The OER-Gulf Baader Capital Markets survey of the Best Banks in Oman 2011 sees prudent and steady players doing well. The following pages present a comprehensive overview of the Sultanate 's banking sector
The global finance industry may not be going through the best of times, but Oman's banking sector has put up a performance that can be summed up in one word - consistency. This finds a reflection in the OER-Gulf Baader Capital Markets Best Bank's in Oman survey 2011.
Industry structure and performance
The domestic economic scenario witnessed improvement in 2011, driven by higher oil revenue and prudent macro-economic policies adopted by the government. Higher than forecasted oil revenue is expected to result in budget surplus for the year despite an increase in government spending. Inflation has remained at acceptable levels and IMF forecasts inflation to moderate to 3.3 per cent in 2012.
It is also noteworthy that the domestic economy and the banking system were not adversely impacted by various regional and international events. The Central Bank of Oman (CBO) has expressed its satisfaction with the current position in its review of banking and monetary developments in 2011. Despite adverse international developments, the Omani banking sector continued to show optimism and resilience during 2011, consistent with the good performance of the real economy.
The banking industry in the Sultanate is mature, developed and highly competitive. There are seven local and ten foreign banks in the market creating both opportunities and challenges to achieve optimal performance. The economic and banking industry outlook for the year 2012 is positive as a result of prudent macro-economic initiatives implemented by the government. The fiscal budget for 2012 has a strong emphasis on growth. Privatisation and infrastructure development are among major focuses to achieve economic growth and diversification.
The CBO continued to pursue an accommodative monetary policy during 2011 to support economic recovery. Consistent with sustained growth of the real economy, total assets of commercial banks jumped 17.5 per cent to RO18.4bn as of December 2011, from RO15.64bn for the corresponding period of 2010. Aggregate deposits of commercial banks, on a year-on-year basis, increased to RO12.6bn during 2011, from RO10.51bn in 2010. The credit growth also accelerated by 16.6 per cent to RO12.51bn as of December 2011 from RO10.72bn during the same period in the previous year.
Reflecting comfortable liquidity condition, both deposit and lending rates in Oman moved downward over the year. While the weighted average rial deposit rate fell from 1.85 per cent in September 2010 to 1.45 per cent in September 2011, the weighted average rial lending rate declined from 6.98 per cent to 6.43 per cent during the same period. Commercial banks' interest rate spread was under mild pressure as it fell from 5.14 per cent in September 2010 to 4.98 per cent in September 2011.
Signalling international confidence in the Omani banking sector, global credit rating agency Standard & Poor's upgraded the Banking Industry Country Risk Assessment (BICRA) rating to group '4' from group '5' in November 2011. The rating agency also upgraded Oman's economic risk score to '4' from '6' and assigned an industry score of '4.' S&P's BICRA analysis for a country is designed to evaluate and compare global banking systems on a scale from '1' to '10,' ranging from the lowest-risk banking system (Group 1) to the highest-risk banking systems (Group 10). After the upgrade, Oman stands with Brazil, Kuwait, Malaysia, South Africa and Taiwan in Group 4. In a statement on its website, S&P said, "Oman's institutional framework is shaped by what we view as the regulator's good track record, and adequate regulation and supervision, which are increasingly aligned with international standards."
In a major development with important ramifications for the banking and financial sector, the Omani government gave its nod for the introduction of Islamic banking services in the Sultanate. Following Royal Order in this regard by His Majesty Sultan Qaboos bin Said in May 2011, the CBO issued a landmark circular (BM 1081) to all licensed banks operating in the Sultanate. The circular authorises the conduct of Islamic banking through exclusive Islamic banks and windows of existing licensed banks. The CBO has also mandated a minimum capital requirement of RO10mn for Islamic banking windows.
A number of leading Omani commercial banks have since unveiled plans and strategies to offer shariah-compliant banking products and services to their customers. The market regulator, the CBO has also issued licenses for the establishment of two new banks - Bank Nizwa and Al Izz International Bank - which will exclusively focus on offering Islamic banking services. The new banks are expected to commence operations as soon as the legal and regulatory framework for Islamic banks is finalised. Bank Nizwa and Al Izz International Bank are expected to start operations sometime in 2012.
