Question

please focuse in limited words (200-600 words) ?

Question 3:

A bank is a financial institution that accepts deposits from the public and creates Demand Deposit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. As a citizen of Sultanate of Oman, explain the meaning of bank and financial institutions in detail and light upon on bank and financial institution currently working in the country with a live example?

(10 Marks, Word Limit 200-600)

Answer 1

Financial institutions

Financial institutions are those institutions where financial transactions like deposits, loan etc take place. Financial institutions are mainly divided into two classes as shown in the given below chart:

By analysing the flowchart we can analyse the financial institutions functioning in the financial sector. And Bank is the major financial institutions among these.

Bank are institutions that accept deposits from the public and grant loans to the needy subject to conditions. They operate on the basis of the general guidelines and conditions set by the central bank or the government, as per the constitutional condition of the state in where it belongs to.

It is clear from the chart that the interest is paid for the deposited accepted, similarly it is clear that interest is imposed on the loans provided. The rate of interest on loan will be higher than that of the rate of interest given on deposits. The difference between these interests is main revenue of the Bank. Accepting deposits and providing loans are the major functions of Banks , They provide some other functions too. Let’s see

v Oman boasts a particular liquid banking system supported by a prudent policy of caution growth, and one that has been underpinned by apt monetary policy and a robust economy.

v Mean time the arrival of new institutions in part following a Royal Decree ushering in Islamic banks and sukuk windows at conventional entities for the first time in Oman-has spurred competition for market share, and in consequence a drive for innovation and product diversification.

v The Omani banking sector comprises Nine local banks, Two specialised banks, Nine foreign commercial banks and two fully fledged sharia-complaint Banks.

v Official data reveals that the top three institutions contribute around 62% of total sector assets, while leading   player Bank-Muscat accounts for 37.26% of total sector assets. Oman’s banking sector has seen strong revenue streams in recent years due to relatively high interest margins of personal loans.

Yet, prudence prompted the Central Bank of Oman (CBO) to safeguard personal debt levels among individuals and banks alike by introducing a regulatory change in 2012 to depress the level. The law stipulated that commercial banks could not deduct more than 50% of a borrower's salary as an equated monthly instalment (EMI) for personal loans, while the figure for housing loans was 60%. Meanwhile a 10-year cap on loan repayment tenure reduced the repayment burden. In contrast, and reflecting official preference for stable investments, there was a move to increase the housing loan limit from 10% to 15%. The idea, too, was for increased mortgage finance to improve banks' loan quality, while fuelling the real estate sector in a manner conducive to overall growth in the real economy…