Oman's central bank has set new caps on banks' credit exposure to non-residents and funds placed abroad, giving lenders six months to comply.

The move comes after the government and regulators last month set up a financial stability committee to monitor and manage risks in the banking and capital markets.

"The banks which are in excess of the prudential limits prescribed under the guidelines are granted up to six months from the date of this circular to bring down their exposures within the prudential limits or the maturity of their exposures, whichever is earlier," a central bank circular said.

"It is advised that the circular together with the guidelines come into force with immediate effect," said the document, dated March 31 and posted on the central bank's website.

For local banks and their overseas units, as well as branches of foreign banks in Oman, aggregate funded credit exposures to non-resident borrowers other than banks are capped at 20 per cent of the bank's local net worth. Including non-resident borrowers which are banks, the cap is 30 per cent.

A limit of 2.5 per cent of net worth was set for each individual non-resident borrower other than a bank, and 5 per cent for each bank borrower.

"Any credit exposures of $5 million and above to any non-resident borrower other than a non-resident bank shall be assumed only through the route of syndication," the circular said.

Among many other rules, banks are required to report credit exposures in foreign currency within 15 days of the end of each quarter.

"The objective of prudential regulations is to cap the risks at a particular level and manage them in a manner which promotes the safety and soundness of the individual financial institutions and strengthens the stability of the financial system," the circular said.

The central bank also said foreign currency balances of local lenders and foreign bank branches in the sultanate should not exceed 60 per cent of local net worth. It gave banks 10 days after the end of each quarter to report how much funds they had placed abroad.

"Banks are advised to be careful in assuming credit exposures to/making placements with non-residents (including banks) and/or in countries which are rated below investment grade," the circular said.

"Such high risk exposures in aggregate should not exceed 15 per cent of the local net worth of the bank with a cap of 5 per cent on a single country."

It was not immediately clear whether Omani authorities believed banks' exposure was already at risky levels, or were simply seeking to prevent risk from building in future.

Non-resident assets accounted for only 11.5 per cent of Oman commercial banks' total assets of RO22.35 billion ($58.1 billion) at the end of last year, according to central bank data. That was down from 12.7 per cent at the end of 2012.

Oman is spending heavily on large industrial projects to diversify its economy beyond a heavy reliance on diminishing reserves of oil and gas. Rising pressure on state finances may prompt the Omani government to return to the international debt markets in coming years for the first time since 1997.-Reuters