And the winner is ...
As expected, the Best Banks 2011 survey throws up quite a few surprises. Ahli Bank has emerged as the No. 1 bank in Oman based on an all round performance by reporting stronger growth along with better asset quality and productivity. The bank has been able to show stronger performance during the last three years. Bank Dhofar has been ranked No.2 with the bank continuing its stable performance despite the presence of one off expenses during 2011. In terms of efficiency parameter, the bank holds No. 2 position. Oman Arab Bank has come out as No.3 bank in the ranking with the bank doing well on sustainability. The bank has maintained its No.1 position in terms of efficiency, which is noteworthy.
Says Kanaga Sundar, senior manager- research, Gulf Baader Capital Markets, "Bank Muscat stood at No. 4 in the overall ranking due to the prevailing legacy issues and the sustained level of growth has to come in from a higher base. Despite this, the bank has maintained its No. 1 position in terms of productivity." Bank Sohar, the new entrant to the current year ranking process has come out as No. 5 with a strong performance in growth cum asset quality parameters.
National Bank of Oman stood as No. 6 in the overall ranking, though it fared much better in terms of growth. Oman International Bank has been ranked as No. 7 in the ranking with the bank reporting lower growth rates as compared to the industry during the last three years.
Crystal gazing
Oman's 2012 budget foresees a nine per cent growth in public spending, with an allocation of a total of RO10bn for public expenditure. There is a clear focus on social aspects with increased current expenditure on areas such as education, health and social security by 18 per cent. The expected spending level in 2012 will be slightly more than 2011 outlays. The nine per cent growth in public spending covers most of this committed expenditure, as well as additional requirements resulting from providing increased employment opportunities for the Sultanate's citizens. And these augur well for the growth of the Sultanate's banking sector.
Maintaining momentum
HE Hamood Sangour Al-Zadjali, Executive President, Central Bank of Oman shares his views on the Sultanate's banking sector in an exclusive interview with OER
How was the banking sector's performance in 2011?
Consistent with the sustained recovery of the real economy, Omani banking sector continued to exhibit accelerated growth and optimism during 2011. Total assets of commercial banks increased by 17.5 per cent to RO18.4bn in 2011 compared to RO15.6bn in the previous year. Aggregate deposits of commercial banks, on a year-on-year basis, increased by 19.6 per cent to RO12.6bn as at the end of December 2011. Total credit expanded by 16.7 per cent during the year to reach RO12.5bn. Commercial banks earned a provisional net profit of RO265.7mn in 2011 which was 7.3 percent higher than RO247.7mn registered in the previous year. The system-wise capital adequacy ratio for commercial banks as a percentage of total risk-weighted assets remained at a satisfactory level of around 16 per cent as against the minimum mandatory requirement of 12 per cent prescribed by the CBO.
What were the regulatory measures taken by the Central Bank of Oman (CBO) to strengthen the banking sector in the Sultanate?
Although financial stability was maintained in Oman even during the worst phase of the recent global financial crisis, CBO's endeavour has been to safeguard and strengthen the financial system in the medium term against global and regional shocks. The CBO initiated a number of regulatory and supervisory measures to improve efficiency of the banking sector. The Omani banking system adopted Basel II capital adequacy framework since January 2007. Risk-based supervision is being implemented in Oman and the information is being integrated with the off-site monitoring to keep a constant vigil over the banking system. The system level aggregation of micro-prudential indicators is being done to generate financial soundness indicators. Since financial stability has emerged as a global problem, CBO has taken timely action in setting up a financial stability unit for macro-prudential supervision of the financial system and to produce financial stability reports on a regular basis.
The global economy has been going through a phase of uncertainty, has this had an impact on Oman's macro-economy?
