Technology revolutionising banking for further growth

Since the last three decades Oman's banking and financial services sector has evolved into a large and dynamic business segment of the economy. The sector is poised for further growth as the market grows by volume and diversity of banking services and competition among the established key players becomes fiercer, A stream of new operators and service providers with latest technology, such as ATMs, Internet Banking, etc., hope to gain competitive advantage over the rivals. Banks and financial institutions will also need to introduce new services to generate higher volumes as well as sustain revenue growth. Improved cost efficiency will help protect profit margins.

Oman has been influenced by global banking trends .To keep pace with the rapid changes in the global banking industry, Oman must adopt aggressive business enhancing technology.

Access to information, business intelligence and application technologies, are the focal-points of technology plans of prospective next-generation financial institutions. Of late, Internet, wireless technology and global straight-through processing have created a paradigm shift in the banking industry. The astounding growth of Internet, mobile and wireless technology is now revolutionizing the way the financial industry conducts business.

With a mixture of commercial banks, specialised banks and other financial institutions, the sector has become highly competitive. Few main players like Bank Muscat, National Bank of Oman and Oman International Bank dominate the scene.
In an interview to 'The Banker' (January 2006), Abdul Razzak Ali Issa, Chief Executive of BankMuscat, stated that "the emergence of the Gulf Co-operation Council (GCC) as a common economic bloc by the turn of the decade and the advent of WTO membership would bring about added competition in the financial sector. We see further consolidation in the Omani financial sector and large Omani banks gearing up to expand their operations in the GCC region. The Omani financial sector is also likely to make significant investments in technology to compete effectively in the changing environment."

About BankMuscat's role in the developmental process of Oman, Mr. Ali Issa said, "BankMuscat, as the largest bank in the Sultanate of Oman, is tightly knit with the country's economy and its future. The bank has been at the forefront of the country's financial institutions, supporting and actively participating in key government initiatives from infrastructure development projects to privatisation. We see an excellent economic future for Oman, and BankMuscat will remain an integral part of it."

Studies reveal that Oman's banking industry, after years in the doldrums, has flourished over the last few years with strong profits and a healthy reduction in non-performing loans. A part of the strength of the current banking scene in Oman can be attributed to the careful regulatory oversight of the banks. According to official statistics, Oman's gross domestic product (GDP) grew an impressive 2 per cent in 2005 as against 14.2 per cent growth in 2004.

The Central Bank of Oman’s (CBO) 2005 report states that Oman's macroeconomic performance was "robust", reflected in the strong economic growth, modest inflation and large surpluses in fiscal and balance of payments positions.

The CBO stated that easy domestic liquidity conditions with soft interest rates, higher and comfortable levels of foreign exchange reserves, notable progress on diversification and privatisation of the economy and a sound and profitable banking system contributed in large part to the overall rosy economic outlook.

There are also many strong foreign players in the Omani market and the CBO is open to new banks being set up or foreign banks entering the market. HSBC enjoys an excellent stream of business in private banking in addition to its traditional strength in retail; Standard Chartered focuses strongly on trade finance and corporate banking; State Bank of India concentrates on serving Indian expatriates and trade flows between Oman and India.

Overall, the banking sector is extremely concentrated with only five major domestic commercial banks serving a population of about four million. Known once for their lack of sophistication, Omani banks have recently begun showing signs of improvement. Today, Omani banks report excellent results. While Omani banks do not rival regional banks, they are, in general, not over-inflated by non-recurring components such as trading, brokerage and investment returns.

Under the guidelines of the CBO and the management of ambitious CEOs, Omani banks can be counted upon to play a positive role in the local economy for many years to come. Financial experts feel that Omani banks are fast returning to a new era of optimism.

