Bank Nizwa to attract Omani funds held abroad

Oman's Bank Nizwa, the sultanate's first Islamic bank, plans to attract some of the funds held abroad at other Gulf Islamic banks in order to grow during its first year of operations, its CEO said.

"The amount of Omani money deposited in Islamic banks in the region, such as the UAE and Bahrain, is about OMR3.5bn to OMR5bn (US$9.1bn to US$12.9bn)," Jamil Al Jaroudi told Reuters in a telephone interview this week.

"Bank Nizwa aims to attract a share of these funds," he said, but declined to predict the market share that it could capture. "Currently there is no precedent in Oman".

The money has been held in Islamic banks across the region partly because of the country's refusal to develop an Islamic finance industry, while other Gulf states have ramped up their efforts in the sector during recent years.

The Omani central bank reversed that stance last year, granting licences to Bank Nizwa and Al Izz International Bank to offer sharia-compliant banking services, which follow religious guidelines such as a ban on interest and gambling.

Legislation covering takaful (Islamic insurance) and sukuk (Islamic fixed income securities) in Oman is expected to be finalised by the end of the third quarter of this year, officials told Reuters.

Jaroudi expects Bank Nizwa to open its doors by the end of the third quarter of 2012, focusing on the retail sector as well as supporting small and medium-sized enterprises.

The lender raised OMR60m (US$155.8m) in an initial public offer of 40 percent of its shares. The bank plans initially to build its presence at home, opening three branches at first with a further five planned for the first year of operations.

There are no plans to expand overseas, Jaroudi said. "In the beginning we want to walk before we run."

Bank Nizwa faces a market where banking services have low take-up compared with the rest of the Gulf; Jaroudi said the penetration of banking services in Oman was roughly half the level seen in the Arab world as a whole. He attributed this partly to reservations that Omanis had in dealing with conventional banks.

The bank's attention is now focused on product development, after the bank elected its board and approved its articles of association at a meeting on Saturday, he said.

Those products will be plain-vanilla in nature, Jaroudi said, declining to give details. Priority will be given to tradeable instruments that can help the bank manage its own short-term liquidity needs, he added.

In order to do this properly, the bank will need to interact with other Islamic banks and conventional banks' Islamic windows in Oman, he said. "We want competition to create a common Islamic secondary market."