Banking continues to be a key pillar of Oman’s financial sector, responsible for the majority of credit for individuals and institutions – both government-owned enterprises and the private sector. Recent years have seen credit and deposit expansion, with these growing along with banking services and the overall economy. The sector faces the challenges of enabling continued bottom-line growth while also tackling long-standing issues over expenditure. The adoption of more financial technology (fintech) and greater consolidation are both helping with this, as are the sultanate’s overall development plans, with banking remaining a major force in Oman’s diversification strategy.
Structure
The main body overseeing and regulating the sector is the Central Bank of Oman (CBO). The CBO has responsibility for both Islamic and conventional banks, along with finance and leasing firms and licensed money exchanges. In addition, in March 2024 Royal Decree No. 20 of 2024 established the Financial Services Authority (FSA). This took responsibility for insurance and capital markets away from the CBO, leaving the central bank more focused on the banking sector. At the same time, all local banks in Oman are required to list on the Muscat Stock Exchange (MSX), where they come under the supervision and regulation of the FSA, which succeeded the Capital Market Authority in this role (see Financial Services chapter). OVERSIGHT: The CBO’s authority stems from the new Banking Law, which came into effect in January 2025, repealing the previous banking law, issued in 2000. The new legislation enhances consumer protection, widens the regulatory scope to cover new financial entities, increases capital requirements and introduces stronger penalties for non-compliance, reflecting the growth of Oman’s economy and banking sector (see analysis).
The CBO issues licenses for investment, Islamic and conventional banks, as well as for foreign banks that wish to establish branches in Oman. All banks are required to abide by International Financial Reporting Standards (IFRS), with IFRS-9 adopted in 2018. Islamic banks are required to follow the Islamic Banking Regulatory Framework. In addition, the CBO has a sharia supervisory entity within its organisational structure to provide guidance and opinion on compliance matters to the CBO. Islamic banks themselves are required to have their own internal sharia compliance boards.
In December 2022 the CBO introduced a wakala (agency) money market Islamic liquidity management instrument (ILMI). This enabled Islamic banks to place excess liquidity with the CBO for up to three months, addressing a concern that the Islamic sector did not have sufficient sharia-compliant options when seeking to address liquidity issues. The introduction of ILMIs has witnessed success, with the Islamic banking segment expanding significantly since their introduction.
The CBO has also been moving into the field of green banking in recent years. In March 2022 it signed a memorandum of understanding (MoU) with the Oman Environmental Services Holding Company – known as Be’ah – that aims to facilitate the development of green-fintech-focused small and medium sized enterprises (SMEs), the circular economy, and environmental, social and governance (ESG) standards. The CBO also issued a circular on mandatory compliance with climate change reporting and sustainability in 2022, followed by a similar regime on the MSX. As of early 2025 the CBO is expected to issue its own ESG guidelines for Oman-based banks and branches in the immediate future.
A further CBO initiative is a project to introduce the International Bank Account Number (IBAN) system to the sultanate. The move is aimed at simplifying transactions and increasing transparency, while modernising Oman’s overall banking system. The project began in the first quarter of 2024 with the introduction of IBAN for international transactions, with a phase two in which local transactions will also be brought into the system.
As with other sectors, banking has Omanisation targets. These are goals set by the government for the proportion of Omani nationals working in the sector. As of 2024 the Omanisation targets were 80% for senior management, 90% for middle management and 100% for clerical and non-clerical staff.
Interest Rates
Under its mandate to secure financial and monetary stability, the CBO is also responsible for setting a policy rate. With the Omani riyal pegged to the US dollar since 1986 – at a rate of OR1 to $2.599 – that rate has had to take into account movements in US interest rates. These have strengthened in recent years due to the Covid-19 pandemic, the ongoing conflict in Ukraine and other external events that have put upward pressure on global inflation.
CBO interest rates have undergone 11 successive rate revisions since March 2022, when the US Federal Reserve began monetary tightening. The CBO has raised its repurchase rate by a total of 550 basis points since then, in tandem with US Federal Reserve moves. The most recent hike was in July 2023, when the CBO raised this rate from 5.75% to 6.00%. In terms of interbank rates, as of the end of January 2025 the CBO’s overnight Oman Interbank Offer Rate was an indicative 4.675%, increasing to 4.825% for a one-year offering.
At the same time, Oman has relatively high net interest margins. For conventional banks, the weighted average OR interest rate spread, which is the lending rate minus the deposit rate, stood at 2.934% in November 2024. This marked a year-on-year (y-o-y) increase of 5.2 basis points. A significant portion of OR deposits with conventional banks are at zero interest rates. This figure was 38.5% in November 2024.
