By A E James
MUSCAT: Two more commercial banks are in different stages of planning and formation in the Sultanate, with one expected to commence operation as early as the first quarter of next year.
Among the proposed banks, Al Izz Bank International has already got an 'in principle' approval from the Central Bank of Oman (CBO), when the apex bank's board met on September 21. The second proposal for establishing Nizwa Bank by a group of promoters is yet to get the nod from the banking regulator.
Highly placed banking sector sources said Nizwa Bank is being promoted by a group of investors led by a prominent Omani business house that has interest in a wide range of areas. It was reliably learnt that Al Izz Bank International promoters will bring in 60 per cent of the stipulated paid-up capital of RO100 million, with the remaining 40 per cent to be raised from the investing public through an initial public offering (IPO). The minimum capital required for a new bank, as per Central Bank of Oman (CBO) regulations, is RO100 million, while the minimum capital requirement of new branches of foreign banks is RO20 million.
Ground work
"The promoters have already done early ground work. A leading local bank has the mandate to work as financial adviser and issue manager for Al Izz Bank. The issue may be floated some time towards the end of the first quarter of next year," a top-level official of an investment company has said, on condition of anonymity.
Sources in banking sector pointed out that the formation of new banks will not only augment competition, but also increase demand for banking professionals from the local market, which will push up salary levels. "New banks will start poaching professionals from existing banks by offering high salaries. In order to avoid people leaving the organisation, banks will have to increase salary levels," Abdul Kader Askalan, chief executive officer of Oman Arab Bank (OAB), said, while expressing his concern.
This, in turn, will increase the salary levels of the industry in general. The sources also cited a similar trend, when Bank Sohar started operations almost three years ago.
Agreeing with Askalan, a senior finance professional said entry of new banks will adversely affect the cost-to-income ratio of Omani banks. "As of now, cost-to-income ratio of Omani banks is in the range of 40 per cent to 45 per cent," noted an official.
Bankers also said Oman is over-banked. However, growth in demand for bank services is to be driven by economic growth and more and more youth taking up new jobs.
With the challenges poised by new banks, existing banks will have to re-think the way they function. Increasing competition will be beneficial for the customers as they are likely to get better pricing and service quality will also be improved.
If all goes well, the two new banks will be the eighth and ninth entrants into the Sultanate's banking sector after BankMuscat, National Bank of Oman, BankDhofar, Oman International Bank, Oman Arab Bank, Bank Sohar and ahlibank. This is in addition to branches of seven foreign banks and few other specialised banks.
Times of Oman 2010
