Ability to service their expatriate clientele and an enhanced capital base are helping the foreign banks in Oman
Mayank Singh

From product launches to sponsorships, the spotlight is constantly trained on the big five banks in the sultanate – BankMuscat, National Bank of Oman, Oman International Bank, Oman Arab Bank and Bank Dhofar. But far from the arc lights there is a host of foreign banks, which go about their business quietly, getting little attention. Apart from HSBC, a well-known international player, other foreign banks like Habib Bank, Bank Melli Iran, Bank Saderat Iran, National Bank of Abu Dhabi, State Bank of India (SBI) and Bank of Baroda have all had a low-key existence in Oman. Despite their low profile, most of these banks are efficient and nimble-footed entities.

The expatriate population from their respective countries remains the key customer base for most foreign banks in Oman. Says Lalit Mehta, CEO, SBI, "The Gulf is a promising market for infrastructure development, and Indian banks have the expertise to handle such growth. Oman has a large expatriate Indian population which repatriates remittances through us." There are 70,000 Pakistanis in the sultanate and almost all their remittances go through Habib Bank. A large Iranian expatriate community in Qatar and the UAE have helped Bank Saderat Iran grow into the third largest foreign bank in the these countries.

Moving ahead
But it is not just about servicing the expatriate community. Says V J Santhanam, chief executive (UAE and Oman operations), Bank of Baroda, "Though the bank was originally set up to cater to the needs of Indian expatriates serving in Oman, over the years it has diversified its services to serve all the communities in the sultanate." Most companies in Oman prefer to bank with multiple entities. This multiple banking strategy is driven by two reasons. One, with large projects on the floor, there is only so much finance that an individual bank can provide, bringing in the need for more players to borrow from. Secondly, the overseas presence of foreign players facilitates business interests of these companies abroad. For example, a company, which has an account with SBI can leverage this for its business interests in any of the 30 countries where SBI has a presence. Explains Mehta, "Issuance of letters of credits (LCs), bank guarantees and the entire trade transaction will be faster because of our overseas branches than in the case where someone has to deal with two different banks."

And it is to leverage this need that most banks strive to have a large overseas presence. For example, Bank of Baroda has 60 offices spread across 21 countries. Habib Bank has 55 international branches, Bank Melli Iran has branches and offices in Azerbaijan, Bahrain, France, Germany, Hong Kong, Russia, the UAE, UK and Oman. National Bank of Abu Dhabi has an overseas presence in Bahrain, Kuwait, Egypt, Sudan, the US, UK, France and Oman to serve the needs of international businesses seeking to do business in the GCC as well as the Middle East.

Cash rich
With the Central Bank of Oman (CBO) increasing the mandatory capital base of foreign banks from RO3mn to RO5mn in 2005, they have been able to increase their lending to companies. And with the capital base slated to jump to RO10mn in 2008, most of them are looking at pursuing corporates aggressively. Says Ahmed Qadir al Balushi, assistant general manager and vice president, Habib Bank, "Our corporate loans went up by 42 per cent in 2005." The bank now has big groups like the Suhail Bahwan Group amongst its clients. Better portfolio management has helped its earnings go up by 33 per cent in 2004-05. Its next step is to bring about a measure of specialisation in its operations by separating its retail and corporate portfolio. “We see several opportunities in corporate lending and inv-estment banking," adds Balushi.

The growth has been limited not just on the corporate side. Retail lending has also grown apace. SBI, which commenced operations in Oman in May 2004, has registered good growth in the last two and a half years. It has notched up a client base of 2,000 accounts. The bank has introduced ATM services, Internet banking and a system for seamless remittances.

Says Santhanam, “The growth of Bank of Baroda has been reasonably good and the momentum has picked up during the last few months. Oman has good potential for growth and in our considered view, every foreign bank has got its core strength and will grow."

Apart from having a foreign network, which can be leveraged by businessmen with interests in foreign countries, these banks boast of other pluses. Says Balushi, "We offer more personalised service than large banks. Given our size, it is easy for customers to access our entire management team leading to faster approvals." The payout time on remittances, one of the biggest businesses for most foreign banks, is shorter. For example, Bank of Baroda's recently launched online connectivity helps expatriates to remit funds to any of its 450 branches in India on the very same day. These remittances are free.

Thus, banking with these foreign banks not only reduces transaction time but may also entail savings. Says Mohammed Raziuddin Faheem, customer service manager, Bank Saderat Iran, "For transactions between Oman and Iran we offer better rates than bigger banks, which can charge a processing fee of anywhere between RO120-RO150 as we don’t charge commissions or clerical expenses."

According to CBO guidelines, banks cannot lend more than five per cent of their capital base to any one client. Thus, technically speaking, most foreign banks can lend a larger sum of money than a local bank. For example, a Habib Bank or a Bank of Baroda can form a consortium of banks along with its other branches and bid for a project. In such a case it can bring to the table larger sums of money.

Cost of capital
On the flip side, the cost of raising money is high for most foreign banks. Explains Balushi, "As most local banks have a huge network and a big client base, their costs are less compared to foreign banks whose networks are small, making their costs higher." As the yields (the difference at which they borrow and lend) of foreign banks are less, it is difficult for them to reduce interest rates. Even half a per cent cut in rates can impact their bottom line massively.

Most of these banks are leaders in their respective countries. Thus, Habib Bank with 1,425 domestic branches, is Pakistan's largest bank. Bank Melli Iran has the largest share of Iran's banking market, both in terms of deposits and advances. In addition, the bank handles 50 per cent of the country's foreign exchange business. National Bank of Abu Dhabi is the UAE's number one bank in terms most financial parameters like profitability, return on equity and total assets. Its network of 62 branches and 140 ATMs is also the largest in the UAE. SBI, with 13,000 plus branches (along with its associate banks) and an ATM network of over 5,000, is India's largest bank by a stretch. The bank made it to the Fortune 500 list in 2006 at 498.

Looking ahead
Boasting of decades of experience in the Oman market, most of these banks are well placed to exploit the emerging opportunities in the sultanate. Habib Bank commenced operations in the sultanate in 1973. Today it has the largest network of nine branches (six in Muscat and one each in Sohar, Salalah and Nizwa) amongst all foreign banks.
Bank Saderat Iran started operations in Oman House 29 years back in 1977. Its colourful branch on Ruwi High Street is a landmark that is difficult to miss. Bank of Baroda opened its first branch in Muttrah on May 30, 1976. It added to the list by opening two more branches in Ruwi and Salalah in 1978 and 1979 respectively. The bank is looking at adding to its network by opening new branches in Seeb, Sohar and other upcoming areas.

Most foreign banks are upbeat about their future prospects. Says Faheem, "We expect solid growth in the next five years. We would be going in for facilities like ATMs and credit cards to attract more customers." Others are also working on plans to improve their efficiencies to partake in the sultanate's infrastructure development efforts.

Bank of Baroda is waiting for CBO permission for joining the national switch that will enable its customers to use other banks' ATMs for transactions. Habib Bank has revamped its human resource policies in Oman since 2003. It introduced a system of bonuses and rewards to motivate staff. "The country is growing economically and a number of projects are being executed. These require large-scale financing which augurs well for foreign banks," says Balushi. Most banks are looking at tapping into these opportunities.