Oman has bolstered the stability and resilience of its banking sector through the recent enactment of the Bank Deposit Protection Law (Royal Decree 47/2024) (BDPL). This legislation introduces a comprehensive framework for safeguarding depositors and enhancing public confidence in the financial system, across conventional and Islamic banking sectors. Through specialised funds and stringent regulatory requirements, the BDPL is positioned to encourage savings, mitigate banking risks and protect depositors in case of bank failure, with all eligible deposits automatically covered under the system.
This article provides an overview of three key components of the BDPL and highlights the implications for Omani financial institutions and depositors.
1. Establishment of Deposit Protection and Takaful Funds
A central feature of the BDPL is the creation of two specific funds, as part of a scheme dedicated to the protection of bank deposits:
- Deposit Insurance Fund which protects deposits in conventional banks.
- Takaful Fund which protects deposits in Islamic financial institutions.
These funds aim to compensate depositors for eligible deposits in the event of a bank failure, with each fund initially capitalised at 10 million Omani Rials. The Central Bank of Oman (CBO) contributes half of this amount to each fund, while licensed banks or Islamic financial institutions contribute the remaining half.
Ongoing regulatory oversight from the CBO will ensure these funds remain adequately capitalised and effectively managed. Financial institutions must also make annual contributions, proportional to their total deposit balances, to sustain these funds. The creation of these funds is intended to bolster depositor confidence and reduce the risk of bank runs, reassuring depositors that they can recover their funds even in times of economic or financial instability.
2. Deposit Coverage and Eligibility
The BDPL specifies a compensation limit for insured deposits, capping the amount at 20,000 Omani Rials per depositor (which may be amended by the CBO, depending on economic and financial conditions). All deposits eligible for coverage by the scheme for the same depositor in several banks will be dealt with independently, so that the depositor is entitled to receive a maximum of 20,000 Omani Rials from each bank. This limit applies to various types of accounts, covering individual and corporate depositors with the following eligible accounts:
- savings accounts;
- current accounts;
- temporary deposits;
- term deposits;
- government deposits;
- deposits of credit funds, pension funds, and any other similar deposits; and
- any other deposits determined by the CBO.
This deposit coverage limit introduced by the BDPL ensures that depositors can rely on their deposits for personal or business needs. This protection is designed to bolster public trust in the stability of the financial system. However, certain deposits are excluded from this coverage, including deposits held by: bank executives, external auditors and affiliated companies of the depositors registered under the scheme. The payment of compensation amounts to depositors must be made within 7 working days of a bank’s liquidation or suspension, thus ensuring swift resolution for depositors.
3. Compliance, Governance and Confidentiality
The BDPL enforces stringent governance standards for the Deposit Insurance Fund and the Takaful Fund, with a management committee appointed by the CBO, which is responsible for overseeing the funds’ operations. Regular audits and annual reporting requirements have been introduced to maintain transparency, with fund performance reports also to be made available to the public.
As a means of reinforcing the commitment to depositor protection, banks will face a range of administrative penalties for non-compliance, including: fines, suspensions or removal from the commercial registry. In cases where banks fail to make required fund contributions, the CBO is authorised to deduct overdue amounts from their Central Bank accounts or levy administrative fines.
Article 29 of the BDPL emphasises the confidentiality of information related to the Deposit Insurance and Takaful Funds. All individuals with access to this information due to their roles including management committee members, the CBO employees, bank employees, auditors, and consultants are prohibited from disclosing it. This obligation extends beyond their employment. A violation of these confidentiality obligations shall incur a sentence to imprisonment for a period between 3 months - 3 years, and to a fine between 10,000 - 50,000 Omani Rials.
However, the BDPL allows disclosure of information in the following defined circumstances:
- to perform official duties where it is necessary for employees or officials to carry out their responsibilities related to fund management (as decided by the management committee);
- the CBO authorises disclosure, if it deems it appropriate, based on specific circumstances; and
- as required by another law, or a judicial ruling or decision.
These conditions ensure that sensitive information remains protected, with limited, clearly defined circumstances for disclosure only when legally or operationally necessary.
Conclusion
The introduction of the BDPL is set to usher in a new advancement to the regulatory landscape in Oman, to align the Sultanate’s banking protections with international best practices. Financial institutions must adhere to strict defined requirements, including: the maintenance of accurate deposit records, confidentiality protections and compliance measures, along with regular contributions to the newly established funds. The dual focus on conventional and Islamic banks ensures comprehensive coverage across the sector, supporting financial resilience and depositor trust. For depositors, the BDPL delivers an additional layer of security, ensuring that their deposits are protected up to the specified limit.
Next Steps
Depositors and financial institutions alike are encouraged to understand the BDPL’s provisions to ensure compliance and fully exercise their rights under this new protective framework. The details of the management and enforcement procedures of the new scheme under the BDPL shall be specified in the Implementing Regulation of the BDPL, to be issued by the CBO in the coming months. Therefore, the effectiveness of the BDPL will become clearer once compliance is monitored over a period of time, after the Implementing Regulation is in place.
For further guidance on how the BDPL may affect your business or personal banking needs, please reach out to our legal team for tailored advice and support.
This article was prepared with the assistance of Ahmed Al Wahaibi, trainee in CMS Oman.