Also impacting net interest margins and banking lending, Oman has two interest rate caps. One of these has been for personal loans – representing around 40% of the market – and the other for commercial loans to non-financial entities. These caps stood at 6% and 6.5% as of February 2025. In recent years there has been pressure to remove the caps, as they were established at a time of relatively low policy rates. These climbed to similar levels to the caps in the second half of 2024. In addition, Oman Credit and Financial Information Centre (Mala’a), was established to help give banks a clearer picture of potential borrower risk profiles.
Going Digital
The CBO has put together a draft regulatory framework for digital banks, which was approved in December 2024. The regulation seeks to address modern developments in banking and establish guidelines for the licensing of digital lenders. To ensure financial solvency and soundness, a OR40m ($104m) minimum paid-up capital for Omani digital banks and OR10m ($26m) for foreign branches is proposed. There are also draft requirements on share ownership, the competency of bank staff, business plans – including how the entity will address cybersecurity issues – and the establishment of physical premises.
The draft is the latest in a series of moves by the CBO to help keep the sector in line with the latest global banking innovations. Since the CBO launched its Fintech Regulatory Sandbox in December 2020, the authority has issued a master circular that enables innovation in new products and services; a revised licensing policy, which has seen seven payment service providers licensed; and electronic know-your-customer guidelines to establish digital onboarding. In May 2024 draft guidelines for buy now, pay later programmes were also issued for public consultation, while regulations for financial consumer protection, cybersecurity and resilience have also been issued.
July 2024 witnessed the start of public consultation on a draft Open Banking Regulatory Framework, which was approved by the CBO in December 2024. This sets the potential interface between banks, and providers of third-party payments and other financial services, and is a crucial step in opening the sector to fintech and further technological innovation. The roadmap includes regulations on data security, standardised application programming interfaces, consent management systems and authentication protocols.
Plans & Programmes
The country’s banking sector operates within the framework of its long-term development plan, Oman Vision 2040. This is a 20-year strategy with four pillars. These are the creation of a competitive economy, a society of creative individuals, responsible government agencies and an environment with sustainable components. A well-developed, robust and inclusive financial sector is vital to all of these aims.
In addition, the Medium-Term Fiscal Plan (MTFP), which was launched in 2020, targets the strengthening of fiscal discipline – key to overcoming the legacy of the global pandemic, as well as subsequent increases in oil prices and the consequent boost to government revenue. A third major programme is the $5.2bn Future Fund Oman (FFO), launched in January 2024 by the Oman Investment Authority. The FFO aims to attract more foreign direct investment in the sultanate and to boost investment in SMEs.
SMEs are a central plank of much of the sultanate’s planned development, with Oman Vision 2040 also targeting them in a move to unlock their potential for employment and diversification in the overall economy.
For banks, this has led to some reassessment of SME provisioning. Mala’a has been central to this, enabling better risk assessment in loans to SMEs, which often lack the established credit histories of larger entities.
Sector Players
Oman’s banking sector consists of seven local banks, nine foreign banks, and eight Islamic banks and windows, as well as two specialised banks. With all local banks listed on the MSX, the largest in terms of market capitalisation as of June 2024 was Bank Muscat, with OR1.9bn ($4.9bn). This makes it a domestic systemically important bank under the IMF definition. The second-largest lender, Sohar International Bank (SIB), had a market capitalisation of OR742m ($1.9bn), while the third-largest, Bank Dhofar, was listed at OR479m ($1.24bn). After this, National Bank of Oman (NBO), was listed at OR447m ($1.16bn), Ahli Bank at OR364m ($946m), Oman Arab Bank (OAB) at OR249m ($647m) and Bank Nizwa at OR233m ($606m).
Of these, Bank Nizwa is the only fully dedicated Islamic bank, following the merger of Alizz Islamic Bank (AIB) with OAB in September 2020. AIB continues to operate as an OAB subsidiary specialising in Islamic banking. Islamic windows are also operated by Bank Muscat, as Meethaq Islamic Banking; by NBO, as Muzn Islamic Banking; by Bank Dhofar, as Dhofar Islamic; by SIB, as Sohar Islamic; and by Ahli Bank, as Ahli Islamic. In addition, in February 2024 the sultanate launched its first specialised corporate investment bank, the Oman Investment Bank (OIB). This entity is wholly owned by the government and will have a vital role in the implementation of the country’s development initiatives – Oman Vision 2040, the MTFP and the FFO. In terms of the breakdown between conventional and Islamic banking, at the end of November 2024 the latter – which includes Islamic banks and Islamic windows in other banks – accounted for OR6.8bn ($17.7bn), or 20.2%, of total banking deposits, and OR6.4bn ($16.6bn), or 21%, of total banking credit. Total banking deposits stood at OR31.5bn ($81.9bn) at the end of November 2024, while total banking credit stood at OR32.2bn ($83.7bn). Both grew y-o-y, with total banking deposits up 10.8% and total banking credit up 4.2%.
