Oman: Promise in bond programmes

Several leading Omani banks have recently moved ahead with plans for large bond issues, with this underscoring the broader confidence in the banking sector at a time of sustained high oil prices and positive economic growth.

The National Bank of Oman (NBO), the Sultanate’s second-largest lender in terms of assets, received shareholder approval in late March for a $600m bond programme that will likely enhance its ability to tap into international markets.

NBO’s move follows hot on the heels of a new $800m bond programme at BankMuscat, the country’s largest lender by market value, which won shareholder approval in February. Bank officials there have said the money raised from the issue will be used to help fund medium-term lending.

These new bond offerings come amidst optimistic announcements on this year’s prospects by officials of Oman’s central bank. Hamood Sangour Al Zadjali, executive president of the Central Bank of Oman (CBO), has predicted a 20% rise in bank profits and sound growth for the economy as a whole. On the sidelines of a Gulf central bankers’ meeting in Abu Dhabi in March, Al Zadjali told news agency Reuters that he expected Oman’s economy to grow by 5-6% in 2011.

A survey conducted by Reuters in March had a slightly less rosy outlook, cutting Oman’s expected growth for 2011 from 4.6% to 4.1% following official moves to raise wages, increase social benefits and reshuffle the cabinet.

NBO is using a $600m Euro Medium Term Notes (EMTN) programme to issue its bonds, enabling the use of private placement or public subscription in various currencies and on varying terms, the bank said in a statement. The bank’s profits fell 16% in the fourth quarter of 2010, to OR5.5m ($14.m), from OR6.54m in the same period of 2009, according to Reuters.

However, Salaam Said Al Shaksy, NBO’s CEO, told local media in March that 2010 was a year of consolidation and streamlining. “We re-energised our operations, our manpower, strengthened our risk management and corporate governance. Moreover, we addressed the various needs of our customers and stayed focused on their demands, established market research, as well as upgraded our technology,” he said.

Al Shaksy added that he expected to see positive growth in 2011. “We are aiming to have stronger financial results this year compared to 2010 by aggressively broadening and deepening our customer base. We will also manage our costs and improve our operational efficiency,” he said. NBO has appointed international consulting group McKinsey & Company to develop a five-year business strategy, according to Al Shaksy. NBO reported a full-year net profit of OR27.2m ($70.62m) in 2010, in a statement made to the Muscat bourse in January. Net loans and advances in 2010 were the same as the previous year, at OR1.36bn ($3.53bn), while customer deposits rose by 5.1%, the statement said.

NBO’s general manager of wholesale banking, Humayun Kabir, has said that the bank’s bond programme is aimed at refinancing existing dollar loans and meeting the requirements of Omani companies, particularly in the area of project finance. Kabir told the local press that while there are ample riyal funds, several corporate clients in Oman are looking for dollar-denominated funds from local banks.

“In order to meet these requirements, we have to raise long-term dollar funds from international markets,” Kabir said. The bank has also announced that it will consider a cash dividend payout of 15% for 2010.

Results for 2010 were also strong at BankMuscat, which last month announced a 37.8% growth in net profit at OR101.6m ($265m) for 2010, thanks to recovery in loan growth – a significant increase over the OR73.7m ($192.2m) in net earnings achieved in 2009. The bank’s net loans and advances portfolio grew by OR169m ($440m), or 4.4 %, to OR4bn ($10.4bn) in 2010, up from OR3.84bn ($10bn) for the same period previous year.

“We anticipate strong response to the euro bond issue,” Sheikh Abdul Malik bin Abdullah Al Khalili, chairman of BankMuscat's board of directors, told local media. “The proceeds will be utilised to meet the dollar-denominated project financing requirements. The proposed euro bond issue highlights the economic potential of Oman and the GCC region,” he added.

With government revenues likely to rise on the back of sustained high hydrocarbons prices and the CBO pegging GDP growth at 5-6% for the year, the potential of Oman’s banking sector – and indeed its wider economy – looks set to be squarely on investors’ radars in 2011.

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