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Banking on the sultanate

June 2010
It is perhaps ironic that the first bank to start operations in Oman was a foreign bank - HSBC - in 1948. It was followed twenty years later by another British bank, Standard Chartered.

As of 2010, there are ten foreign banks in the sultanate, together controlling less than ten per cent of the local market.

While they all have a strong appetite for market share, the CEOs tell BusinessToday that given the high-growth environment, they feel there is enough room for everybody to play their respective part and increase their market share by concentrating on their respective strengths.

Some banks are targeting the high net worth segment, others are vying for a piece of the lucrative infrastructure pie. Still others are concentrating on small businesses and consumer loans. All of them are keen on tapping the expatriates from their home countries settled in Oman.

The onrush of foreign banks into Oman began in the seventies, with the entry of five foreign banks - Habib Bank, Bank Melli Iran, National Bank of Abu Dhabi, Bank Saderat Iran and Bank of Baroda. The next wave began in 2004, with State Bank of India, followed by Bank of Beirut and Qatar National Bank which started operations soon after.

By then, Oman had integrated with global markets to a much larger degree. But in the early days, things were quite different.

Down the Decades
British multinational Standard Chartered Bank opened its first branch in Oman in 1968, making it the second bank in the sultanate, says Ravneet Chowdhury, CEO Oman & MD-Origination & Client Coverage, Standard Chartered Bank.

Primarily known as a trade finance bank at the time, Standard Chartered offered account services, working capital loans and trade transaction finance in Oman.

A few years later, in 1974, after the Central Bank of Oman (CBO) was established by Royal Decree, the sector got a full-fledged regulator and a number of Asian banks were attracted to the potential of the sultanate. Over the years, banking products began to evolve in sophistication as personal affluence grew and demand for mortgage loans and wealth management services increased.

Simultaneously, the maturing of the money markets and growth of the corporate sector led to the launch of treasury products, hedging as well as custody and clearance services. Small and mid-segment enterprise finance is another area that is growing rapidly, backed by government support.

As of now the bank has two branches in Oman and plans to add more this year.

Another player is Bank Saderat Iran ( BSI ), which entered Oman in 1977. Mohammed Raziuddin Faheem, customer service manager, BSI , has been here since the beginning. "Apart from auto loans, we offered all kinds of commercial services here.

The highlight was when we funded Saeed bin Nasser al Hashar to aid in the construction of Oman House (then the tallest building in the country)," he says.

According to Faheem, BSI has been enjoying about seven per cent growth over the last five years in Oman and is keen on the future. It has plans to start another branch in Al Khuwayr.

HSBC has had a presence in Oman for so long, that it prefers to see itself as a local bank.

Ewan Stirling, CEO, HSBC Bank Middle East , says today Oman has a market that expects and demands far more evolved banking services than ever before.

The bank is present across the spectrum of retail and corporate products and services, offered through its six-branch network across the sultanate.

As an international bank, it is looking at leveraging its global product and service versatility in Oman. "While trade finance is still our expertise, we are especially upbeat about the response to our 'Premier' privilege banking product, targeted at high net worth individuals in terms of customer growth as well as prospect for growth." According to Stirling, HSBC has a 5-7 per cent share of the local market.

The Omani consumer seems set to be spoilt for choice in terms of banking services, with domestic and foreign banks alike anticipating high growth in the next few years. Products and channels are both undergoing rapid changes and evolving continually.

However, for all the changes that have taken place in the last few decades, Oman still retains its old-world values, even in corporate life, says Chowdhury. "A lot of our customers have been with us since 1968," he says, adding, "Banking in Oman is all about maintaining old relationships and we go the extra mile to remain close to our customers."

Think Local, Stay Global
A few years after the bank's privatisation in 2004, the management of Pakistan-based Habib Bank appointed a local general manager, Ahmed Qadir al Balushi to head its operations in Oman.

Al Balushi is of the opinion that once the management cadre is infused with more Omani executives, the bank will be able to better focus on the market and understand its needs, strengths and weaknesses.

A batch of 20 Omani graduates has recently been selected by the bank to be trained to take over management duties in the future. Habib Bank is present in 26 countries and employs over 14,000 people globally. It has been in Oman since 1972.

HSBC Oman has about 400 employees, with 92 per cent Omanisation. Stirling says that the bank has groomed Omanis for senior management positions, including those of head of local large corporate, head of commercial banking (MME) and head of small and medium enterprises (SME). "Right now, HSBC employs more Omanis than it has ever before in its history," says Stirling.

While going local may be part of the strategy for global banks, there are advantages to having a multinational presence. "Being a global bank means we have access to larger reserves of capital and aren't dependent only on local revenues," al Balushi says.

Foreign banks with large revenue streams are also seen as less risk-averse than local banks.

Growth Areas
Chowdhury says that Standard Chartered is now eyeing the next generation of consumers in Oman. "We see demand for credit cards, personal loans and mortgages as upcoming areas for the bank within Oman."

Habib Bank's al Balushi lists SME finance, syndicate loans and mid-range consumer loans as the bank's priority areas. "We want to tap into that segment of retail customers earning between RO500-1500 monthly. On the corporate side, we will work with entities looking to borrow between RO500,00 and RO3mn."

HSBC is serious about the SME and MME segments. "We were the first bank to offer SME finance in late 2007, when the government first expressed its support to small businesses," says Stirling. SME finance is also a segment where local banks as well as finance companies are actively engaged.

Most foreign banks continue to be extremely bullish on the Oman market. The main reason is that it has great potential in terms of infrastructure investments.

Uday Shringarpure, CEO, State Bank of India, Muscat, says that the bank concentrates on corporate finance, both in the infrastructure and manufacturing space.

"We have been actively associated with a number of large infrastructure projects such as Batinah Coastal Highway, Salalah Methanol Project , Kauther Gas field Depletion-Compression Project, Oiltanking Project in Sohar Port area, Mukhaizana and Qarn Alam Gas Plants and Ibri and Al Kamil water projects, to name a few, through project financing or by way of providing financial support to various EPC contractors."

SBI's relationship with Oman goes beyond funding projects. The bank is also representing the government of India for the Indo-Oman Investment Fund, while the State General Reserve Fund (SGRF) is representing Oman. The two will jointly raise a US$100mn corpus, which will invest in infrastructure, tourism, health, telecom and real estate sector companies promoted by the private sector in both the countries.

The Expat Connection
Expatriates are also a steady source of business for foreign banks. Shringarpure says while the bank is not restricting its focus to any one nationality, a majority of SBI's retail customers in Oman are Indians.

Both SBI and HSBC offer free account-to-account transfer to their clients. Bank of Baroda, another major Indian bank with 70 overseas branches, entered the sultanate in 1976 with the same objective but is now focusing on developmental projects contributing to the sultanate's economy.

The fact that Oman has weathered the global slowdown has only enhanced its reputation. So even though 2008 and 2009 were difficult years for banks all around the world, foreign banks in Oman haven't revised their commitments.

By Nikhil Menon

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