Muscat: The opening up of Islamic banking sector is credit positive for the
local banks, as expansion into Islamic banking has the potential to strengthen
their franchises and diversify revenue generation, said Moody's Investors
Service in a new report published yesterday. The industry, however, will still
need to manage various challenges to deliver the anticipated growth, added
Moody's.
The rating agency released the
report, entitled 'Islamic Banking in Oman: Solid Growth Prospects Moderated by
Industry Challenges, yesterday
"We believe that Islamic banking
operations in Oman could capture a 6 per cent to 8 per cent share of system assets
within the next three to five 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.
"The balance will come from
Islamic operations capturing a disproportionate share of the anticipated total
system annual growth of around 8 per cent to 10 per cent over the next three to
five years," added Howladar.
Moody's bases 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.
The demand for Islamic banking
services has been demonstrated clearly in the other Gulf Cooperation Council
(GCC) countries, where Islamic assets currently account for between 15 per cent
and 50 per cent of total banking system assets.
Various challenges
Despite these solid growth prospects,
the industry will need to manage various challenges over the next three to five
year period to deliver this growth. In particular, Moody's anticipates that
Islamic financial institutions (IFIs) will face sizable costs to establish
brand new Islamic banking franchises and build operational risk management
infrastructures that ensure Sharia-compliance; risks related to the management
of potential real-estate concentrations; and constraints in liquidity
management given the lack of domestic Islamic instruments.
Moody's 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," noted Elena Panayiotou, Assistant Vice
President and 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," explained Panayiotou.
(Times Of Oman / 27 Aug 2013)
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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com
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