Despite global uncertainties, the Omani economy continues to maintain the overall growth momentum mainly due to sustained rise in crude oil prices in the international markets. Increase in government expenditure and easy monetary policy also contributed to maintain domestic demand. The slowdown in global merchandise trade had limited impact on Omani exports as the direction of Omani exports has been more diversified towards the emerging market economies. However, the downside risks to growth in Oman will be due to prevailing global uncertainties, particularly in the euro area. Both the government and CBO are keeping a close vigil over the global developments and shall take necessary action as and when required to contain the spillover of the global slowdown.
The CBO has allowed Islamic banking in Oman, what impact will this have on the banking sector and the economy at large? How much ground work has been done regarding Islamic banking and when can we expect the first set of regulations to come out?
The CBO is confident that the advent of Islamic banking will have a positive impact on the economy. Oman offers a large potential for the growth of Islamic banking, opening up new segments and players both from banks within and investors from abroad and thus providing opportunities for new foreign investments. Banks are optimistic that they will be in a position to significantly increase business and this will augur well for the economy as a whole. Islamic banking is expected to complement the conventional banking in promoting development in the economy. In a competitive environment, bank customers should get the benefit of choosing between both conventional and Islamic banking products. This will enhance product diversification in the banking system.
The CBO has already given licenses for two new Islamic banks and allowed existing conventional banks to open windows for Islamic products with appropriate segregation of funds. They will become operational as soon as formalities such as regulatory requirements, raising of fresh capital and constitution of management are met. The CBO is finalising the framework of regulations in consultation with banks and it is expected to be out by the first half of the year.
How do you see the banking sector in Oman performing in 2012?
The banking sector in Oman continued its optimistic growth trend in 2011 consistent with the overall GDP growth. Banks remained sound, resilient and profitable due to appropriate regulatory and supervisory policies adopted by the CBO. The Eighth Five-Year Development Plan (2011-2015) aims at promoting an economic environment capable of sustaining long-term growth. The pace of economic diversification will further promote the role of the private sector in the development process. Under the plan, the CBO will continue to enhance the role of the banking sector in the economic development by encouraging credit growth to productive sectors including SMEs. The advent of Islamic banking is expected to complement the current conventional banking in promoting growth in the economy. The outlook for 2012 remains positive with increased business for banks amidst a stable domestic macroeconomic environment.
The numero uno
A combination of efficiency, prudence and healthy growth has helped Ahlibank to emerge as a clear leader in the banking sector. Abdulaziz Al Balushi, CEO, Ahlibank shares the winning strategy of the bank in a candid chat with OER
Ahlibank has come up with a strong performance in 2011. Can you share the highlights of your 2011 performance?
Ahlibank had an excellent year not just in terms of the bottomline, but in all areas of our business. We managed to reduce our cost of funds and grow our quality assets. We maintained our productivity at the highest levels in the country and if you look at the return per employee, the bank which is second is almost half of our figure. So our efficiency has been very good. Our non performing assets (NPAs) have been maintained at one per cent or below that level for the last five years, and this is a great achievement. In terms of SMEs we have only three accounts that are NPAs while in corporate banking we have zero NPAs. So our quality of assets and our quality of earnings are very good. Overall, we have had a very impressive bottomline. Our balance sheet has grown impressively, to put things in perspective since 2008 our loan book has grown by 3.25 times and this growth has come from new businesses like corporate and retail banking.
Talking of numbers, we have had a very good financial year. Some of the highlights of 2011 are as follows:
The bank's net operating income has increased by 37 per cent to RO35.31mn.
Net profit after tax rose impressively by 29 per cent to RO18.22mn
Our loan book grew by 17 per cent to RO769mn
Deposits growth by six per cent to RO669mn. This is because we mobilised RO40mn through a subordinated debt issue in December 2010
NPL ratio at one per cent, which is the lowest amongst banks in Oman
Our cost to income ratio was 30 per cent again the best by industry standards
The growth has been consistent, quarter over quarter and year over year
All our financial ratios and objectives have been met
What are the measures taken by ahlibank to strengthen its retail lending and corporate finance/project lending in the year gone by?
