The Central Bank of Oman (CBO) has issued an order to commercial banks that may improve the flow of letters of credit (L/Cs) to Oman's small- and medium-sized enterprises (SMEs).

The order says that L/Cs will soon be counted as eligible funding in the CBO's requirement that commercial banks must provide SMEs with a minimum of five per cent of the total credit they extend.

Non-funded credit

Until the CBO's order, only funded credit could be counted in the five per cent SME credit requirement.

Commercial banks will now be able to count non-funded credit where there is no direct bank lending, including L/Cs or guarantees, towards their SME funding requirement.

The banks are however restricted to counting only one per cent of non-funded credit towards the requirement.

Bank statement

The CBO is keen that banks' main focus remains on funded credit. "To avoid a possible lack of focus on funded credit, it has been decided to allow banks to reckon non-funded credit up to a maximum of one per cent of total credit for the purpose of monthly/quarterly reporting in respect to the set five per cent target," the bank said in a circular.

The revised requirement will become effective in June this year.

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