At the same time, the financing-to-deposit ratio of the Islamic segment stood at 102%, while the loan-to-deposit (LTD) ratio of the conventional sector stood at 102.1%. Oman has had high LTDs for some time, relative to other banks in the region, while credit growth overall has remained strong, despite recent hikes in interest rates. Indeed, annual private sector credit growth in the first half of 2023 was around 7% – the second-highest in the GCC. Loan-to-asset ratios are also high due to limitations on domestic government bond holdings – these cannot exceed 55% of a bank’s net worth – and the still nascent nature of Oman’s capital markets.
In recent years the majority of both credit and deposits has been accounted for by the private sector. Total credit concentration figures for the end of November 2024 showed 83% private, 14% public enterprise, 2% government and 1% non-resident. Total deposit concentration broke down into 66% private sector, 22% government, 10% public enterprise and 2% non-resident.
Performance
Figures for the first half of 2024 showed that Oman’s listed banks increased 8% y-o-y in aggregate net profit. Customer deposits were up 12%, net loans and Islamic financing up 5% and the LTD ratio stood at 98.5% on average across the sector, although four listed banks remained slightly above that level.
All seven listed banks recorded net profits between the first half of 2023 and the first half of 2024, with Bank Muscat reporting the highest, at OR112.1m ($291.3m), followed by SIB, with OR50.3m ($130.7m). Bank Muscat was also listed among the top-30 most valuable financial service providers in the Middle East by Forbes in an April 2024 report, while SIB was named Oman’s best bank at the Euromoney Awards of 2024.
In terms of cost-to-income (CTI) ratios, Bank Muscat and SIB were also the leaders, with 38.4% and 40.5% ratios, respectively, as of July 2024. The sector overall averaged a CTI ratio of 45.2%, which signals room for improvement in reducing bank costs. SIB had some success with this during the year – its CTI ratio dropped from 41.5% in the first quarter of 2023 to 40.2% in the corresponding period of 2024 – as it synergised cost reductions following its merger with HSBC Oman, which was completed in August 2023.
Consolidation has been a consistent theme in recent years, as the number of lenders in Oman’s banking sector has contracted yet gained in both strength and profitability. In 2012 HSBC Oman merged with Oman International Bank, and in 2020 the merger between Alizz Islamic Bank and Oman Arab Bank was finalised. Discussions over a merger between SIB and Bank Nizwa, which have been under way since November 2021, were on hold as of February 2025.
Digitalisation
The sector also saw the continuation of its digitalisation trend in 2023-24. In April 2024 Bank Dhofar introduced digital payment solution Samsung Wallet in partnership with Samsung Gulf Electronics. That same month OAB launched a corporate internet banking platform. This includes features enabling bulk payment processing, account reconciliation and card management, as well as personalised dashboards and board resolution software. Dhofar Islamic also introduced a specialised account for SMEs in April 2024, bringing together a range of sharia-compliant products for businesses in one service.
“Oman’s credit and financial sector is undergoing significant modernisation, with a strong push towards digitalisation and data-driven decision-making,” Bassam Al Jamali, general manager of Oman Credit and Financial Information Centre, told OBG. “The introduction of tools such as credit scoring and enhanced financial transparency is helping to build trust and expand access to finance across the economy.”
Outlook
With profitability, deposits and credit all rising, the Omani banking sector is well positioned. Recent external shocks, such as the pandemic and a spike in global conflict, presented challenges, but the sultanate’s lenders managed these impacts well, emerging with robust balance sheets. Current and future efforts at increased digitalisation should also help reduce costs, while continued consolidation should also produce synergies that drive down CTIs. At the same time, the future rollout of government development plans, including major infrastructure projects, is expected to drive increased lending, as well as overall economic growth. The prudent way in which the central authorities have managed the boost from recent oil and gas also bodes well for sustained economic expansion.
A further benefit in the years to come is the development of the capital market, which is highlighted in government plans to help boost financial sector diversification. Recent reorganisations of the regulatory authorities should streamline development, giving financial service providers opportunities for investment and income generation. Exogenous shocks remain a possibility, but Oman’s banks have demonstrated resilience in the face of recent and significant challenges, standing them in good stead for the years to come.
Read More from OBG
