Oman cb tightens Islamic banking rules

20 Dec 2012

(MENAFN) Oman’s central bank has tightened rules on Islamic banking, setting higher standards for the industry than many other countries, Reuters reported.

The Sultanate announced last year that it would introduce Islamic finance, becoming the last country in the six-nation Gulf Cooperation Council to do so. Business activity is expected to start early next year.

The new rules cover areas including banks’ liquidity management, the administration of boards of sharia scholars who oversee Islamic financial institutions, and the operation of conventional banks’ Islamic windows.

Most noticeable restriction is the use of tawarruq as a money market instrument for banks, as this is expected to limit banks’ flexibility in managing their funds overnight, and could thus raise their costs.

Omani banks had lobbied the central bank to permit tawarruq, at least temporarily while the new industry found its feet.

However, the central bank’s document does not appear to permit this, saying tawarruq can only be used in emergency situations on a one-off basis for a period of no more than three months.

The rules also state that financial accounting standards from the Accounting and Auditing Organisation for Islamic Financial Institutions, a Bahrain-based industry body, will be followed.

Although the rules allow each bank to have its own sharia board to supervise products, the central bank has set out strict requirements for scholars, including criteria for whether they are fit and proper, maximum tenures, and limits on the number of board seats that an individual can hold.

The rules also describe stock market listing requirements, ownership limits, minimum paid-in capital amounts, and a 12 percent minimum capital adequacy ratio for Islamic banks.