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Wednesday, 26 August 2015

Islamic banks need liquidity management tool, skilled workforce

MUSCAT: Islamic banks in Oman need a liquidity management tool, relaxation of certain restrictions and skilled workforce to prosper further, says a senior official at Bank Nizwa, Oman’s first fully-fledged Islamic bank.

“Islamic banks need a liquidity management tool, such as short-term sukuk by the government. This is not necessarily for profitability, but mainly for the proper functioning of a banking system,” DrJamil El Jaroudi, the bank’s chief executive officer, said in an exclusive interview with Times of Oman.

The official believes that the issuance of Oman’s first sovereign sukuk would positively affect the Islamic banking sector.

“The issuance should be well-welcomed, as more products that rely on Islamic investment are required to support the Islamic banking sector in Oman. Given that the government is a major market player and influences the market confidence, this step will increase liquidity levels and provide a pricing benchmark that is still missing in a new market,” El Jaroudi added.

Certain restrictions

“We also need to look into relaxing certain restrictions in light of the need and experience within the sharia-approved schemes and AAIOFI (Accounting and Auditing Organisation for Islamic Financial Institutions) standards,” El Jaroudi noted.

According to Bank Nizwa’s CEO, apart from the typical challenges facing Islamic banking as a new industry such as the understanding and acceptance of the concept and products, the main challenge in Oman is finding manpower with the necessary knowledge and skillset in Islamic finance.


“It has also proven more challenging with the Omanisation policy where it would take years for the industry to develop the local talent. With that said, we are overcoming this hurdle by focusing on training programmes for our employees and support of educational institutions that specialise in this field,” he said.

Fledgling industry

El Jaroudi added that other common challenges lie in the fact that the industry is considerably novice in the Oman market so it has been a steep learning curve for all.

“In addition, the local rules and regulations would take time to be adjusted to suit the specific needs to grow the industry. However, Oman, in its short history in Islamic banking, has made tremendous progress in this respect and has benefitted from other markets’ experience,” the official noted.

Remarkable growth

Both fully-fledged Islamic banks in Oman and Islamic windows combined have seen an average growth rate of over 40 per cent year-on-year in terms of total assets, he said, adding thatthe average growth for conventional banks on the other hand was around 9 per cent for the same period.

“In terms of financing portfolio growth, it is even more remarkable, as we have grown by more than 300 per cent on average during the same period compared to the conventional banks’ average of approximately 15 per cent for the same period,” El Jaroudi stated.

Public awareness

In addition, the official said that public awareness about Islamic banking has definitely increased, which can be seen from the growth in its performance on all levels.

“The retail sector has been straight-forward, thus you could see the initial growth mainly stemming from that sector. The corporate and wholesale were more challenging due to the slightly more complex nature of the transactions but has since also seen tremendous growth,” added El Jaroudi.

Educational campaign

Bank Nizwa’s CEO also noted that the bank is doing its best to speed up this process and embarked on a series of lectures and workshops to raise and enhance awareness of the market about Islamic banking.

“The response was excellent and we also believe that being the first Islamic fully-fledged bank in Oman, it is our responsibility to continue leading the way,” said El Jaroudi.

(Times Of Oman / 26 August 2015)
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