As we wanted to reduce our concentration risk we did not focus on big projects in 2011. From the beginning of 2008 the gross loan has gone up 3.25 times to RO 776mn. On December 31, 2007 this figure stood at RO239mn. Corporate loans have grown by 11.6 times to RO411mn in 2011 from RO35mn as of December 2007. Retail loans have gone up by 1.8 times at the end of 2011 to RO365mn from RO204mn on December 31, 2007. The bank achieved a personal corporate loan ratio of 47 per cent as of December 31, 2011.
The above was achieved in a prudent way with established robust risk management policies which is reflected in the quality of assets (NPL ratio of one per cent as of 31-Dec-2011). The retail growth was achieved due to an increase in the branch network and a dedicated sales force. We have had several promotional schemes for the government and quasi-government sectors. The bank's process control have helped to reduce turnaround times and improve customer service. Our enhanced net-worth and risk participation with our strategic partner has enabled us to finance some large projects during the year.
The CBO has permitted Islamic Banking in Oman, what impact will this have on the Sultanate's banking sector and what are ahlibank's plan in this direction?
Islamic banking will be another choice being offered to customers who would wish to practice individual faith and belief. The potential would be to attract customers who are currently not availing any banking facilities due to lack of an alternate option as well those who for similar reasons have invested their funds elsewhere in the GCC. Global predictions on the growth of Islamic banking in the years to come are very encouraging and Oman would have its fair share of business. The CBO has granted Islamic Banking licenses to two new banks which will be wholly Islamic and it is expected that most local banks will have Islamic banking windows. Competition amongst local players is bound to increase and there will be some advantage for the first comers to this new business. Ahlibank's strategic partner has developed expertise in Islamic banking and the transfer of this to Ahlibank is almost complete. We have made quite a lot of progress in preparing for the launch of Islamic banking and these are as follows:
A Shari'a Board has been constituted
We have launched our Islamic banking logo and brand
Core banking system to support Islamic banking activities have been implemented
Key personnel have been appointed
Locations for dedicated branches identified and branch infrastructure is complete at four locations
Staff training has been ongoing and there are more than 25 existing staff who have been certified as Islamic bankers by the Bahrain Institute of Islamic Finance
Capital planning done and we are ready to launch as soon as the CBO rules are announced
Can you share details about your branch and ATM network and are there any plans of upgrading your presence in the year ahead?
We currently have 12 branches and 17 ATM's ( 5 offsite). The bank is planning to increase the number of branches to 19 and ATM's to 26 (7 offsite ATMs). Of the 19 branches, six branches will be dedicated to Islamic banking. Technology upgradation will be ongoing and we will increasingly use the same to develop our reach in Oman e.g. E-banking, SMS banking, phone banking, ERP solutions etc.
Were there any measures taken by the bank to strengthen its HR practices in 2011?
We took a number of HR initiatives in 2011. A comprehensive HR policy is in place. Staff benefits have been reviewed and many social benefits introduced e.g. medical, hours of work, education policy, maternity benefits etc. A fair meritocratic assessment of staff through a improved performance appraisal programme has been institutionalised.
Training Needs Analysis for the entire staff has been completed and training programmes have planned at all levels. The bank has signed up with the CBFS for tailor made programmes exclusively for our staff. A management trainee programme has been introduced. On the job training as well as external training has been planned for the year. We have put in place a succession plan. Attempts are being made to develop a local talent pool.
Graduated to new level
Bank Dhofar is preparing for further business growth and sustainability by virtue of implementation of its strategic five year plan for 2013-2018 which will give it a fresh perspective
Over the years, BankDhofar has participated in almost all the major infrastructural projects like Oman India Fertiliser Company, Sohar Aluminum, Oman LNG, Oman Gas, Salalah Port, Oman Refinery (expansion), Octal Petrochemicals and six power and water projects. Now the bank has graduated to the level of a lead arranger from modest beginnings and has in place the technical capability to independently arrange funds for medium sized ventures with local, regional and international banks.
The prognosis for 2012 is one of cautious optimism despite the continuing global problems. This is on account of the government's bold initiatives to forge ahead with the strengthening of the infrastructural framework of the country and the likely scenario of sustained higher prices of crude oil.
