Oman's new Islamic banking sector is likely to take a 6-8 percent share of the market over the next three to five years, according to a new report by rating agency Moody's.
It said the introduction of the Islamic Banking Regulatory Framework was "credit positive for the local banks", as expansion into Islamic banking has the potential to strengthen their franchises and diversify revenue generation.
The industry, however, will still need to manage various challenges to deliver the anticipated growth, Moody's added.
"We believe that Islamic banking operations in Oman could capture a 6-8 percent share of system assets within the next 3-5 years. This share will stem primarily from the 'conversion' of customers from conventional to Islamic banking services," said Khalid Howladar, senior credit officer and co-author of the report.
Moody's said it based its projections on Oman's solid operating environment, which will increase general credit demand; and the appeal of Islamic banking to a largely Muslim population.
It said the demand for Islamic banking services has been demonstrated clearly in the other Gulf Cooperation Council countries, where Islamic assets currently account for between 15-50 percent of total banking system assets.
However, Moody's added that it anticipates that Islamic Financial Institutions (IFIs) will face sizable costs to establish brand new Islamic banking franchises and constraints in liquidity management given the lack of domestic Islamic instruments.
Moody's said it expects that the IFIs will manage to address these challenges over the medium-term and build solid franchises and diversify revenues through the provision of additional services to customers in Oman and regionally.
"While we expect that competition will intensify as new Islamic banks come into the market, we do not anticipate any substantial changes in the Omani banking landscape," said Elena Panayiotou, co-author of the report.
"The new Islamic windows of the existing conventional banks will be well-positioned to capture a significant share of the Islamic banking market given their ability to leverage their existing customer bases and infrastructure.
(Arabian Business.Com / 31 Aug 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Consultant-Speaker-Motivator: www.ahmad-sanusi-husain.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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