
Oman is the only GCC state, which until now has not set up a bank specifically offering products and services complying with Islamic law. Its central bank head said in 2007 that Oman believed that “banks should be universal.”
The move aims to tap into demand for sharia-compliant products and services currently being met elsewhere in the Gulf, analysts said.
“This decision should help in curtailing to a certain extent the outflow of Shariah-compliant investments from Oman,” said Joice Mathew, head of research at United Securities in Muscat.
While other Gulf states have ramped up Islamic finance services in recent years, Oman stood out by refusing to participate in the industry now estimated to be $1 trillion in size and growing at 15-20 percent a year, according to PricewaterhouseCoopers estimates.
Conventional lenders in Oman will gain from operating Islamic windows as it will provide means to diversify revenue and potential volume growth, analysts said.
Bank Muscat, the largest lender in the country, already offers Islamic banking products to its clients through its associate Bank Muscat International in Bahrain.
National Bank of Oman (NBO) can acquire expertise to operate Islamic windows from its majority shareholder Qatar Commercial Bank (CBQ), United’s Mathew said.
“This is a new era in Omani banking. There’s a lot of Omani money in UAE Islamic institutions, hence this may see capital flow from UAE to Oman,” said a regional banker.
Oman’s benchmark index was down 0.3 percent at 0900 GMT in a broadly negative session on Gulf markets. Bank Muscat was down 0.1 percent, while NBO dropped 1 percent.
Shares of Islamic banks elsewhere in the Gulf were down with Kuwait Finance House falling 1.9 percent and Abu Dhabi Islamic Bank dropping 0.9 percent.
In February, Qatar moved to ban conventional banks offering Islamic finance services in a bid to boost its Islamic lenders.