Strategy and planning
With its five year strategy plan coming to an end in 2012, BankDhofar has partnered with Boston Consultancy group (BCG) a leading management consultancy firm to develop its strategy for the future. The plan will cover major business units including retail banking and wholesale banking. It will focus on profitable growth while improving service, quality and overall operations of the bank. In 2011, on the back of a sharp increase in crude prices and a moderate increase in crude oil production Oman's budget surplus was beyond the projected level. The credit off take in 2011 for the banking sector in general was moderate at best and the Wholesale Banking Group (WBG) of BankDhofar which caters to the needs of the corporate clientele performed reasonably well.
Wholesale banking
The WBG consists of three lending arms, namely, large corporate banking department; project finance & syndications department and mid segment corporate department.The bank has introduced customer segmentation based on certain quantitative criteria for a specialised approach. The customer profile spans across various industries which includes trading, manufacturing, services and contracting.
Despite a sluggish environment the asset growth in the large corporate banking has been good chiefly on account of the efforts put in by the team to target new clients and build on existing relationships. Emphasis was also placed on maintaining asset quality through detection of incipient sickness and taking pro-active steps to mitigate the same. There was pressure on interest margins due to increased competition. Non fund based income which is mainly the commissions derived from issuances of various guarantees and letters of credit was on a low keel due to the slowdown in the award of new contracts.
For the project finance and syndications department, the Eurozone crisis had further exacerbated the availability of long term dollar funds that was already under strain after the 2008 global economic crisis. Due to this none of the local banks had the competitive edge to finance the latest three independent power and water projects of Sohar, Barka and Sur which have sourced their entire long term loan requirement from a syndicate of international banks. The challenge of long term dollar funds was partly addressed for smaller projects with club financing in rial omani terms and some innovative financial structuring. the lack of a proper basis for benchmarking the long term interest rates is a major impediment in the use of rial omani for term financing.
The mid sector corporate department caters to the needs of the corporates at the smaller end of the scale. Recently, the small and medium enterprises (SME) accounts which hitherto had been dealt by the retail banking division were shifted to this department. The bank's products and services are designed to suit the particular needs of the smaller corporates and to enable them to meet the challenges in the marketplace. In consonance with the objective of the government to strengthen the SME sector, BankDhofar is focusing on improving the credit delivery to this segment.
Retail banking
The retail banking division (RBD) of BankDhofar continued its focus on providing value added products and services to the customers. The bank continued its growth and expansion strategy in 2011, strengthening its distribution channels with the addition of more branches, ATMs and CDMs. The year 2011 saw the addition of three new branches at Taqa, Mirbat and Bausher, the year ended with 59 branches, 120 ATMs and 36 CDMs and one multifunctional machine.
During 2011, the product development team has worked on enhancing existing products as well as designing, developing and implementing new products and services. Last year, three products and two services were launched. The products were Bancassurance (Tamini), Al Heson new scheme and high yield interest bearing deposit. The services were priority banking (Al Riadah) and ladies banking (Hawa). In March 2011 bancassurance (Tamini) was introduced at the branches and the official launch to the public took place in July 2011. Tamini is a motor insurance service provided by the bank through an insurance agency. The insurance covers all kinds of policies and offers the lowest no claim bonus discount in the market. High yield interest bearing deposit has been revamped and re-launched in October 2011 to offer the highest interest rate on savings and automatically increases with balance increase.
Priority banking service
Al Riadah priority banking service was launched in April 2011 with the aim of providing special services to customers with a net worth of RO50,000 and above. Al Riadah offers the very best of convenience and exclusivity to the bank's priority customers. There are dedicated relationship managers assigned to process the customer's transactions quickly, efficiently and help them manage their everyday banking needs. There is also an exclusive Al Riadah lounge in Azaiba. A special debit and credit card was designed to allow higher daily withdrawals.
