Combined assets of the country’s Islamic banks and Islamic banking windows rose 10.5% year-on-year to RO10.1 billion at the end of July 2026, according to the latest data from the Central Bank of Oman (CBO). Islamic banking now accounts for about 19.1% of total banking-sector assets.

The growth has been driven primarily by financing. Outstanding financing provided by Islamic banks and windows increased 10.9% year-on-year to RO8 billion by the end of July, while deposits rose 10.3% to RO8 billion.

Oman’s Islamic banking industry comprises two fully fledged Islamic banks and five Islamic banking windows operated by conventional lenders. The sector has expanded rapidly since the CBO introduced its Islamic Banking Regulatory Framework in 2012.

By the end of 2024, Islamic banking assets had already reached RO8.3 billion, representing 19.3% of the banking system.

Fast-growing Gulf market
The expansion has placed Oman among the faster-growing Islamic banking markets in the Gulf.

Moody’s Ratings said Oman recorded the highest compound annual growth rate among GCC Islamic banking markets over the past five years, at 12%, compared with about 10 per cent in Saudi Arabia, the UAE and Kuwait.

The ratings agency expects demand from both retail and corporate customers to continue supporting growth.

Corporate financing is becoming particularly important. At Oman’s two standalone Islamic banks, corporate financing represented 63% of total gross Islamic financing in 2025, while retail financing accounted for 37%.

Corporate financing grew at a compound annual rate of 12% between 2020 and 2025, compared with 8% for retail financing, according to S&P Global Ratings.

The trend reflects the expansion of Oman’s non-oil economy and demand for financing from companies operating in sectors targeted under the country’s economic diversification strategy.

Industry restructuring
The sector is also entering a period of structural change.

The CBO introduced an Islamic Banking Windows Conversion and Transformation Framework in July, establishing a phased process from 2026 to 2030 for Islamic banking windows operated by conventional banks to transition towards standalone Islamic banks.

The central bank says the reform is intended to strengthen governance, accountability and operational autonomy while giving institutions sufficient scale to compete regionally.

One potential consequence is consolidation. Bank Nizwa has proposed acquiring and merging Alizz Islamic Bank, a transaction that Moody’s said could create Oman’s largest standalone Islamic bank if completed.

The CBO is simultaneously seeking to deepen the Islamic capital market. Its initiatives include developing Wakalah certificates of deposit and Islamic government treasury bills, alongside efforts to accelerate domestic sukuk issuance.

Asia Al Raisi, the CBO’s deputy chief economist for investment and market operations, said a deeper domestic sukuk market could diversify funding sources, finance productive investment and attract a wider investor base.

From growth to depth
The next challenge for Oman’s Islamic finance industry is therefore less about expanding its headline balance sheet and more about building deeper and more liquid markets.

Industry executives speaking at the IFN Oman Forum said Islamic banking and sukuk had achieved considerable scale, but asset management, takaful and other capital-market products remained relatively small. Oman’s Islamic finance industry could reach about USD 45 billion in assets this year, according to industry estimates.

Asset quality will also require monitoring as portfolios mature. S&P estimated Islamic banks’ non-performing financing ratio at 3.6% at the end of 2025, with exposure to cyclical sectors such as real estate and construction accounting for about 12% of portfolios.

For Oman, the expansion of Islamic banking is increasingly tied to the wider economic transformation agenda. The CBO has identified deeper Islamic money markets, sukuk development, responsible digital innovation, stronger governance and greater financing for diversification sectors as priorities.

With assets now above RO10 billion, the sector has established a significant foothold in Oman’s financial system. Its next phase will depend on whether the country can convert that scale into deeper capital markets, broader investment products and stronger regional competitiveness.

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