Omani Banks Prepare for Structural Changes in Islamic Banking, Investment Activities

Banks in the Sultanate of Oman are preparing for structural changes in some of their activities in the coming years, following the issuance of two regulations last July. The first, from the Central Bank of Oman (CBO), concerns the conversion of existing Islamic banking windows into independent Islamic banks. The second, from the Capital Market Authority (CMA), relates to separating several investment activities from commercial banking and conducting them through independent entities.

Discussions during banks' financial results presentations for the first half of the current year, monitored by Atheer, reveal that options for dealing with these two regulations are under study. Scenarios include separation, mergers, and acquisitions, which could alter the banking sector landscape.

The CBO issued regulatory directives last July for the conversion of existing Islamic banking windows into independent Islamic banks, a transformation phase extending for four years, from the current year until 2030. The CBO stated that this aims to enhance the foundations of the Islamic banking system, support economic growth and financial stability, and promote institutional independence.

The second regulation came via CMA Resolution No. K/11/2026, issuing the executive regulations of the Securities Law. This regulation prohibits commercial banks from practicing activities subject to the Securities Law and its regulations, except through a fully-owned independent entity. Banks have been given a three-year period to comply. Custody, safekeeping, and underwriting activities are exempt, allowing banks to combine them with their licensed commercial activities. Mr. Ahmed bin Ali Al Mamari, Deputy CEO of the CMA, explained at the time that the regulation contributes to activating the real role of investment banks, and that separating banking and securities investment activities achieves better governance and more efficient risk management.

Activities to be separated, according to the CMA, include asset management (comprising securities portfolio management, investment manager, and product structuring) and investment banking (investment manager, product structuring, and securities portfolio management for research and advisory on listed securities investment). Additionally, certain activities require minimum capital and equity as follows: Product Structuring (OMR 1,000,000), Securities Portfolio Management (OMR 200,000), Collective Investment Scheme Management (OMR 200,000), Investment Manager (OMR 200,000), Issue Management (OMR 200,000), Research and Advisory on Listed Securities Investment (OMR 200,000), Marketing Non-Omani Securities (OMR 200,000), Agent for Bondholders or Sukuk and Fund Unit Holders (OMR 200,000), Brokerage (OMR 700,000), Market Making (OMR 5,000,000), and Margin Lending (OMR 200,000).

While banks have not yet issued independent disclosures on how they will address the regulations, their H1 2026 discussion sessions show that options and scenarios are being studied. Atheer followed comments from officials at Bank Muscat, National Bank of Oman, and Bank Sohar, indicating that the new regulations could lead to changes beyond merely rearranging internal activities.

A Bank Muscat spokesperson noted that sector observers had anticipated this shift for years, making it unsurprising. He stressed that the timelines for both decisions provide sufficient time for planning and implementation. Regarding Islamic windows, the spokesperson stated the CBO's goal is to boost the Islamic banking sector, offer more customer diversity, and enhance banks' revenue base. While costs might increase, operational results could improve in the medium to long term. For investment activities, he viewed the clear regulatory framework as a positive development. He also suggested three potential scenarios for Islamic windows: mergers, acquisitions (where an Islamic bank acquires an Islamic window from another bank), or closure, indicating that mergers are possible.

National Bank of Oman’s spokesperson affirmed the importance of both activities to the banking sector, particularly assets and wealth management. Islamic banking assets reached 20% of Oman's total banking sector, a high percentage globally for such a short period, highlighting future opportunities. The Board of Directors reviewed updates but made no specific recommendation. Banks must respond to the CBO by December 31 with their preferred option and board-approved justifications. National Bank of Oman is conducting an in-depth analysis. Regarding the CMA decision, the spokesperson expects the CBO to issue a regulation on its application, suggesting a potential series of mergers and acquisitions.

Bank Sohar, in its discussion session, indicated it would continue to invest in both activities until separation. The coming years appear poised for changes beyond internal bank activity rearrangement, with Islamic windows and investment activities facing independent structures. While some requirements have grace periods of several years, the outlines of the next phase may emerge before the end of the current year, as banks finalize their options for Islamic windows, with mergers and acquisitions emerging as probable scenarios to reshape part of the banking sector map.