CBO not to separate investment banking of commercial banks


A view of Central Bank of Oman (CBO) headquarters in Muscat's financial district of Ruwi. File photo

Muscat: Central Bank of Oman (CBO) has decided not to separate commercial bank's investment activities by forming separate subsidiaries or affiliate companies. The decision was taken by the apex bank's board, which met under the chairmanship of Dr Ali bin Mohammed bin Moosa, deputy chairman of CBO, on Monday.

The financial market was agog with speculation that the banking regulator may ask commercial banks to separate investment banking activity from commercial banking in a move to mitigate risk arising from wide fluctuations in securities market. The securities market regulators were in favour of such a bifurcation, while banking lobby was against it. 

The CBO board discussed the same issue a couple of times in its board meeting in the recent past, but could not take a decision.

Gulf countries like Qatar and Saudi Arabia have recently separated these two activities, while commercial banks in western countries have separated these two activities many years ago. 

Moratorium on new licence
The CBO board also decided not to give licence for new money exchange companies by imposing a moratorium on new licences for two years, until the end of 2015. This is due to saturation in the market as fifteen players have over 200 branches spread across the country.

One more company – Oman Investment and Finance Company – has received a licence for establishing a money exchange and with this, the total number of money exchanges will be 16.

Although there is a severe competition among the players in Oman, all companies are making profit due to high commission prevailing in the market.

For a fast direct remittance, money exchanges in Oman charge a commission of as high as OMR2.5, which is 60 per cent higher than that of UAE's 15 dirham fee. Qatari exchange houses charge anywhere between 10 and 15 Qatari riyal.

UAE has around 180 money exchanges, with a combined network of 400 branches.

A change in policy related to additional capital for opening new branches of existing money exchanges last year is now beneficial for major players. The CBO last year decided to change the additional capital to a flat rate of OMR150,000 for each additional branch, against the previous regulation of a 10 per cent additional capital for each new branch. However, the minimum capital for money exchanges was raised to OMR1 million from OMR500,000 last year. 

CBO's capital
The CBO board also approved to increase the apex bank's capital to OMR700 million from OMR500 million, with effect from April 1, 2014. Further, the board has given an in principle approval for the National Payment System Law.

The board also discussed the recommendations of the mission of International Monetary Fund & World Bank on Financial Sector Assessment Programme and directed CBO's executive management to follow-up the implementation of the recommendations.

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