The Central Bank of Oman (CBO) has announced significant changes in the authorized activities of Finance and Leasing Companies (FLCs) in a move aimed at promoting growth and enhancing the sector's contribution to the economy. The decision, outlined in a recent circular, expands the scope of operations for FLCs and introduces new guidelines to govern their activities.
Under the revised regulations, FLCs are now permitted to accept deposits from corporate entities, with a minimum deposit size of RO 5,000. This change opens up new avenues for FLCs to strengthen their financial position and diversify their services. However, it is important to note that deposits from corporations will not be covered by the Bank Deposit Insurance Scheme.
Additionally, FLCs are now authorized to engage in real estate financing, including providing loans for commercial projects and supporting developers in the construction of real estate projects, including residential units.
To maintain financial stability, the CBO has set limits on the total amount of real estate lending, ensuring that FLCs do not exceed 50 per cent of their net worth. Furthermore, restrictions have been put in place to prevent excessive exposure to individual borrowers and connected counterparties.
In a significant development, FLCs can extend personal loans to individuals without the need for collateral or security. The criteria for such loans include a careful assessment of the borrower's net salary and debt burden ratio. The tenor of these loans is capped at seven years, with the possibility of up to two monthly deferments per year upon customer request. The total personal loan portfolio of FLCs is limited to 50 per cent of their total lending.
The Central Bank has also granted FLCs the authority to invest in rated corporate bonds listed on the Muscat Stock Exchange, up to a maximum of 10 per cent of their net worth. However, they are prohibited from investing in bonds issued by related parties or borrower companies. These investment activities must adhere to a board-approved policy, ensuring prudent risk management.
Regarding operational flexibility, FLCs are now empowered to adjust their business hours according to their discretion, eliminating conflicts with labour regulations. They may also operate branches on all days of the year, subject to compliance with security, operational requirements, and notification to the CBO. Furthermore, during the month of Ramadhan, FLCs can extend working hours at selected branches without seeking specific approval.
FLCs borrowing in foreign currency (exceeding 40 per cent of their net worth) will be exempt from creating an exchange reserve, provided the foreign exchange risk is fully hedged.
The CBO expressed confidence that these measures will invigorate the FLC sector and contribute positively to the overall economy. FLCs are advised to adopt well-documented policies and procedures, approved by their Board of Directors, to ensure compliance with the new regulations and effectively manage associated risks.
This move by the Central Bank is expected to stimulate growth and innovation in the Finance and Leasing sector, ultimately benefiting businesses and individuals across the Sultanate of Oman.
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