08 April 2012
How do you expect the growth in loan book this year for the banking industry in general, and Bank Sohar in particular?
The overall growth in demand for credit will be slightly lower, when compared to last year due to an anticipated fall in demand for credit from retailers.
However, the credit demand from corporate sector will be slightly higher than that of last year.
Bank Sohar will try to continue its loan growth as much as possible, However, it depends on what will happen to Islamic banks. When Islamic banks start operation, there will be a discontinuity in the business, which will have a lot of impact on the banking sector. Things will be totally different.
How do you expect the demand for fund from corporate sector this year?
As far as corporate sector is concerned, there are two drivers for demand for credit. The most important element is the fiscal impulse from the government. When the government starts spending money on infrastructure, it generates business for private sector. Hence the demand for credit will go up. The other one is that of pure private sector demand, which is different from fiscal impulse. I think the second element has waned considerably.
What are the factors influencing growth in demand for credit, both in retail and corporate segments?
The retail demand for loan is driven by additional employment generation and growth in remuneration of employees. The higher the employment generation, the better the demand for credit. The employment generation for Omanis will continue this year as well. However, salary increase (which was one of the reasons for a growth in personal loan last year), will be more or less constant.
The Central Bank of Oman recently brought down interest rate ceiling on personal loans of commercial banks. What would be its implication on the banking sector as far as interest margin is concerned? Do you expect a major squeeze in interest margin and thereby net profit of banks?
Omani banks have already started reducing interest rates on loans. So, I don't think that there will be a major impact on interest margin. It may not be as severe as anticipated, because this is applicable only for new loans. There will also be a migration of old loans that are at higher rates in to the new loans, available at a lower rate. Refinancing or migration has been going on in a big way (even now).
Is there any fall in cost of funds for the last one year? If so, at what extent the average cost of funds must have come down?
As far as Bank Sohar is concerned, the cost of funds has been on a downward trend and we expect it to continue in that direction because of a continuous growth in our savings deposit. Further, we are now re-pricing some of the term deposits that were taken way back in 2007-2008 period, which were the early days of starting operation.
With two Islamic banks expected to commence operation this year, there is a general belief that the competition will increase in the banking sector. What are the strategies adopted by Bank Sohar to withstand the emerging competition?
I believe that the competition will be enormous. Even now, we are facing competition. The banks' ability to do business will be enhanced considerably with the formation of two specialised Islamic banks starting operation, BankMuscat increasing its capital substantially, consolidation of Oman International Bank and HSBC Oman as well as the proposed window operations of local banks. We need to weigh this against the actual business in terms of loans and other services available for the banking industry. We feel that the supply of funds will be enhanced like anything, while the demand will not go up to that extent. It is already a tough market, which is going to be tougher. Another element is the uncertainty since we are heading to a new area, since Islamic banking is something new for the banks, regulator and customers.
In this scenario, Bank Sohar will try to further improve its efficiency by re-looking at all types of costs, labour productivity and cash management.
Is there any plan for Bank Sohar to start Islamic banking window? If so, what is the present status of the whole plan and when do you think the bank will commence Islamic window operation?
Yes, we are going to start window operation for providing Islamic banking services. So far, we have done enormous amount of work in terms of ground work. We have already identified the head of Islamic banking and are on the verge of selecting the information technology system. The bank has already signed an agreement with a consultant, who will help us in starting a Sharia-based Islamic banking service.
Bank Sohar is looking at five branches - two in the capital area and two outside - for window operation.
How do you foresee the potential in Islamic banking business in Oman? What would be the kind of capital envisaged for only Islamic banking by Bank Sohar?
It appears that there is a huge incipient demand. However, we have to see how it gets translated into reality and have to see in terms of sources of funds verses uses of funds, assets and liabilities and the impact in terms of retail verses corporate segments. It will have varying degrees of impact.
We want to start with a capital of RO10 million, which is the minimum capital required for starting window operation. Then, we will see the demand and based on that we will move forward. We don't want to go for too much capital and reach a situation where we can not use it.
Is there any plan to raise capital base to meet additional requirements by way of a rights issue?
Yes, we are working on it and are in the process of selecting an issue manager.
Is there any plan to open more branches this year? If so, how many more branches and automated teller machines (ATMs) will be opened this year? What is the total number of branches and ATM machines of Bank Sohar?
At the moment, Bank Sohar has 25 branches and we are looking at opening five more branches this year. All these are exclusive branches for offering Islamic banking services.
We have 15 automated teller machines. However, as far as our customers are concerned, each and every ATM machine in the country is a Bank Sohar ATM machine since they do not have to pay anything for the services.
What is the focused area (retail sector or corporate sector) for Bank Sohar for achieving a better growth?
We will focus on all sectors this year and continue with our efforts to enhance operational efficiency and focus on new businesses.
Bank Sohar has achieved a robust 42 per cent growth in net profit (at RO14.5 million) last year, despite tough competition.
