Muscat - The Central Bank of Oman has issued guidelines on credit exposure to non-residents and placement of bank funds abroad. The CBO has asked all licensed banks operating in Oman to comply with the guidelines with immediate effect. "It is advised that the circular together with the guidelines come into force with immediate effect," H E Hamood Sangour al Zadjali, executive president of CBO said in the circular.
For domestic banks and their overseas branches and foreign banks in Oman, the aggregate funded credit exposure in foreign currencies to all non-resident borrowers (other than banks) and related parties shall be limited to 20 per cent of the local networth of the bank.
It added that the aggregate funded credit exposure in foreign currencies to all non-resident borrowers (including banks) shall be limited to 30 per cent of the local networth of the bank. A limit of 2.5 per cent of local networth was set for each non-resident borrower (other than a bank) and five per cent of local networth of the bank for each non-resident bank borrower.
The circular also added that any credit exposure of US$5mn and above to any non-resident borrower other than a non-resident bank, shall be assumed only through the route of syndication.
H E Zadjali said that the banks, which are in excess of the prudential limits prescribed under the guidelines, will be granted a grace period of six months from the date of the new circular to bring down their exposures within the prudential limits or maturity of their exposures, whichever is earlier.
The objective of prudential regulations is to cap the risks at a particular level and manage them in a manner that promotes the safety and soundness of the individual financial institutions and strengthens the stability of the financial system, while facilitating the financial transactions for the ultimate benefit of the economy and the country, the circular said.
Accordingly, the updated guidelines in the circular cover credit exposure in Omani rial to non-residents, credit exposure to non-residents in foreign currencies for operations abroad, placement of bank funds abroad and other prudential requirements.
According to the circular, licensed banks shall not maintain Omani rial deposits with or make loans or advances denominated in the currency to any non-resident bank or non-resident financial institution, which shall, inter alia, include the head office, branches of such a licensed bank outside Oman, affiliates or subsidiary companies thereof.
It further said that licensed banks are not allowed to grant loans and advances or take other credit exposure denominated in Omani rials to non-resident companies, individuals or other legal entities.
"Non-residents assuming positions in Omani rial has implications for domestic liquidity and the stability of the currency. The extant measures are reiterated to prevent taking of positions in the Omani rial. These measures shall not, in any way, affect the right of any person, other than licensed banks, to transfer or hold Omani rial balances, assets or other currencies outside Oman," the circular added.
© Muscat Daily 2014
