Oman's banking transactions

Topping the news in the sultanate's business pages for the second week of May was the failed bid by Bank Muscat to take over the Alliance Housing Bank (AHB), Oman's first privately held mortgage provider. Though the bid of $205 million, made on May 8, was 2.61 times Alliance's book value, it was rejected out of hand.

While the offer had been left open until May 25 for AHB's board to consider, and until June 30 for the shareholders to mull over, Alliance responded negatively within three days. Though acknowledging it was a "privilege" that an institution of Bank Muscat's standing had expressed an interest in buying Alliance, the board confirmed rumours that it was looking elsewhere for a potential partner.

"As the board of Alliance Housing Bank is evaluating various strategic options and offerings at this time, we are thus unable to accept Bank Muscat's proposition," the AHB stated on May 10.

Whatever those other strategic options are, they apparently put a much higher price on AHB than Bank Muscat did. Akbar Habib, the chief executive of Oman National Investment Corporation (ONIC Holding) which owns 20% of Alliance, said that Bank Muscat's offer greatly underestimated the bank's value.

"There was a feeling that Alliance should get a much higher valuation than was offered," Habib said on May 10. "We have another bid from a local bank that is offering more favourable terms."

Those favourable terms are suggested to be almost double to the offer Bank Muscat put on the table.

Bank Muscat's bid was widely seen as an attempt to improve its exposure in the developing mortgage and housing market in the sultanate, which is expected to maintain its strong growth over the next few years.

In a letter sent to the board of Alliance outlining the bid, Abdul Malik bin Abdullah al- Khalili, Bank Muscat's chairman, said the strength of Bank Muscat's position in the marketplace, along with its far lower cost ratios, would make the merger plan an attractive one to ABH shareholders.

This rationale was based on the fact that Bank Muscat has 99 branches, compared to the just seven of its intended target. AHB also saw its profits fall by 11.4% in 2006, as a direct result of increased competition after Oman's commercial banks were granted the right to provide home loans.

"This can cater to the growth of the mortgage lending in the country and benefit the shareholders and customers," al-Khalili said of the advantages of the bid.

Alliance has moved to strengthen its position, having gained initial approval from the central bank to convert into a commercial bank, though such a step would require a healthy injection of capital.

While AHB may be fielding other offers, one of the prospective suitors is definitely not the National Bank of Oman, which issued a statement on May 14 ruling out any bid.

As Alliance was fending off a marriage proposal elsewhere, there was the celebration of a birth with the formal launch of the latest entry into the Omani banking sector, Bank Sohar, the sultanate's first new bank in 12 years.

Speaking at the inauguration of the bank on May 9, Bank Sohar's chairman Hilal bin Hamoud al Ma'amari said it would work actively to support development projects and have a "social responsibility".

With a capital of $130 million, the bank said it will offer services ranging from transaction banking and savings to asset finance, financial planning and wealth management.

Ahead of the launch, Nani Javeri, Bank Sohar's chief executive officer, said the bank wanted to develop a one-stop approach to providing services.

"The bank's products were being designed at adding value to the customers whether it be those of private individual customers or the corporate businesses which the bank aims at targeting to increase the nation's economy at a fast pace," Javeri said on May 8.

As a backdrop to all the action, the Kuwait-based economic consultancy Global Investment House issued a report on the state of the banking sector in Oman, saying that the industry was growing apace with the expansion of the sultanate's economy, both increasing by 17% in the period 2003 to 2006.

Jason J. Nash is Head of Research at the Oxford Business Group
(www.oxfordbusinessgroup.com)

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