Omani central bank announces new reserve buffers

The Central Bank of Oman has published rules for countercyclical buffers, a move aimed at protecting against the consequences of booms in lending, but which could force Omani lenders to raise more capital in future.

In a circular dated Dec. 30, the Omani regulator said minimum capital requirements for banks would be increased by 0.625 percent, part of a package of rules related to the Basel III global finance regulations.

That would require Omani banks to hold a Common Equity Tier 1 (CET1) ratio of 8.25 percent and a total capital adequacy ratio (CAR) of 13.25 percent, up from 7.625 percent and 12.625 percent respectively.

While the central bank said the rules would not be invoked until a date to be announced later, commercial banks must be ready as of Jan. 1, 2016, to implement the new ratios.

Further 0.625 percent increases are due to be made annually until they reach a total 2.5 percent in 2019. Whenever the central bank initiates the new rules, banks will be obliged to apply the full buffer at that date.

Countercyclical buffers are designed to ensure that banks build up their capital when lending is growing. Then it can be drawn upon when the economy slows and some loans sour without hurting the bank's solvency.

The new rules exclude the Islamic banking windows set up by many Omani lenders in recent years. They must comply with different minimal capital requirements, according to a separate Dec. 30 letter on the same subject.

All Omani banks hold CET1s and CARs above the new limits, according to their third-quarter financial statements. However, two - National Bank of Oman and Bank Sohar - had CARs of 13.6 percent and 13.97 percent respectively as of Sept. 30.

NBO in November sold a $300 million Tier 1-enhancing bond, which raised its ratios.

Once the new limits are fully implemented, requiring a minimum CAR of 15.125 percent, most other banks in Oman will be close to the limit, meaning they too will need to raise capital.

Bank Dhofar is to hold a rights issue during 2016 but has no plans to sell further Tier 1-boosting bonds after its debut offering in 2015, its chief financial officer told Reuters on Tuesday. It had a CAR of 15.53 percent at the end of September.

The letter also warned the central bank could intervene in bank dividend payments to help support lenders in meeting capital requirements.

There is precedent for such intervention. Bank Dhofar, Bank Sohar and non-banking financial firm Taageer Finance Company were all told to revise their 2014 dividend payments by the central bank.

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