E-banking
As part of the of the distribution plan for 2011, the electronic channels witnessed a remarkable development which improved service levels. Call centre services were also improved through enhanced training and introduction of service monitoring tools, such as mystery shopping and call quality scoring. The call centre strength was increased to 16 call agents under a manager. The call centre also generated an increased amount of business through inbound and outbound campaigns. To ensure customer satisfaction, a strict quality control procedure has been implemented. In addition, the call centre staff is put through periodic training programmes on products and customer handling skills. In the period of last 12 months, the call centre continued witnessing an increase in the number of calls being handled by staff - about 176,527 calls were handled by the staff in 2011.
New initiatives
With a view to capitalise on the opportunities arising out of the rapid development of Sohar as an industrial hub, efforts are on to open a corporate branch there. There are also plans to start corporate desks at high volume centres in Muscat such as Azaiba and Rusayl. An exclusive call centre services for corporate customers is also on the anvil. New services were added such as third party transfers in ATMs and the opportunity to donate to charities using CDMs. The bank is planning to introduce banking kiosk to enhance customer service. There are also plans to introduce MasterCard acquiring on the bank's ATM and introduction of MasterCard and Visa POS acquiring. ATM and CDM network comprising of 157 machines will be expanded further in the year 2012 to enhance the bank's coverage.
Healthy competition
Abdul Kader Askalan, CEO, Oman Arab Bank feels that Islamic banking presents an opportunity and a challenge for the banking sector in the Sultanate in an interview with OER
Oman Arab Bank (OAB) has come up with a good performance in 2011. What are the factors that enabled the Bank to do well in the year gone by?
Overall our performance has been very good -- our profit in 2011 is equal to the previous year and this has been achieved despite the increase in our expenses, due to the increase in salaries and manpower costs. As with other banks most of OAB's profits come from interest and the rest of the profit accrues from trade and project finance, commissions, contract related activities, guarantees and other things. The bank has been able to grow its business in all these areas and these find a reflection in the numbers.
OAB has always been very strong in the project financing arena. Which were the major projects that you financed in 2011?
We are financing a lot of projects both small and big, some of these projects are in Duqm and Sohar. We finance projects individually and with other banks as syndications or consortiums.
Are there a lot of infrastructure projects taking place in Oman?
Yes, there are a number of projects that are coming up in Oman like the expansion of Raysut Cement, projects in the various freezones, the electricity projects, ongoing projects in Duqm and we are looking at all of these as prospective business opportunities.
Apart from project finance the bank has been focussing on the retail side aggressively in the last few years.
How has your performance been in retail banking?
In retail banking we have been doing as planned, we are not concentrating only on the retail business but anyway, our retail business is much better than before. We are offering new products, but I am very keen that we should not exceed the prescribed limits for personal loans as it is dangerous for borrowers.
Central Bank of Oman (CBO) has permitted Islamic banking in Oman, what impact will this have on the Sultanate's banking sector and what are OAB's plans in this direction?
We are looking at opening a window for Islamic services and we are taking certain steps to achieve the requisite regulatory procedures. The bank is currently training its staff who we will be taking care of its Islamic service. We are waiting for the laws to be issued by the CBO to commence our service.
When do you expect Islamic banking regulations to be issued?
As the CBO has said the rules will be issued in the next three months. As you are aware two banks have been given an Islamic banking license. Other banks have been permitted to come up with Islamic finance windows and all of us are waiting for the regulations to be issued.
What impact will Islamic finance have on the market?
It is a new system and is one of the additional products that we can offer to our customers. As it is a new product or system it is our duty to educate people about Islamic banking, so that customers can judge the costs and the merit of these products. Some customers may think that there is no cost attached to such products, but they will discover that there is a charge for such products. Once they realise that there is a charge they may compare Islamic banking with commercial banking. Once they realise that there is a certain additional cost on Islamic banking, then the question is whether they will stay or return to commercial banking? In the beginning most people would go for Islamic banking but the service and cost implications will decide whether they will stick to it or not.
So are there challenges and opportunities that Islamic banking will throw up in Oman?
