The Central Bank of Oman, set up in April 1975, has powers to regulate credit and is authorized to make temporary advances to the government.
Banks in Oman are generally in good financial shape because of close regulation by the Central Bank of Oman. All commercial banks in the sultanate instructed to raise their paid-up capital to RO 10 million for local banks and RO 3 million for foreign banks. The Central Bank of Oman advised all banks which were unable to comply with these new requirements to merge with other commercial banks. The Central Bank has been encouraging banks to merge in order to cut down on the oversupply of banking services. Banks are required to maintain a 12% level of capital adequacy and restrict consumer lending to 30% of the loan portfolio. In 2002, there were 15 local and foreign commercial banks and four specialized banks. The largest local bank is Bank Muscat, created through a merger of the former Bank Muscat and the Commercial Bank of Oman. In 2002, it had assets of $3.4 billion, deposits of $2.4 billion, and was followed in size by the National Bank of Oman, Oman International Bank, Oman Arab Bank, and Bank Dhofar Al Omani Al Fransi.
The British Bank of the Middle East (BBME) was the first foreign bank to establish itself in Oman in 1948. Today, foreign banks, in descending order of local branch asset size, include British Bank, Standard Chartered Bank, The British Bank, Bank of Baroda, Bank Saderate Iran, Bank Melli Iran, Banque Banorabe, National Bank of Abu Dhabi, and Citibank. The banking sector has been under pressure to increase its proportion of Omani staff to 90%, but the deadline for such a move has been progressively delayed. Because of the proliferation of branches concentrated in coastal areas, commercial banks now have to open two branches in the interior for every branch opened along the coast. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $1.8 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $6.8 billion.
An Omani stock market, the Muscat Securities Market (MSM), was officially established in 1988, but trading did not begin until the following year. By 2001 there were 91 companies listed on the exchange with a combined capitalization of $2.6 billion. The MSM has now established a link with the Bahrain Stock Exchange (BSE) where shares can be cross-listed. A similar agreement with Kuwait is expected. The MSM Index showed a25.4% loss in 2001 a mere four years after posting a spectacular 141% gain in 1997. The drop-off has been attributed to speculation, over-valued offerings, the impact of the Asian financial crises, and the drop in oil prices.