CBO’s planned introduction of Islamic money market instruments is positive for the sector: Moody’s

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Muscat – The Central Bank of Oman’s planned introduction of Sharia-compliant money market instruments will be positive for the sultanate’s Islamic banking sector, Moody’s Investors Services said.

Last week, CBO released its 2022 Financial Stability Report which announced progress in the introduction of Islamic Money Market Instruments for the Islamic banking sector.

“The availability of short-term Shariah-compliant money market instruments will support the growth of the Islamic banking sector and diversify the asset base of Islamic banks, credit positive,” Moody’s said in a sector commentary note on Thursday.

The Islamic money market instruments that CBO plans to introduce are part of a medium-term Islamic banking strategy. The list of instruments includes, but is not limited to, Shariah-compliant emergency liquidity support, lender of last resort facility, and wakala-based remunerative deposit facility.

These instruments, Moody’s noted, will support the liquidity needs of Oman’s Islamic banks and tellers and position Islamic entities on the same competitive platform as their conventional counterparts.

“The future availability of short-term Islamic instruments to place excess liquidity will further support the growth of the sector,” Moody’s added.

In the decade since its introduction in 2012, Oman’s Islamic banking assets have grown to account for almost 16% of total banking assets as of May this year.

Oman’s Islamic banking asset growth rates increased to 14% in 2021 and increased 3% year-to-date in May 2022, fueled by economic growth and rising oil prices, from 6 % in 2020.

Islamic banking growth rates were well above conventional banking asset growth rates at 7% in 2021, 1% in 2020 and no growth in May 2022 year to date, according to Moody’s.

“The planned introduction of Sharia-compliant short-term liquidity instruments will also help diversify the asset base of Islamic banks in Oman,” the rating agency said.

On the asset side of the overall Islamic banking balance sheet, in May 2022, funding was the main component (82%), followed by investment securities (9%), cash and receivables from financial institutions (6.6%). ). and others (3 percent), noted Moody’s. Of the securities, more than two-thirds are invested in long- and medium-term government sukuk issues, the rating agency added.

“Oman’s regulator has been supporting Islamic finance since its inception in 2012, introducing a comprehensive Islamic banking regulatory framework at the time. This followed the first sovereign sukuk issued in 2015 and the first sukuk issuance available to retail investors was in 2020, providing banks with Shariah-compliant instruments to manage their liquid assets,” Moody’s said.

To ensure robust and sustained growth of Oman’s Islamic banking sector, CBO is also finalizing its medium-term Islamic banking strategy, which is based on five pillars, namely (1) maintaining momentum, (2) enhancing stability, ( 3) spread awareness, (4) cultivate talent and (5) stimulate awareness.

Each pillar of the Islamic banking strategy is supported by several “objectives,” with a total of 40 “initiatives” in the strategy, about half of which are to be undertaken by CBO and the rest by the Islamic banking industry, CBO said in its Financial Stability report.

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