Yes there are challenges that both the commercial banks and Islamic banks will have to face. On the other hand it is good as it will diversify our product base. Islamic banking is very popular in most countries, both in the region and internationally, but it all depends on how it is offered to the customer.
What were the challenges that you faced in 2011?
There were no extraordinary challenges. Our staff costs grew and we needed to invest in improving and updating our services for the customer. The bank has put in place new IT systems, programmes, ATMs, cash deposit machines etc to comply with the requirements of modern day banking and this has a cost implication.
OAB is constructing its new headquarters, when do you expect to move in to the new location?
We expect to move into our new building by May or June 2012 as a lot of infrastructure work in terms of parking facilities, roads etc still needs to be done.
Can you tell us about OAB's plans for FY 2012?
We have budgeted a growth of 10-12 per cent in 2012. Our focus will be on project finance and on increasing our branch network. Apart from this we also need to modernise our services for customers.
You mentioned about expanding your branch network, specifically what are you looking at?
Every year we open two to three new branches. In 2011 we opened three branches, this year we will be opening three or more branches. Our aim is to have branches in most areas of the Sultanate. We were the first bank to open a branch in Duqm, but now we need to go to Musandam, Khasab etc.
OAB has a strong presence in the portfolio management space, what accounts for your success in this area?
Our investment group has a lot of experience in managing portfolio's. We are managing funds for the government and our own funds. The funds that we are managing are not losing as much as the securities markets. Thus we have been able to minimise losses on the one hand and have made profits (at times) on the other.
Will the entry of new banks enhance competition in the Sultanate's market?
Things are going to become more challenging in terms of competition. We hope that such intense competition gets reduced as a result of the Banking Association that has been formed recently. The association has representation from all banks -- I have been elected as the chairman of the association and we have formed a board of directors. The association will give us a chance to negotiate and see as to how we can minimise it as unfettered competition will destroy the banking sector. If a bank has a policy of competing with another bank, it will impact all the banks and we hope that this association will minimise such instances. The association will discuss all the rules being issued by the CBO and see whether it is fit for the banks or not. It will help banks to negotiate with the regulator together. The association can be very beneficial for the banking sector.
Best in class
Dr AbdulRazak Ali Issa, Chief Executive, BankMuscat shares his views on the bank's achievements in 2011 and the road ahead in an interview with OER
As the leading Omani bank, BankMuscat enjoys a 40 per cent marketshare in Oman, with over $16bn in assets, capital of over $2bn and a customer base of over 1.2mn. The bank is rated 'A1' by Moody's and A- by Standard's & Poor's. The bank has an extensive network of branches in Oman, direct and indirect presence in all six GCC states as well as an office in Singapore which focuses on financial institutions and the trade business.
The opportunities identified by the bank include significant infrastructure development which is expected to contribute to the growth of the banking sector. BankMuscat envisages substantial product cross-sell opportunities and sizeable unbanked market as over 50 per cent of the population is below the age of 19 years. Expansion in the Gulf Cooperation Council (GCC) countries is among the priorities in view of the bank's direct and indirect presence in all the six states.
The bank is well positioned to leverage on the largest network of branches and other delivery channels to target the growth potential and cross-sell opportunities. BankMuscat's presence has strengthened in all parts of Oman through the widest network of 130 branches, 520 ATM/CDMs and 5,300 PoS terminals. The bank is also set to leverage on investments in new technology and state-of-the-art head office building to further increase efficiency, improve customer service and support growth plan. BankMuscat is well known for adopting innovative strategies to raise capital and enhance stakeholder value. The bank views the industrial development of Oman as a strategic opportunity, especially in Sohar, Salalah and Duqm. BankMuscat's chief executive gives in-depth insights on the bank's performance and plans for the coming year. Excerpts from an interview.
How has BankMuscat's performance been in financial year 2011?
