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NBO aims big ticket projects for funding

By A. E. James MUSCAT: National Bank of Oman ( NBO ), the Sultanate's second leading bank, is eyeing big ticket projects for strengthening its corporate lending, even as measures are afoot to tap low cost funds.

"We are working on various projects. However, we do not know whether the same momentum in loan growth will continue (in the remaining months of the year). It has been a good start," a top-level NBO official told Times of Oman.

NBO 's loans and advances soared by 10 per cent for the first half of 2011 to RO1549.3 million, over the same period last year. "A strong growth in corporate banking book in the second quarter helped the bank to book retail loans as well. The second quarter was an exceptional period for the bank," added the official, who does not want to be named.

Central Bank of Oman (CBO) stipulates an upper ceiling of 40 per cent of a bank's total credit portfolio as personal loan and another 10 per cent as mortgage finance. The interest ceiling on personal loan is set at 8 per cent.

However, the official expects a slow down in loan growth in the third quarter, which may pick up once again in the fourth quarter.

The increase in salaries and more and more Omanis taking up jobs in both private and government sectors aided the growth in personal loans. Consumer demand for bank credit in the second quarter was buoyant on account of new job creation and salary increases. "This growth may continue in the third and fourth quarters as well."

Personal or consumer loan portfolio always fetches a better margin for banks. "Retail segment always has a better spread, which is higher than corporate loans."

As far as the corporate sector is concerned, demand for bank funds is mainly driven by new projects and working capital requirements of companies.

Low cost funds
The official also noted that NBO has been trying to bring down the cost of funds by shifting its sources of funds from high cost to low cost.

"If we change our mix, cost of funds will come down. Lending rates are under pressure due to severe competition. Even if the lending rates come down, we can maintain our margin if we bring down our cost of funds."

The bank also succeeded in keeping its operating cost flat on a quarter-on-quarter basis.

NBO is likely to raise a minimum of $500 million from overseas markets before August 2012, which will be partly used for repaying a large $325 million syndicated loan that matures by then.

Euro bonds
The bank's shareholders have already approved a $600 million-Euro Medium Term Note Programme (EMTNP) or bond issue. The general market condition, interest rates and the bank's requirement will determine the size of the issue. "We have to get the programme ready by the end of this year. The issue could be in the region of $325 million to $500 million. Any way, we need $325 million for repaying a loan that matures in August."

National Bank of Oman is the second Omani bank, after BankMuscat, which has announced plans to raise dollar dominated funds from overseas markets.

Meanwhile, NBO has posted a 17 per cent rise in net profit for the six-month period ended June 2011, on the back of higher fee-based income and loan growth.

Net profit increased to RO17.1 million from RO14.6 million for the same period last year. The customer deposits increased by 11 per cent to reach RO1455.7 million, compared to RO1306.7 million last year.

Net interest income grew by two per cent to RO28.3 million during the six-month period compared to RO27.8 million in the same period last year, while non-interest income rose 12 per cent to RO45.7 million from RO40.7 million in the same period last year.

© Times of Oman 2011