Bank Nizwa

15 October 2013

The Islamic lender hopes to lead the development of the sharia finance sector in Oman


Bank Nizwa is Oman’s first fully-fledged Islamic bank. It officially opened on 10 January 2013, having received its banking licence from the Central Bank of Oman on 19 December 2012.

The lender was set up after the government decided to allow the provision of sharia-compliant financial services. Previously, Oman was the only GCC country without dedicated Islamic finance banks.

Bank Nizwa is headquartered in Al-Qurum in Muscat, with additional branches in Nizwa and Sohar. It offers a portfolio of sharia-compliant commercial banking services for individuals, small-to-medium-sized enterprises, corporations and government institutions.

In June 2012, the bank listed on the Muscat Securities Market, raising RO60m ($156m) by selling 40 per cent of its capital. It attracted RO681m of bids in its initial public offering (IPO), which is 11 times the sum it originally looked to raise. It was one of the first IPOs for a start-up company in Oman for a number of years and its success suggests investors have a strong appetite for Islamic finance.

In July this year, Bank Nizwa received an investment banking licence that will allow it to manage funds and issue Islamic bonds.


Bank Nizwa is aiming to broaden its range of sharia-compliant products, and take a 5 per cent share of Oman’s overall banking market in the next five years. It currently offers corporate and commercial banking products such as working capital, project finance and structured finance, along with personal banking services such as savings accounts and credit cards.

The lender’s markets and investment arm has three divisions: international finance; global markets; and investment banking. Through its international banking department, it provides relationship management with financial institutions. The bank deals with 140 lenders or institutions spanning 45 countries. Services include, or will include, letters of credit (LC), issuing LCs as well as confirming them on behalf of local corporates, syndications, pre-export financing, import trade facilities and risk participations.

Under its global markets business, Bank Nizwa provides foreign exchange and Islamic liquidity management. Its nascent sukuk (Islamic bond) business also falls within this division.

During the first quarter of operation, the lender’s deposit portfolio increased, with current accounts rising to RO7.8m and investment accounts reaching RO3.6m. This provided the bank with additional liquidity to invest.

The liquidity has been primarily used to invest in international wakala (agency contract) placements, sukuk and financing agreements such as murabaha (credit) and Ijarah (sale and leaseback).

However, the bank did record a small loss in the first quarter, related to the costs of building up its infrastructure, implementing software and banking systems and employing staff.

In the second quarter of this year, Bank Nizwa posted a further small net operating loss, also due to start-up costs. However, it continued to increase its assets and strengthen its portfolio of deposits. The number of current account and investment account holders increased by 76.5 per cent in the second quarter, compared with the first quarter.

Current account deposits in the second quarter reached RO13.2m, while investment account holder deposits reached RO6.9m. The bank’s credit and financing business reached RO9.3m, an increase of 342 per cent over the first quarter.


As the first Islamic bank in Oman, Bank Nizwa is hoping to lead the development of the sultanate’s sharia finance market. The lender is looking to invest in its staff and develop its branches and headquarters with up-to-date equipment. It also aims to open new branches in Ibra, Salalah, Al-Khoudha and Al-Ghubra. Additionally, the bank is keen to support the establishment of a domestic Islamic interbank market by signing wakala agreements. A wakala agreement enables local lenders to work with international Islamic financiers for interbank liquidity management. It allows banks to place surplus funds within each other.

In a wakala, one party acts as an agent to another. For example, in the case of a sukuk wakala, an investor appoints an agent (wakeel) to invest its funds. The wakeel provides its expertise and manages the investments for a particular length of time in order to generate an agreed profit upon return.

Wakala agreements are not used as widely as the murabaha agreements, but there are signs they are growing in popularity and are also seen by some as a more sharia-compliant process.

Oman’s first wakala agreement was signed between Bank Nizwa and Abu Dhabi’s Al-Hilal Islamic Banking Services. In August, Bank Nizwa signed a further deal with Maissarah Islamic Banking Services, the Islamic window of Bank Dhofar. An agreement has also been signed with the Islamic unit of Bank Sohar.

Huge potential Islamic finance to flourish in oman

Oman’s Islamic banking sector has significant potential for growth, with US ratings agency Moody’s saying it could take 6-8 per cent of the market in the next three to five years.

“This share will stem primarily from the conversion of customers from conventional to Islamic banking services,” said Khalid Howladar, senior credit officer at the ratings agency, in a report on the country’s emerging Islamic finance market.

In December 2012, Oman introduced the Islamic Banking Regulatory Framework, allowing local lenders to offer Islamic finance. It was the last GCC state to allow sharia-compliant banking services, having watched the sector’s growth within its regional neighbours.

The sultanate has now granted licences to two pure, standalone Islamic banks: Bank Nizwa and Alizz Islamic Bank. There are a further six conventional lenders, including Bank Muscat and Bank Sohar, that have licences to set up Islamic finance windows.

In the GCC, Islamic assets currently account for 15-50 per cent of total banking assets. In Saudi Arabia alone, Islamic assets account for about 50 per cent of banking assets.

The demand for sharia-compliant services among consumers in Oman is strong, with several studies suggesting certain parts of the population would feel more comfortable using a banking service that did not involve riba (interest).

Many conservative Omani nationals keep their funds in Islamic banks abroad due to the lack of such facilities within the sultanate. There are $6bn of Omani assets in non-Omani banks abroad, which could potentially be brought back into the domestic market, according to estimates from UK-based consultancy EY.

The success of Bank Nizwa’s initial public offering (IPO) last June and Alizz Islamic Bank’s $104m IPO in November 2012 also suggests investor appetite for Islamic finance is relatively high.

There will, however, be increasingly tough competition between lenders looking to win a share of this untapped market. Both pure Islamic banks and conventional banks with Islamic windows will face high costs in terms of establishing their sharia-compliant brands in the market.

Moody’s predicts that despite the emergence of new Islamic finance banks such as Bank Nizwa, conventional banks are likely to maintain their market dominance. The agency says there will not be any “major changes” to Oman’s banking landscape in the next three to five years. This is because the established lenders will be better positioned to build up their Islamic windows as they have a legacy customer base and stronger, more recognisable brands, at least in the short term. Bank Muscat, for example, currently holds a 38 per cent market share, while Bank Nizwa has just a 1 per cent share.

The success of the Islamic finance market will also depend on offering a wide range of sharia-compliant finance products such as takaful (Islamic insurance), an equity index and the ability to issue sukuk (Islamic bonds). This is particularly important for the pure Islamic financiers as it will help them diversify their sources of funding.

Another challenge facing this nascent banking industry is the risk of overconcentration in one sector. Sharia-compliant banking typically favours investment in tangible assets such as residential and commercial real estate.

However, lenders would be wise not to focus solely on this sector, which has delinquency rates far higher than other asset classes for conventional banks. The Omani property market has not proven as volatile as the UAE or Qatar markets, but it still poses some risks.

The wider economy in the sultanate is, however, conducive for the growth of Islamic finance.

Increasing volumes of government expenditure on infrastructure and other schemes in the coming years will help drive credit growth in the corporate and retail sectors. It will also boost employment levels, creating a more bankable population demanding a broader range of banking products.

Company snapshot

Date established January 2013

Main business sector Islamic banking

Main business region Oman

Chief executive officer Jamil el-Jaroudi

Chairman Sayyid Amjad Mohammed Ahmed al-Busaidi

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