New CBO Circular for Finance and Leasing Companies: Additional Business Activities

The Central Bank of Oman (“CBO“) has issued Circular FM 41 on 4 June 2023 (“Circular”) to all Finance and Leasing Companies (“FLCs“) where the CBO, has decided to authorise FLCs to conduct additional business activities, including amending certain existing conditions applicable to permitted activities as follows:

Key additions/modification to permitted activities:

• Acceptance of Deposits: FLCs can accept deposits (i) only from corporates; (ii) with minimum deposit of OMR 5,000; (iii) in Omani Riyal; (iv) for a minimum period of three months and maximum period of 60 months and shall not be repayable on demand (this includes renewal of deposits); (v) subject to total deposits with FLC not exceeding the net worth of FLC; (vi) subject to the liabilities of the depositors (including the deposits) shall not exceed five times of the net worth of the corporate; and (vii) the corporate deposits not being eligible for coverage under Bank Deposit Insurance Scheme and the same shall be communicated to the depositors.
• Scope of Lending: The authorised scope of lending activity of FLCs has expanded to include:

a. Finance to commercial projects and loans to the developers for development of real estate projects (including development of residential units) subject to the total real estate lending not exceeding 50% of the net worth of the FLC, exposure to single customer not exceeding 10% of the net worth of the FLC and aggregate exposure to Connected Counterparty and Related Part not exceeding 25% of the net worth of the FLC;

b. Unsecured Personal Finance to individuals subject to the following: (i) Monthly net salary of less than OMR 1000 and maximum Debt Burden Ration of 50% (for customers with no home loans) and 60% (for customers with existing home loans); (ii) maximum tenor of 7 years; (iii) purpose of loan should not be related to business; (iv) top of personal loan shall be allowed only after 12 months of satisfactory conduct or after 50% of existing loan is repaid or if the loan was not fully availed as per the existing eligibility; and (v) the total personal loan portfolio (secured and unsecured) of FLC shall not exceed 50% of the total lending by FLC; and

c. Working Capital Facilities (secured and unsecured) against their own customer deposits only subject to maximum of the deposit amount.

• Investments: FLCs are permitted to invest in rated corporate bonds listed in Muscat Stock Exchange, subject to maximum of 10% of FLC’s net worth, However, FLCs shall not invest in corporate bonds issued by any related parties or by borrower companies.
• Working hours: FLCs are permitted to change business hours at their discretion, without conflict of any instructions under the labour law, Branches of FLC may operate on all days of the year, without seeking the specific approval of the CBO but with certain conditions as set out in the Circular.
• Exchange Reserve on Foreign Currency Borrowings: FLCs are exempted from creating exchange reserve (20%), in case the foreign currency borrowings (in excess of 40% of net worth) is denominated in US Dollars or in any other currency, where the exchange rate risk is fully hedged.

The above measures are intended to support FLCs to broaden their activities and help in contributing positively to the financing and finance leasing sector and the overall economy of Oman.

How can we help?

Al Tamimi & Company can help to provide comprehensive guidance and support to your Finance and Leasing Company in adapting to the recent regulatory changes introduced by the Central Bank of Oman.