Banking on Oman

On January 24, the Central Bank of Oman (CBO) released figures showing that the country's banking sector had enjoyed a good year in 2006, with profits, assets and deposits all up.

According to CBO's figures, as of the 12 months ending November 2006, assets held by Oman's commercial banks rose 27.4%, representing $18.1bn, while the overall credits granted by the country's banks increased by 19.4%. The government's programme of boosting the strength of the private sector, 94% of the $11.8bn worth of credits, went in that direction.

Both domestic and foreign currency deposits were also up, rising 25% and 68% respectively and, at the bottom line, Oman's commercial banks recorded profits for the 12-month reporting period of $358m, a solid increase on the $273m of the previous year.

With the CBO having given the overall picture, it was the turn of individual banks to lay their cards on the table. First it was Bank Dhofar, which announced its estimated net profit for 2006 as $50.3m, up by around 37% on the performance of the year before.

Then came the National Bank of Oman (NBO), the country's number two bank, which released its 2006 results, bringing in a 50% rise in net profits, totalling $78.4m. The year also saw the bank's total assets pass the $2.5bn mark with a 32% increase in deposits.

Announcing the year end figures, NBO chairman Sheikh Suhail Salim Bahwan said the results reflected the success of the bank's strategy of increasing operational revenues, diversifying sources of income and reducing reliance on increasing risk assets as an engine for growth.

"We are well positioned to cater to the changing needs of the market," he said. "The bank will continue to grow in a prudent and profitable manner by targeting quality loans in Oman and the UAE with the overall objective of enhancing shareholder value."

On January 24, the country's largest bank, BankMuscat, reported net profits of $156m for 2006, an increase of 33% on 2005, while its net loans and advances portfolio grew by 33.7% to $4.7bn. The bank also reported a sharp rise in customer deposits, which reached $4.6bn, up by 40.7% for the year.

Only two days before, the international ratings agency Standard & Poor's (S&P) raised the bank's long-term counter party credit rating to 'BBB+' from 'BBB' and confirmed its 'A-2' short-term counter party credit rating.

"The rating action reflects the bank's sustained leading domestic market position and improving financial performance," said Emmanuel Volland, S&P's credit analyst.

About the only bank to buck the trend was the Alliance Housing Bank, which declared a 10.6% fall in net profits, a result it said of the "turbulent market year" in the real estate sector in Oman.

In late January, S&P announced it had raised the country's long-term foreign and local currency sovereign credit ratings to 'A' from 'A-' and short-term sovereign credit ratings to 'A-1' from 'A-2'.

"The upgrade of Oman is supported by the government's strong fiscal position, together with the country's solid external finances and increasing wealth levels," S&P's Tim Reid said. These levels of wealth were well reflected in the results of Oman's banks.

The S&P report however contained a rider, saying that Oman's rating remained constrained by a heavy economic dependence on hydrocarbons, by high unemployment among Omanis, and by geopolitical tensions in the region.

This warning, though valid for the Omani economy as a whole, has less relevance to the country's banking sector, which generally has a policy of employing nationals wherever possible and has worked to diversify its activities away from a direct dependence on the energy industry.

K. Gopakumar, the general manager of wholesale banking at BankMuscat, said, in an interview with the regional press on January 25, "This upgrade would help Oman to attract huge funds from the international banking community to fund the mega billion projects that are in the pipe-line."

(C) Oxford Business Group - www.oxfordbusinessgroup.com

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