IFRS 9 Regulatory Framework in Oman

Oman’s financial sector is undergoing a steady transformation aligned with Oman Vision 2040, which emphasizes financial stability, transparency, and alignment with international best practices. A key pillar of this transformation is the adoption and enforcement of International Financial Reporting Standard 9 (IFRS 9) – Financial Instruments. Overseen by the Central Bank of Oman (CBO), the IFRS 9 regulatory framework plays a critical role in strengthening risk management, enhancing credit loss recognition, and safeguarding the stability of the banking and financial system.

This article explores the regulatory framework governing IFRS 9 in Oman, highlighting the CBO’s role, supervisory expectations, prudential measures, and the broader impact on financial institutions.

Regulatory Authority and Legal Foundation

The Central Bank of Oman (CBO) derives its supervisory mandate from the Banking Law 2000, which assigns it the primary responsibility of maintaining monetary and financial stability in the Sultanate. In line with global regulatory developments following the global financial crisis, the CBO strengthened its oversight mechanisms by establishing an independent Financial Stability Function in 2011.

As part of this enhanced supervisory framework, the CBO mandated the adoption of IFRS 9 for all licensed financial institutions, reinforcing Oman’s commitment to globally consistent financial reporting and prudent risk management.

Mandatory Adoption of IFRS 9 in Oman

IFRS 9 became mandatory for all banks and financial institutions licensed by the CBO, including:

• Conventional banks
• Islamic banks and windows
• Finance and leasing companies (FLCs)

The regulatory mandate was formalized through CBO circulars, notably Circular BM 1149 (2017), which provided implementation guidance ahead of IFRS 9’s effective date.

Unlike a principles-only adoption, the CBO complemented IFRS 9 with prescriptive supervisory expectations tailored to the Omani financial environment.

Core Components of the IFRS 9 Framework

The IFRS 9 regulatory framework in Oman is structured around three interconnected pillars:

1. Classification and Measurement

Financial assets must be classified based on:

• Business model assessment
  • Hold to Collect
  • Hold to Collect and Sell
  • Other (Trading)
• Contractual cash flow characteristics, assessed through the
  Solely Payments of Principal and Interest (SPPI) test

Based on these criteria, assets are measured at:

• Amortised Cost
• Fair Value through Other Comprehensive Income (FVOCI)
• Fair Value through Profit or Loss (FVTPL)

The CBO requires institutions to clearly document business models, SPPI assessments, and governance approvals, ensuring transparency and auditability.

2. Impairment: Expected Credit Loss (ECL) Model

The Expected Credit Loss (ECL) model represents the most significant regulatory and operational change under IFRS 9. The framework replaces the backward-looking “incurred loss” approach with a forward-looking provisioning methodology.

Three-Stage Credit Risk Framework

Stage	Credit Risk Status	Provisioning	Interest Recognition
Stage 1	No significant increase in credit risk	12-month ECL	Gross carrying amount
Stage 2	Significant increase in credit risk	Lifetime ECL	Gross carrying amount
Stage 3	Credit-impaired (default)	Lifetime ECL	Net carrying amount

CBO Supervisory Focus Areas

The CBO places strong emphasis on:

• Model governance and validation
  • Regular back-testing of PD, LGD, and EAD models
  • Independent model validation processes
• Forward-looking macroeconomic inputs
  • Use of Oman-specific and global economic indicators
  • Multiple economic scenarios with probability weightings
• Data quality and integrity
  • Complete, accurate, and granular historical credit data
  • Clear audit trails for assumptions, overlays, and stage transfers

The regulator closely scrutinizes management overlays and expert judgement to prevent bias and ensure prudence.

3. Hedge Accounting

IFRS 9 introduced a more flexible hedge accounting framework aligned with risk management practices. While optional, institutions applying hedge accounting must ensure:

• Formal hedge documentation
• Demonstrated hedge effectiveness
• Alignment with internal risk management objectives

The CBO expects consistency between hedge accounting treatment and actual risk mitigation strategies.

Prudential Measures and Capital Management

Transitional Capital Relief

Recognizing that IFRS 9 often leads to higher provisions and reduced retained earnings, the CBO allowed transitional capital arrangements at adoption. These prudential filters enabled banks to:

• Add back a portion of IFRS 9’s initial impact to Common Equity Tier 1 (CET1) capital
• Phase out the relief gradually over a defined period

This approach ensured that IFRS 9 adoption did not cause abrupt pressure on capital adequacy ratios.

Prudential Provisioning Overlay

Historically, the CBO has applied prudential provisioning norms that may exceed IFRS 9 requirements. Where CBO provisioning exceeds accounting provisions:

• The excess (net of tax) is transferred to a non-distributable Impairment Reserve
• This ensures strong capital buffers and limits dividend distribution risk

Special Considerations for Islamic Banking

Oman’s growing Islamic finance sector introduces additional complexity into the IFRS 9 framework. Islamic products such as Murabaha, Ijara, and Musharakah often involve profit-based or asset-backed cash flows.

The CBO requires Islamic banks to:

• Apply IFRS 9 while remaining compliant with Shariah principles
• Carefully assess SPPI compliance
• Develop tailored ECL methodologies for Islamic contracts

In practice, this often results in dual-layer governance, balancing accounting standards and Shariah oversight.

Supervisory Review and Risk-Based Supervision

The IFRS 9 framework is embedded within the CBO’s Risk-Based Supervision (RBS) model. During on-site and off-site examinations, supervisors assess:

• ECL model performance and stability
• Governance and oversight structures
• Data management and system integration
• Alignment between accounting outcomes and risk profiles

Findings from IFRS 9 reviews directly influence supervisory ratings and capital assessments.

Conclusion

The IFRS 9 regulatory framework in Oman extends far beyond accounting compliance. Through strong regulatory oversight by the Central Bank of Oman, IFRS 9 has become a strategic tool for financial stability, enhancing early risk identification, capital resilience, and market confidence.

By integrating IFRS 9 within a broader micro- and macro-prudential framework—alongside Basel III, risk-based supervision, and financial stability monitoring—the CBO has positioned Oman’s financial sector to withstand economic cycles while supporting sustainable growth under Vision 2040.

For financial institutions, success under this framework depends on robust governance, high-quality data, sound models, and regulatory alignment—transforming IFRS 9 from a regulatory obligation into a cornerstone of prudent financial management.

FineIT supports banks and financial institutions in Oman with end-to-end IFRS 9 services aligned with Central Bank of Oman (CBO) requirements. From ECL model development and validation to data governance, system integration, and Islamic finance advisory, we help turn IFRS 9 compliance into a strategic advantage.

📩 Contact FineIT to strengthen your IFRS 9 framework and enhance financial resilience in Oman.