Oman seeks consolidation in financial sector

Gulf state's financial regulator wants local banks to build larger regional presence

Oman's financial regulator, the Capital Market Authority (CMA), is encouraging consolidation in the country's crowded financial sector, aiming in the long term for local banks to build a regional presence in the Gulf region.

"Maybe we are overbanked in a way, so limiting the number of banks would be better for the market, especially for banks starting from scratch," Abdullah Salem Al Salmi, CMA's executive president, said in an interview. "We would like to see some consolidation."

Growth in the banking sector has slowed. Assets in commercial banks in Oman grew 13.9 percent in 2012, compared to 17.6 percent in 2011, central bank data showed.

There are now 18 banks in the sultanate, after last year's merger between the local business of HSBC Holdings and Oman International Bank. The merger created the country's second largest bank by market capitalisation, HSBC Bank Oman, which last month posted a 62.7 percent slump in 2012 net profit.

Also last year, the country's first full-fledged Islamic banks, Al Izz Islamic Bank and Bank Nizwa, were established; they will start operations this year.

Oman's three largest lenders account for approximately two-thirds of banking assets.

The crowded field could lead to cut-throat competition, which would be unhealthy for the market and cause new entrants to struggle, Al Salmi added.

"It will take some time, especially for the full-fledged new Islamic banks, to stabilise and become profitable," he said.

On Monday, both Oman's Bank Sohar and Bank Dhofar denied rumours that they might be involved in mergers. Consolidation is also being considered by Oman's eight state-run pension funds.

Al Salmi did not specify any ways in which the CMA might encourage consolidation.

The country's insurance sector is also seen as overcrowded, with premiums estimated at around OMR300m (US$779m), Al Salmi added.

"We are talking about 23 insurance companies operating in Oman and I think that is too many for the size of our market."

The CMA has approved three takaful (Islamic insurance) licences, one of which is for a conventional insurer to convert its operations, Al Salmi said. He did not give a preferred number of institutions or a time frame for any mergers.

"There is no particular number, but a smaller amount will be better for the market, shareholders and policyholders as well."

The CMA has drafted specific rules for takaful and sukuk (Islamic bonds), but the final versions are yet to be published.

"We hope to see the regulations out very soon. There is an urgency for these rules to be issued and I think we have to have the full chain in place, otherwise we will anticipate some problems."

Islamic banks will be able to operate more efficiently if the local financial market includes a full range of sharia-compliant products, including takaful and sukuk.

Even though the rules have not been finalised, the CMA has approved sukuk issuance by two financial institutions, Al Salmi said, declining to name them.

"We have approved at least two issuance of sukuk already even before the regulations, considering the need for these instruments to be there."

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

NOTE: Comments posted on may be printed in the magazine Arabian Business

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

All comments are subject to approval before appearing

Further reading

Features & Analysis
First bank merger in 20 years sets Saudi Arabia up for more deals

First bank merger in 20 years sets Saudi Arabia up for more deals

Q&A look at what the planned merger of HSBC and RBS’s Saudi ventures...

A natural move: How Dubai Chamber is strengthening its ties in Latin America

A natural move: How Dubai Chamber is strengthening its ties in Latin America

With vast resources and more than half-a-billion people, the...

If Saudi future's so bright, why can't these banks find buyers?

If Saudi future's so bright, why can't these banks find buyers?

No big-name global banks eager to buy stakes in Saudi banks,...

Most Discussed