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Buoyant market

Driven by credit demand in the economy, Oman's commercial banks post impressive growth
Gulf Investment Services

Oman's equity market witnessed strong interest from across the border. Fuelled by healthy corporate performance and best corporate governance practice, the markets have attracted both international and regional money.

During the initial period, the benchmark touched its lifetime high of 5956.46 on January 18, 2007. Subsequent to this, the market witnessed profit bookings, taking the benchmark MSM 30 index down by 3.1 per cent to 5712.27. The industry segment was affected with the leaders witnessing heavy selling, drifting the index by 9.7 per cent from its high. The banking & investment index corrected 3.6 per cent, while the services and insurance index gained 1.2 per cent.

This article highlights the performance of Oman's commercial banks in terms of asset growth driven by credit demand in the economy in general.

Robust growth in 2006
The year 2006 marked its presence with strong growth in credit fuelled by private sector investments in the economy. Both corporate and personal credit drove commercial banks’ asset growth by 27.9 per cent to RO7.200bn during the year 2006.
At the same time on CAGR basis for five-year period, the assets have shown a commendable growth of 13.3 per cent. Overall aggregate commercial banks’ credit has grown by 20.5 per cent to RO4.695bn. Deposits mobilisation was in line with asset growth, which jumped by 24.2 per cent to RO4.672bn.

BankMuscat dominates
The overall growth in the sector has left its impression on all the banks in the country. Peer group analysis shows commendable perf-ormance by BankMuscat and NBO during the year 2006. Assets for BankMuscat have improved by 48.2 per cent during the year to RO2.955bn, which represents an estimated market share of over 40 per cent, while the nearest competitor, NBO with an asset size of RO1.082bn representing a market share of 15 per cent grew by 24.4 per cent.

Healthy credit offtake from the private sector was visible. This, coupled with buoyant credit demand from the retail sector, has pushed up the loan books of commercial banks. BankMuscat has added RO471mn to its gross loans during the year 2006, followed by NBO with RO152mn.

Due to this, BankMuscat's gross loans have risen by 31.8 per cent to RO1.953bn. NBO's gross loans ended higher by 23.9 per cent to RO788mn, while Bank Dhofar and Oman Arab Bank have added RO79mn and RO62mn respectively. Oman International Bank was a laggard in terms of loan growth.

NBO, through its restructuring efforts, has improved in terms of secular growth and strategies are in place to see the bank achieve larger scale of operations. One interesting fact that is being observed in the recent months is that the gap between the larger and smaller players is widening, as larger players like BankMuscat and NBO are keen on both loan book growth and fee based income through enhancing their scale of services.

The year saw the opening up of the housing mortgage segment with a limit of five per cent of total loan books for commercial banks in Oman. This has fuelled competition in the sector which was earlier a niche field for Alliance Housing Bank and Oman Housing Bank. New products were launched by BankMuscat, NBO, Bank Dhofar and Oman Arab Bank.

In terms of deposit mobilisation, NBO and BankMuscat have been aggressive in marketing their deposit schemes. BankMuscat, during the year 2006, has added RO526mn as its total customer deposits, followed by NBO's RO200mn. Other players were way behind, in line with their loan book growth. BankMuscat has grown its customer deposits by a commendable 40.7 per cent to RO1.817bn. Meanwhile, NBO's customer deposits have jumped by 32.5 per cent to RO817mn.

Commendable earnings growth
Even though the rise in interest rates had an impact on the margins with the rise in cost of funds in the sector, healthy growth in assets has driven the net interest income. All banking peers have reported attractive performance in terms of total income growth.
Focus on fee-based income by BankMuscat, NBO and Oman Arab Bank, have further fuelled topline growth. While efficient management strategies have kept a control on cost to income ratios, growth in topline has enabled the overall growth too. Provisions and reserved interest fell eight per cent to RO255.69mn as against RO278.063mn on the back of impressive growth in quality credit. Banks in Oman have made a combined net profit of RO158.091mn for the year ended December 31, 2006, according to provisional figures released by the Central Bank of Oman.

Future lies in reaching out
With the prevailing economic factors being favourable, industrial activities are expected to have sustainable growth for the near term. This would enable the banking sector with a better platform in terms of scalability. Meanwhile, Standard & Poor's ratings services too have raised its long-term foreign and local currency sovereign credit ratings on Oman to A from A-. At the same time, it has raised the short-term sovereign credit ratings to A-1 from A-2. This will help the banks with ease in funding their growth. BankMuscat is widening its reach in the region with its licences and presence in Saudi, Qatar, Bahrain and India. NBO has widened its reach to Egypt and the UAE. Its relationship with Central Bank of Qatar will enable it to enter newer markets. Meanwhile, competition within the country is heating up with new entrants. Currently, Oman has six full commercial banks, including the newly incorporated Bank Sohar. This is slated to go up to eight with the entry of Alliance Housing Bank and the establishment of the new Greenfield Bank, which is expected to be launched by end of 2007 (source: MEED). Competition is expected to be fierce in the coming years. The key for future growth will be its reach and scale of operations relative to its regional counterparts. With the banking sector constituting 39 per cent of the aggregate market capital and the sector bound to do well, we expect a buoyant market in 2007.