Interview: Hamood Al Zadjali

How can the CBO’s regulations best support the strategic goal of economic diversification?

HAMOOD AL ZADJALI: In its capacity as the country’s monetary agency, as well as the supervisor and regulator of financial institutions, the CBO has undertaken a number of measures and adopted policies over the years to promote confidence in the banking sector and ensure uninterrupted credit flow to consumers and productive sectors of the economy. At the same time, the CBO has ensured efficiency, transparency and stability in the market so as to promote sustainable economic growth and overall development.

The CBO will continue to enhance the role of the banking sector in the economy by encouraging credit growth to productive sectors, including small and medium-sized enterprises (SMEs), and promoting savings-oriented behaviour among the population.

Furthermore, with greater participation from commercial banks in large public investments by the government, it is expected that the banking sector will continue to play an important role in supplementing government efforts to increase diversification and expand employment opportunities in the sultanate. The advent of Islamic banking is expected to complement conventional banking and diversify banking services, while augmenting financial inclusion.

Do you feel the CBO’s requirement for banks to dedicate 5% of all credit to SMEs is feasible? What more can be done to incentivise banks to support SMEs?

AL ZADJALI: The relevance of the SME sector has always been recognised in Oman, given its important role in the diversification and growth of the economy, and the potential for increased job opportunities. In fact, in the past, several banks had an SME finance base, though other banks were less active. However, now the government and the CBO have brought development of the SME sector to the forefront and several policy initiatives, including formal targets for credit delivery to the sector, are now being given priority.

The CBO has advised banks to allocate 5% of their total credit to SMEs, a move to be achieved by December 2015 at the latest. To encourage lending to SMEs, the prudential requirements for bank lending have also been relaxed in terms of general provisioning requirements and risk weightage. There are also efforts being made to build the capacity of prospective entrepreneurs, identify key areas for SME financing, facilitate public-private cooperation and improve the forward and backward linkages of these entities.

Furthermore, based on their business philosophy, Islamic banking entities should find SME finance more attractive. Financing SMEs is no doubt a challenge, but given the concerted efforts of the government and the CBO, it is expected that banks will be able to turn SME lending into a commercially attractive option.

How would you evaluate the success of the Omanisation regulation on the banking sector, and how can its effectiveness be enhanced?

AL ZADJALI: The CBO has been actively fine-tuning the policy of Omanisation in banks in line with the national vision of progressively raising employment opportunities for Omanis and utilising domestically available resources. Besides raising targets, the CBO has emphasised training and other inputs so that Omanis are in a position to assume increasingly higher levels of responsibility. The focus has not only been on the overall level of Omanisation, but also on the ratio within different cadres of bank employees.

For instance, the overall Omanisation ratio in banks is above 92%; however, the CBO has stipulated that it should be 100% for the clerical cadre, as there is already 100% Omanisation with respect to non-clerical cadre.

Overall, the push for Omanisation in the banking sector has been substantive, meaningful and an overall success. Given our march toward dynamic and diversified growth of the economy, the banking sector is bound to act as a significant catalyst, while providing increasing employment opportunities for Oman’s population.