The key business lines of the bank recorded healthy performance during 2011. BankMuscat's core business activities are divided into the broad areas of corporate banking, consumer banking, investment banking, treasury, financial institution, private banking and asset management and international operations. Key support functions include information technology, operations, human resources, finance and risk management. In 2011 some of the notable highlights of our performance were as follows:
Ratings upgrade
Standard & Poor's upgraded BankMuscat's Long Term Rating to 'A-' from 'BBB+'. This was a significant development in the current economic environment signifying the trust reposed in BankMuscat by the analytical and investor community. The Issuer Default Ratings /Long Term Ratings were also affirmed by other rating agencies.
Tier II capital
During the year, BankMuscat raised a total of $430mn in Tier II capital of which $170mn was from IFC Capitalisation Fund. The bank also raised $260mn of Tier II capital through a private placement of fixed income subordinated paper with tenors of 61 months to 84 months. The issue attracted considerable interest from institutional investors. The Tier II capital raising will bolster BankMuscat's capital and support the growth in its asset book. BankMuscat is committed to lending its full support to the socio-economic development of Oman and this capital raising will strengthen the bank's ability to extend finance to further enhance Oman's development domestically and increase its competitiveness internationally.
Al Mazyona
As the nation's leading bank, BankMuscat continued to play the leadership role in promoting the savings culture in the Sultanate. The bank's flagship al Mazyona savings scheme marked 20 years in the Sultanate. On this occasion, the popular al Mazyona scheme was relaunched and customers responded very positively to the relaunch. The bank increased the savings deposits portfolio to achieve a historic milestone of RO1bn.
Corporate banking
Strong customer relationship remains fundamental to the growth of our corporate business with a focus on the quality of loan assets and building customer confidence. The bank maintains its emphasis in supporting feasible projects in core areas such as oil and gas, petrochemicals, large-scale industry, shipping and contracting. The bank successfully completed, inter alia, financing of Sohar Free Zone, a specialty steel project, expansion of the cement sector and a syndicated facility for the integrated tourism project Wave. The SME department partnered with the Ministry of Commerce & Industry to launch the government guaranteed loan programme in support of SMEs. The $170mn subordinated loan agreement with the IFC Capitalisation Fund was aimed at strengthening the capital base and increasing access to finance for small and medium enterprises (SMEs) and middle-income home buyers.
Human resources management
BankMuscat achieved a global first, winning the prestigious Level 3 People Capability Maturity Model (PCMM) certification by Carnegie Melon University, USA for adopting benchmark human resources process improvements. BankMuscat has the distinction of outstanding Omani leadership at all levels. The bank's women empowerment strategy is also notable as 42 per cent of staff are women holding various positions, including senior management positions.
Information Technology
The Information Technology department runs all its projects and programmes focussed on high business benefits, risk mitigation, compliance or service improvement. Based on recommendations of the Business Continuity Plan (BCP) committee, IT department implemented a state-of-the-art Disaster Recovery Solution providing the bank with a unique capability to ensure uninterrupted service during crisis.
International operations:
The year 2011 was a challenging year for the banking sector in the GCC region. Despite the challenging external environment, the performance of the bank's international entities reflects an improving operating trend. During 2011, the bank marked its presence in Southeast Asia with the opening of its Representative Office in Singapore. With this expansion, the bank is well positioned to benefit from the trade flows between Asia and the GCC, which have witnessed rapid growth in recent years. The focus for the bank now is to strengthen its position in the individual markets, by scaling up businesses and improving operating performances with the aim of deriving the benefits of its international network.
Can you tell us about the bank's road map for FY2012?
The outlook for Oman's economy in 2012 is positive as the government has announced a 12 per cent increase in spending. In view of the government's commitment to infrastructure development and industrialisation, BankMuscat anticipates growth opportunities. The good macro-economic growth will create beneficial operating conditions for the bank as the government accelerates financial support, primarily for infrastructure projects. The bank anticipates strong capital levels and a high loss-absorption capacity.The opportunity arising from Islamic banking is also expected to help the bank further consolidate operations. In line with the Royal directive on Islamic banking, BankMuscat is set to introduce the most trusted and innovative Islamic banking products. For this purpose, the bank has announced 'Meethaq' Islamic banking window operations with a capital of RO150mn, subject to approval of Central Bank of Oman.
© Oman Economic Review 2012
