Central Bank of Oman uses a judicious mix of both on-site examination and off-site examination methodology. All banks and FLCs are subjected to an annual on-site examination. Off-site analysis is carried out at regular intervals to gauge the health of the institutions in between on-site examinations. While the on-site rating is given on the basis of examination findings comprising broad-based criteria, off-site ratings are given on the basis of a set of financial soundness indicators, computed on a quarterly basis.
In terms of the provisions of the Banking Law 2000, all licensed banks / FLCs are subject to statutory on-site examinations, at least once a year.
The Banking Examination Department carries out the on-site examinations of banks / FLCs with the objective of obtaining an assurance that these institutions operate in a safe and sound manner and comply with the minimum prudential requirements stipulated by the Central Bank and that the affairs of the banks / FLCs are conducted in a manner not detrimental to the public interest. In addition to annual statutory examinations, Spot or Special Examinations are also carried out, as and when a need arises. Money Exchange Companies that carry out both money exchange business as well as draft issuing business are subjected to annual examination as well.
The on-site examination of banks / FLCs is based on the internationally accepted standards for bank supervision set out by the Basel Committee for Banking Supervision. Currently, examinations are based on the CAMELS model which evaluates the performance of Banks / FLCs with reference to Capital Adequacy, Asset Quality, Management, Earnings, Liquidity and Sensitivity to Market Risk.
During an on-site examination, the compliance of banks / FLCs with a number of prudential requirements, such as capital adequacy, liquidity, large exposures, asset quality, provisioning for non performing loans, related party transactions, income recognition, share ownership, investments, disclosure of accounts etc., is verified. In addition, the internal controls and standards of corporate governance in banks / FLCs are also assessed.
Matters relating to non-compliance with prudential requirements and any weaknesses and deficiencies in the financial conditions, controls and systems of a bank / FLC are brought to the notice of its Board of Directors by the Central Bank to ensure that corrective action is taken by the concerned bank / FLC. Where necessary, penalties are imposed as per an approved matrix of penalties.
Off-site examination of banks / FLCs is carried out by Banking Surveillance Department. Banking Law, 2000 empowers the Central Bank of Oman to collect various prudential returns from banks / FLCs. The main objective of the off-site examination is to monitor the health of the banks / FLCs in between the on-site examinations so as to ensure that the regulated entities are subjected to continuous supervision.
Off-site examination process helps in identifying the early warning signals from the various reports and presenting the findings to appropriate level of management for initiating suitable corrective action. Further, the off-site examination results are also shared with the on-site examiners.
Important off-site activities include:
Scrutiny of Draft Audited Financials of licensed banks and approving their dividend requests and their net worth for prudential purposes
Operationalising the prompt corrective action framework
Analysis of off-site returns – covering asset quality, risk management, country risk, overseas exposure, earnings analysis, liquidity, capital adequacy etc.
Monitoring the level of Omanisation in the banking industry
Monitoring certain categories of loans – personal loans and mortgage loans – where regulatory limits have been prescribed
Monitoring the lending ratio compliance
Monitoring the performance of branches of commercial banks
A systemic review is prepared on a quarterly basis and the same is placed before the Board of Governors. The systemic review report is shared with all the commercial banks. In addition, a supervisory letter is also issued to all commercial banks on the basis of off-site data. Further, the financial soundness indicators of the individual bank, along with comparative position of the previous quarter, the peer group and the industry is also shared with the commercial banks.