Feb 06 2012

Mixed views on draft CBO guidelines for Islamic banking

The draft Central Bank of Oman (CBO) guidelines for the Islamic banking and finance industry in the sultanate have elicited a mixed response from bankers.

Presented by consultants Ernst & Young (E&Y) to banks on behalf of the CBO, banking executives have praised the compliance safeguards, but have concerns with risk management.

BankMuscat, the largest financial services provider in the sultanate, commended the draft guidelines in a press release.

The bank's Islamic banking group general manager, Sulaiman al Harthy, said the CBO model has "outstandingly recapped the best practices in the Islamic banking and finance industry worldwide and combined them for a robust and incomparable model."

He added, "We believe it will protect customers and help the Islamic banking industry to grow. In terms of Sharia governance, the model will enhance customer confidence in Islamic banking and Sharia-compliant products."

The bank also announced that its Islamic banking brand will be called Meethaq, and will comprise a three-person Sharia board.

However, some other bankers, describing the model presented by E&Y as 'good' in terms of Sharia compliance, have suggested that the banks' Islamic windows should be allowed to access funds from their respective headquarters to tap credit demand and maintaining uniform banking ratios rather then separating them for Islamic window operations.

Abdul Kader Askalan, the CEO of Oman Arab Bank, said that under the current proposals it is not mentioned whether Islamic windows would be allowed to borrow funds from their respective parent banks.

He said, "An Islamic banking window with a capital base of just RO10mn would not be able to do much business, so the central bank should allow banks to access funds from their head offices to lend to customers through Islamic windows."

Another banker, who did not want to be named, said the proposal is 'good' in Sharia-compliance terms, but is 'very restrictive' in terms of risk management for Islamic windows.

He said, "The capital for Islamic window is quite small that you cannot run the entire Islamic banking business with it. The proposed single borrower's limit is 15 per cent of the capital which means a window cannot lend to large corporate clients."

© Muscat Daily 2012

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