According to the monetary outlook for 2006-07, the continuing strong inflows of foreign exchange and the continuation of the Riyal's peg to the US dollar ensures that Omani interest rates will continue to track closely to US interest rates. Over the forecast period, this will result in average rates steadily picking up from their recent lows to resettle at their long-term historical average levels by the end of 2007.
Growth in lending rates will also be held in check by CBO pressure on commercial banks to reduce their spreads on consumer loans. According to reports, the banking system witnessed healthy growth during 2005. Capital levels of banks, which represent the capacity of the banks to deal with sources of instability, increased as a percentage of risk-weighted assets from 17.6 per cent in 2004 to 18.5 per cent in 2005. The asset quality of banks also improved considerably, as evidenced by the fact that gross non-performing loans (NPLs) as a percentage of gross loans declined to 7.3 per cent by the end of 2005, as against 11.1 per cent in 2004. The hallmark of the growth is the rising profits in 2005. As per official statistics, net profits of banks rose from RO 79.4 million in 2004 to RO 123.2 million in 2005.

The CBO showed marked improvement in its regulatory and supervisory role, providing greater stability and efficiency to the market. With a view to raising the capacity of Omani banks to face regional and global competition and to expand business in line with the growing needs of a buoyant economy, the minimum capital requirement has been raised to RO 50 million for local banks and to RO 10 million for foreign banks. The commercial banks are being prepared with regular interactions to face the challenges of a smooth transition to Basel-II by January 2007, reports say.

Besides the increasing risk focus of CBO's supervision, the CBO, in the recent period, has also accorded greater emphasis on issues such as structural mismatch in assets and liabilities of commercial banks, risk associated with cross-border exposures, greater mobilisation of long-term funds through measures such as appropriate pricing of deposits, introduction of innovative products, including issuance of long-term bonds instead of excessive reliance on prize schemes.

Sources say the new banking law has increased the supervisory powers of CBO (e.g. key bank positions are now ratified by CBO and directors have to satisfy a 'fit and proper' test). CBO's scope now covers more activities than previously (e.g. codes of conduct with regard to investment powers, confidentiality of transactions and duties of officers and employees).

Further, CBO's role in advising the government on matters of domestic and international affairs has also been enhanced. Recent developments in Oman's banking laws have focused on fine-tuning the regulatory framework while Royal Decrees have been promulgated on lending ratios, regulation of bank auditors and the classification of risks.

The Omani banking sector is largely the product of a November 1974 banking law that established the Central Bank of Oman (CBO). The law also facilitated the entry of foreign-owned banks and permitted an increase in the number of local banks in the Sultanate. As of September 1992, there were 21 commercial banks in comparison with three registered in 1972. Despite its immense growth, the Omani banking section is said to be still the smallest in the GCC.

Of the various commercial banks, 11 are foreign-owned and concentrate primarily on financing trade while ten are local banks operating in an increasingly competitive market. To avoid bitter competition, the government seeks to encourage consolidation. It is expected that five or six local banks will emerge as the core, with those facing financial difficulties ceasing operations or merging with more profitable institutions. A similar pattern is also expected with foreign banks.

The three specialized development banks in Oman serve as mechanisms to promote government policies of economic diversification, private-sector development, and indigenization of the workforce. The Oman Housing Bank is a joint venture developed by the government, Kuwait's Ministry of Finance and the Oman Development Bank. In 1991, the Oman Housing Bank recorded a net profit of RO 4.1 million (US $10.7 million) as compared with RO 3.4 million (US $8.8 million) the previous year.
The Oman Development Bank extends loans to industrial development projects. The government holds 40 per cent of the shares, regional and foreign institutions 40 per cent, and 20 per cent is open for private Omani subscription. In March 1991, the bank offered five- to six-year interest-free loans of up to RO 50,000 (US $131,600) for establishing small businesses if all employees were Omanis. Businesses employing foreigners were to be levied 3 per cent interest.

On the other hand, BankMuscat has played a key role in the development of investment banking in Oman. Set up in 1995, the Investment Banking Division (IBD) has grown to be the partner of choice for corporates and investors. The takeover of Al Ahlia Securities Co. SAOC in Dec. 2001 cemented the bank's position as the leader in investment banking. Today, BankMuscat IBD provides a comprehensive financial services suite of corporate finance, product structuring, brokerage and research services.

