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With a view to attaining 25 per cent of its profits from operations outside Oman by 2010, BankMuscat's roadmap is crystal clear
Mohana Prabhakar

Being the biggest isn't always a walk in the park. There are imagined strengths (monopolistic advantage), imagined weaknesses (ability to hold up against regional heavyweights), and imagined threats (either of debilitating competition from a new local bank or the danger of being swallowed by much bigger foreign banks). Refuting perceptions is wearisome, not to mention unproductive, and so instead the sultanate's biggest bank continues to do what it has always done. Focus on opportunities – real ones. Opportunities that it takes advantage of with the help of a clear strategic plan about what it needs to do next to get closer to its goal.

As a case in point, consider BankMuscat's recent offer to buy out Alliance Housing Bank to bolster their mortgage business division. One of the reasons that many believed that BankMuscat would acquire Alliance at any cost after Ahli United Bank (AUB) entered the fray was because it meant that this regional giant would otherwise add its footprint in Oman. However, when it seemed that the cost of going ahead with this merger in terms of time and effort far outweighed the value it would add to the business advantages that would accrue, BankMuscat took the decision not to pursue it. This, they believed, was what was best for their shareholders. And while the market was busy contemplating BankMuscat's next move in the Alliance affair, the bank itself was busy talking to regional and international investors about a much bigger deal (see details in box). Announced mid-August, this is the single largest cross-border investment in the region's banking sector at US$619mn (RO238.3mn) and is also probably the largest single FDI to come into Oman.

Says Sheikh Abdulmalik al Khalili, chairman, BankMuscat, who has been personally involved in the whole negotiation process with Dubai Financial Group (DFG), "We have been looking to raise capital to accommodate business expansion in 2007-08 and because of our track record, we also had other interested parties talking to us." But the offer from DFG was unequivocally decided as the best, says Sheikh Khalili, as it brought in not just significant financial benefits but various others as well. "When you have a partner or shareholder like DFG, it brings a great deal of value to the table wherever you go, as they are known both regionally and internationally. You will see us with them in other places as well." Two members of DFG will come on board as directors (once the necessary approvals are in place) taking the number of members from the current nine to 11.

One factor that certainly helped clinch the deal on both sides was a shared future strategy of regional expansion. Affirms Sheikh Khalili, "The reason they invested in us was not only because of our organic growth but also our plans for other countries; some where we are already present and others where we are going." DFG has their own roadmap for expansion and they are already in various countries, both within and outside the region (Greece, Malaysia).

Another persuasive factor was the synergy in culture. "They looked at us closely and liked the fact that in our work culture there exists an optimal working relationship between the board and the management." The stability that the bank showed in terms of its composition of the board and its management team was also reassuring for the prospective investor. "DFG was appreciative that we had many members on the management side who have seen the bank through multiple cycles of the economy. It is easy enough to take advantage of boom times but it is invaluable to have experience in times when the economy is in a slump."

Sheikh Khalili is confident that there is unlimited growth potential for at least the next five years with the economy booming, not just in Oman but the region as well. "So just as regional banks are making their way into Oman, we are steadily moving towards making our presence felt in other countries. We can export the expertise we have in our own countries."

BankMuscat's stated objective with regard to diversification and expansion outside Oman is at once, ambitious as it is focused. "We wish to see 25 per cent of our bottomline coming in from operations outside Oman by 2010." Currently this figure is at seven per cent, and undoubtedly there is a lot to be done in a short time. This is where the recent cash infusion will facilitate a spurt in international operations. Plans are already in place for a cash infusion into BankMuscat International's (BMI) operations in Bahrain, where the bank has a 49 per cent stake. BMI is also present in Kenya with a 20 per cent stake in Gulf African Bank.

The first BankMuscat branch opened in Saudi Arabia in April 2007. Plans are afoot to reach other countries in the Asian region besides India, where BankMuscat is present in the banking sector through its stake in Centurion Bank of Punjab, and in the financial services sector through a 43 per cent stake in the holding company of the Mangal Keshav Group, one of the oldest security houses in India.

Dubai, where BankMuscat still has only a representative office is another matter altogether. "We have no indication of when we can get a licence to operate in Dubai. We continue to be hopeful but I would like to clarify that our objective of going with DFG has nothing to do with this." DFG is already present there with a 70 per cent stake in Dubai Bank.

The general atmosphere in MBD headquarters of the bank is one of keen anticipation, with the board and the management eager to get started on their expansion plans and overall asset growth, once the DFG proposal receives all the remaining approvals. Capital adequacy ratio will go up to a very comfortable 18.87 per cent from its current level of 11.4 per cent (which is still above the CBO required levels of ten per cent). The transaction is expected to be through by the end of this year and it couldn't happen soon enough as far as BankMuscat is concerned.