Oman: Opening up banking

With initial public offerings (IPOs) set to inject much needed capital into the sector and a new independent authority ready to promote transparency and oversee expansion, the Omani banking sector looks set for a period of further development.

The Sultanate’s commercial banks have already seen substantial growth recently: total deposits have increased markedly, from about $27.25bn in December 2010 to around $32.63bn in December 2011, a 19.8% year-on-year increase. The combined balance sheet of commercial banks has also exhibited healthy growth over the past year, with total assets rising by 17% to OR18.4bn ($47.8bn) in January 2012 compared to OR15.7bn ($40.8bn) a year earlier, local media reported in March.

This, coupled with investment in other sectors of the economy, including some OR10.4bn ($27bn) in investments planned for the construction sector by 2014 and another OR386m ($1bn) set for oil and gas projects, Oman’s banks will likely continue to show healthy loan books this year.

To keep up with the increased need for funding and further support asset growth, several of Oman’s banks are planning to increase their capital. Bank Nizwa, the country’s first Islamic financial institution, is planning to roll out sharia-compliant services and products in the third quarter of this year and aims to offer a OR60m ($155.4m) IPO next month. The issue will be offered at a fixed price by Oman Arab Bank and will be open for one month. According to local media, Bank Nizwa will have a paid-up capital of OR150m ($388.5m).

The Capital Market Authority told the Oman Observer in early March that Bank Nizwa had not yet submitted a prospectus asking the regulator for permission, but added that provided the bank meets requirements it should be able to hold the IPO in April. The bank then intends to open its first three branches in Muscat, Nizwa and Sohar and eventually plans to offer an entire portfolio of commercial banking services.

Oman’s second Islamic bank, Al Izz International Bank, is also planning to launch an IPO in the first half of 2012, with the $103.6m issue to be managed by Bank Muscat. Oman Arab Bank has also said it will float 25% of its shares on the market this year.

There is expected to be huge pent-up demand for the first IPO. “The long-term retail money, which has been lying idle, will be invested in the first IPO,” Kanaga Sundar, a senior research analyst at Gulf Baader Capital Markets, told the Times of Oman in early March.

In addition to Bank Nizwa, other banks in the Sultanate are planning to begin offering Islamic financial services as well. BankDhofar is planning to roll out sharia-compliant services in the near future, and the National Bank of Oman (NBO), the second-largest financial institution in terms of assets, announced in February that it would begin offering sharia-compliant services by year-end.

“We've got a whole team working on the Islamic window,” Salaam bin Said Al Shaksy, the CEO of NBO, told Reuters in an interview in late February. “We are trying to launch it between the second and third quarter. Of course, the sooner the better for us.”

Overseeing all of this growth will be the newly formed Omani Association of Banks, formed in late February by the chief executives of a number of financial institutions operating in the Sultanate. Among the signatories were representatives of local and international banks, including the NBO, Bank Sohar, Beirut Bank, the State Bank of India and HSBC.

The organisation will initially comprise 56 members, made up of the senior executives of Oman’s seven local banks, 10 foreign banks and two specialised banks currently in operation. The association will work with the Central Bank of Oman (CBO) to promote greater levels of transparency and ensure that local banking practices are in line with international standards laid out by the World Trade Organisation and other entities.

The fact that the banks are expanding their asset bases, developing Islamic financial services and pursuing greater transparency not only supports local growth but is also likely to attract greater levels of foreign investment.

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