The ability to create new, innovative products has made BankMuscat a pioneer in investment banking in Oman. The bank has an unmatched record, being the first to structure a debt product, a corporate bond, an index tracker, a guaranteed product, a private equity fund, a subordinated product and an international investment product that listed the local market.

BankMuscat has a unique record of carefully choosing clients and structuring transactions to suit requirements of both investor and the investee. Its successful track record has lent BankMuscat credibility and built confidence among investors. Having secured its place as the leader in Oman, the bank is now expanding its investment banking operations in the region and in India.

BankMuscat is a leading financial advisor to corporations, institutions and government agencies throughout the Sultanate. The bank's range of services, keen insight, execution skills and extensive distribution franchise make it the partner of choice among clients looking for innovative and customized corporate finance solutions.
The Oman Arab Bank (OAB) has also made significant contributions to the development of the Sultanate's economy by financing a number of infrastructure construction and development projects such as highways, airports, harbours, power stations, water desalination plants and hospitals. Recently, OAB was selected as the local banker by the main contractor who is building the Liquefied Natural Gas plant near the city of Sur. This contract is by far the largest (US $6 billion), and the project the most important one in the Sultanate.

Central Bank of Oman

Bank responsible for promoting monetary and financial stability and fostering a sound and progressive financial sector. Website has info about its functions, organisation chart, branches, services including licensing a bank and money exchanges.

BankMuscat

www.bankmuscat.com
Largest banking entity in Oman. Website has info on its services in retail banking, corporate banking, investment banking, treasury, asset management, card services, international operations, government business, etc.

Oman International Bank
www.oiboman.com

Oman International Bank (OIB) was launched in 1984 and became the first wholly Omani-owned commercial bank in the Sultanate. OIB has 82 branches in the country and four overseas branches in Mumbai and Kochi in India and Karachi and Lahore in Pakistan. OIB was the first bank in the Gulf to offer mobile banking service, the first Omani bank to issue a Visa card and the only bank in Oman currently offering a phone banking service.

Alliance Housing Bank
www.alliance-housing.com

The GCC's first private sector housing bank with seven branches in the Sultanate. Specialises in mortgage loans to Omani and other GCC nationals (non-GCC nationals cannot own properties in the Sultanate).

Bank Dhofar
www.bankdhofar.com
Omani-owned commercial bank with a network of 48 branches and 66 ATMs. Activities include personal finance services, commercial corporate, investment and private banking.

National Bank of Oman (NBO)
www.nbo.co.om
Second largest bank in Oman with 49 branches and 75 ATMs in Oman, five branches in Egypt and one in Abu Dhabi. Website has information on services in consumer banking, corporate banking, correspondent banking, global treasury and investment banking.

Oman Arab Bank
www.omanab.com
Jointly owned by Arab Bank Plc and Oman International Development & Investment Co. It has more than 37 branches in Oman. Branches in Muscat, Sohar, Saham, Al Tharmad, Nizwa, Ibri, Salalah and other places. Services offered are retail and corporate banking.

Standard Chartered Bank, Oman
www.standardchartered.com/om/
The Chartered Bank opened in Muscat in July 1968, the day after the expiry of a 20-year monopoly over all banking in the Sultanate in favour of the British Bank of the Middle East. In September 1996 the branch moved to new premises in the prime business location next to the Oman Sheraton Hotel, Ruwi. Since march 1996 operations were centralised and are part of the Southern Gulf, Dubai administration.

HSBC
www.oman.hsbc.com

HSBC provides a wide range of banking services for both corporate and individual customers. One of HSBC's particular strengths in Oman is Trade Finance, and it is well qualified to provide investment and trading advice to international companies interested in developing their business with the region.

Private banking, through HSBC Republic, is at the forefront of HSBC's services in the Sultanate and supported by Group Private Banking Centres in Dubai, Jersey, London, Geneva, Luxembourg, Hong Kong and Singapore. HSBC is the only foreign bank to offer a full custodial service to clients who wish to invest in the Muscat Securities Market.