May 3, 2011 / 5:38 AM / 6 years ago

UPDATE 2-Oman finally opens door to Islamic banks

* Oman opens way for first standalone Islamic bank

* Conventional lenders can open Islamic windows

* Islamic finance to grow 15-20 pct per year -PwC

(Adds details, central bank, analyst comments, bylines)

By Dinesh Nair and Saleh al-Shaibany

DUBAI/MUSCAT, May 3 (Reuters) - Oman will open the door to Islamic banks and also let conventional lenders run sharia-compliant operations in a bid to grab a share of the rapidly growing Islamic finance business.

A central bank official told Reuters on Tuesday that 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 will not be allowed to switch to become Islamic banks, the official added.

Oman is the only state among the six Gulf Cooperation Council (GCC) members which until now has not set up a bank specifically offering products and services complying with Islamic law.

Oman's action aims to tap into demand for sharia-compliant products and banking services currently being met elsewhere in the Gulf region where Islamic finance thrives.

Oman's central bank head had said in 2007 that Oman believed that "banks should be universal."

"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.

"For the existing conventional banks, this should open up new revenue streams and present with opportunities for volume growth."

Oman's benchmark index .MSI was down 0.15 percent in early trade in a broadly negative session on Gulf markets.

Shares in Bank Muscat BMAO.OM, Oman's largest bank by market value, were down 0.26 percent while Bank Dhofar BDOF.OM, the No. 2 bank, were flat.

In a report last November, PricewaterhouseCoopers said the $1 trillion Islamic finance industry was expected to grow by between 15 to 20 percent per year going forward.

In February, Qatar moved to ban conventional banks offering Islamic finance services in a bid to boost its Islamic lenders. [ID:nLDE71503A]

Islamic lenders across the region have struggled to attract clients amid stiff competition from conventional counterparts offering Islamic banking windows.

Writing by Rachna Uppal; Editing by Jane Merriman

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