How do you expect the growth in loan book this year for the banking industry in general, and Bank Sohar in particular?
The overall growth in demand for credit will be slightly lower, when compared to last year due to an anticipated fall in demand for credit from retailers.
However, the credit demand from corporate sector will be slightly higher than that of last year.
Bank Sohar will try to continue its loan growth as much as possible, However, it depends on what will happen to Islamic banks. When Islamic banks start operation, there will be a discontinuity in the business, which will have a lot of impact on the banking sector. Things will be totally different.
How do you expect the demand for fund from corporate sector this year?
As far as corporate sector is concerned, there are two drivers for demand for credit. The most important element is the fiscal impulse from the government. When the government starts spending money on infrastructure, it generates business for private sector. Hence the demand for credit will go up. The other one is that of pure private sector demand, which is different from fiscal impulse. I think the second element has waned considerably.
What are the factors influencing growth in demand for credit, both in retail and corporate segments?
The retail demand for loan is driven by additional employment generation and growth in remuneration of employees. The higher the employment generation, the better the demand for credit. The employment generation for Omanis will continue this year as well. However, salary increase (which was one of the reasons for a growth in personal loan last year), will be more or less constant.
The Central Bank of Oman recently brought down interest rate ceiling on personal loans of commercial banks. What would be its implication on the banking sector as far as interest margin is concerned? Do you expect a major squeeze in interest margin and thereby net profit of banks?
Omani banks have already started reducing interest rates on loans. So, I don't think that there will be a major impact on interest margin. It may not be as severe as anticipated, because this is applicable only for new loans. There will also be a migration of old loans that are at higher rates in to the new loans, available at a lower rate. Refinancing or migration has been going on in a big way (even now).
Is there any fall in cost of funds for the last one year? If so, at what extent the average cost of funds must have come down?
As far as Bank Sohar is concerned, the cost of funds has been on a downward trend and we expect it to continue in that direction because of a continuous growth in our savings deposit. Further, we are now re-pricing some of the term deposits that were taken way back in 2007-2008 period, which were the early days of starting operation.
With two Islamic banks expected to commence operation this year, there is a general belief that the competition will increase in the banking sector. What are the strategies adopted by Bank Sohar to withstand the emerging competition?
I believe that the competition will be enormous. Even now, we are facing competition. The banks' ability to do business will be enhanced considerably with the formation of two specialised Islamic banks starting operation, BankMuscat increasing its capital substantially, consolidation of Oman International Bank and HSBC Oman as well as the proposed window operations of local banks. We need to weigh this against the actual business in terms of loans and other services available for the banking industry. We feel that the supply of funds will be enhanced like anything, while the demand will not go up to that extent. It is already a tough market, which is going to be tougher. Another element is the uncertainty since we are heading to a new area, since Islamic banking is something new for the banks, regulator and customers.
In this scenario, Bank Sohar will try to further improve its efficiency by re-looking at all types of costs, labour productivity and cash management.
Is there any plan for Bank Sohar to start Islamic banking window? If so, what is the present status of the whole plan and when do you think the bank will commence Islamic window operation?
Yes, we are going to start window operation for providing Islamic banking services. So far, we have done enormous amount of work in terms of ground work. We have already identified the head of Islamic banking and are on the verge of selecting the information technology system. The bank has already signed an agreement with a consultant, who will help us in starting a Sharia-based Islamic banking service.
Bank Sohar is looking at five branches - two in the capital area and two outside - for window operation.
How do you foresee the potential in Islamic banking business in Oman? What would be the kind of capital envisaged for only Islamic banking by Bank Sohar?
It appears that there is a huge incipient demand. However, we have to see how it gets translated into reality and have to see in terms of sources of funds verses uses of funds, assets and liabilities and the impact in terms of retail verses corporate segments. It will have varying degrees of impact.
We want to start with a capital of RO10 million, which is the minimum capital required for starting window operation. Then, we will see the demand and based on that we will move forward. We don't want to go for too much capital and reach a situation where we can not use it.
Is there any plan to raise capital base to meet additional requirements by way of a rights issue?
Yes, we are working on it and are in the process of selecting an issue manager.
Is there any plan to open more branches this year? If so, how many more branches and automated teller machines (ATMs) will be opened this year? What is the total number of branches and ATM machines of Bank Sohar?
At the moment, Bank Sohar has 25 branches and we are looking at opening five more branches this year. All these are exclusive branches for offering Islamic banking services.
We have 15 automated teller machines. However, as far as our customers are concerned, each and every ATM machine in the country is a Bank Sohar ATM machine since they do not have to pay anything for the services.
What is the focused area (retail sector or corporate sector) for Bank Sohar for achieving a better growth?
We will focus on all sectors this year and continue with our efforts to enhance operational efficiency and focus on new businesses.
Bank Sohar has achieved a robust 42 per cent growth in net profit (at RO14.5 million) last year, despite tough competition.
© Times of Oman 2012
