In less than 15 years, an unknown banking entity transforms itself into a giant
at home and the Gulf region through innovative and aggressive growth plans.
Group Editor Ramesh Kumar examines the success of Bank Muscat.
is heady days at the headquarters of BankMuscat on Al Markazhi Road. For the
third consecutive year, it has been anointed with the best forex bank in Oman
award by the New York-based Global Finance, a reputed financial publication. The
winners were selected by Global Finance editors with inputs from industry
analysts, corporate executives and technology experts based on a slew of
criteria: transaction volume, market share, scope of global coverage, customer
coverage, competitive pricing and innovative technologies.
In the fast-changing world of finance, downing one’s guard may lead to disaster.
Such things are common in the global corporate scenario. Growth can be achieved
in two ways: organic and non-organic. Simply put, building up an organization
from the grassroots levels to higher pinnacles is organic. Those who resort to
mergers and acquisitions to grow fast – without going through the hassles of
time-consuming organic growth fall in the category of non-organic. BankMuscat
believes in the second option.
“The bank realised a long time ago that by continuing to be small, it would call
upon itself many restrictions and open itself up to substantial risks that it
might not be in a position to afford. This drove us to look at a strategy that
combines the bet of organic and non-organic growth strategies,” says BankMuscat
Chief Executive Abdulrazak Ali Issa, in an exclusive interview to Oman Economic
Review (See Box: ’We’re open to all quality growth opportunities’).
Though its acquisition drive, the merger of the National Bank of Oman in 2004,
failed to materialise due to a variety of reasons, BankMuscat is not a single
banking entity but comprises of eight other banks. The impact of
BankMuscat-National Bank of Oman merger would have been profound not only on the
banking sector in the Sultanate, but across the Gulf Cooperation Council region
as well. The two Muscat-headquartered banking giants are in the first and second
slots respectively in Oman. If BankMuscat has exposure to Bahrain through
BankMuscat International, licensed in 2005, and India through its acquisition of
Centurion Bank, National Bank of Oman has operations in the United Arab Emirates
“BankMuscat commands the largest branch network (90) in addition to possessing
relatively well-developed alternative delivery channels such as online and phone
banking,” say Karim Kamal and Basil Al-Salem of Gulf Investment Corporation
while commenting on the Oman banking scenario. BankMuscat’s primary place among
the peers becomes all the more riveting when it is understood that the Omani
banking sector is “relatively less dependent on government support than its GCC
counterparts”. Even though it has substantial government ownership (See chart on
shareholding pattern), BankMuscat does not benefit heavily in terms of
government borrowing and deposits.
BankMuscat is the second largest market capitalization company on the Muscat
Securities Market (RO 622,522,000 as on 7 December 2005) and constitutes around
25 per cent weightage on the MSM Index. According to the latest research report
of Fincorp, BankMuscat is “strengthening its position both in conventional and
non-conventional areas of banking.” Under conventional banking side, its loan
size has grown from RO1,098 million in 2001 to RO1,209 million in 2005. Its fund
deployment strategy reveals its strength. A sizeable chunk of its lendable funds
find a parking slot in other banks enabling it with ready reserves if a genuine
need arises, kind of call money, at any time!
Innovation is a major
plus with BankMuscat, point out analysts. In 2005, the bank introduced
new electronic queue management system and quietly increased its ATM
strength, which has crossed the mark of 165. It is also associated with
US$1 billion worth contracts in the oil and gas sector, including a
contract for Petroleum Development Oman’s Enhanced Oil Recovery
programme. Simultaneously, it is mandated to be the main banker for the
Electricity Holding Company SAOC and its subsidiaries. It is one of the
early birds to introduce the Central Bank of Oman-mandated Real Time
Gross Settlement System (RTGS), which would expedite fund transfer
between banks, leading to enhanced liquidity management.
By listing the GDR, the
company might have become visible internationally, but it
has put an added pressure on the stock price since it will
have to compete with the London market valuations to justify
its current price
non-conventional banking arena, BankMuscat is strengthening its presence in
investment banking. It lead managed the issue of Taager Finance and Omantel and
was one of the lead arranger for Aromatics Oman with a commitment of US$55
With the full backing of the power-packed Board, Abdulrazak Ali Issa is busy
chalking out brighter future plans. In pure numerical terms, the bank’s earnings
are growing at a steady pace. If it grew at an incredible rate of 22 per cent in
2003 and 2004, for the year 2005 its growth should be in the upper region of 30
per cent, forecast researchers at Fincorp. “On the whole, it appears that the
financials are well positioned, indicating a sustained and steady growth,”
points out the research report.
Bank analysts are full of praise for BankMuscat for its pro-activeness. At a
time when the Federal Reserve is gradually pushing the interest rate and given
Oman’s strong correlation with it, banks are expected to come under tremendous
pressure from lower interest spread and lower income from lending activities. To
offset any hiccups in its interest-bearing activities, all banks have to look at
fresh avenues, including non-interest income activities such as private banking,
credit card operations, investment banking and asset management companies.
BankMuscat is seems to be heading in the right direction.
Mopping up of funds has led the bank to float its Global Depository Receipts
(GDR) initiative, which fetched US$163 million in the last quarter of 2005. It
is an issue of “great significance to us,” says the BankMuscat Chief Executive.
This single step enabled the Omani bank to walk away with one more laurel: the
first bank from across the Gulf region and the first Omani institution to be
listed on the London Stock Exchange. In the process, this had enabled the inflow
of US$163 million worth foreign direct investment into Oman. But skeptics are
still out. “By listing the GDR, the bank might have become visible
internationally, but it has put an added pressure on the stock price since it
will have to compete with the London market valuations to justify its current
price,” points out Fincorp research head Uppili Appan. Nonetheless, he hastens
to add that the upside potential is in the region of 20 per cent plus.
a senior BankMuscat official: “It is the bank’s philosophy to provide
transparent and meaningful disclosures in its financial statements. In the last
few years, it adopted international accounting standards before they became
mandatory. The rating agencies and industry analysts appreciate the Bank’s
disclosures.” Analysts at Gulf Investment Corporation share the same sentiments.
“To address the issue of relatively high loans to deposits, most banks are
raising other sources of funds to increase their lending capabilities and reduce
risk.” As against National Bank of Oman’s Baa3 for long term deposits and D
minus for Financial Strength Rating (FSR) given by Moody’s, BankMuscat gets D
plus for its FSR from the same Moody’s. While S&P has given BBB minus for
BankMuscat, Fitch gave Treble B.
For a bank that is pursuing an aggressive growth path, keeping the regulator
happy is a necessity. Across the globe, banking regulators are extra vigilant to
ensure that no single banking entity corners the rest of the pack and suo moto
assumes the de facto regulator’s role. Central Bank of Oman (CBO) is no
different and it does not tolerate any waywardness. Expectedly, it has emerged
as one of the most respected banking regulators in the GCC region. Even at the
crescendo of the BankMuscat-National Bank of Oman merger talks in 2004, the CBO
brushed aside murmurs in some quarters concerning prospective ”monopolistic
structure” of the Omani banking scenario.
Oman’s financial sector has been considerably strengthened in recent years with
a modern financial system that caters to the development and growth process of
the economy. Banks and other non-bank financial intermediaries participated
largely in the country’s efforts to achieve sustainable growth.
BankMuscat, in less than 15 years, has established itself as the leader of the
banking fraternity in Oman. The Omani economy is embarking on a new journey with
the unveiling of Seventh Five Year Plan (2006-2010) where a concerted effort is
being made to move away from the greater dependence on oil to fuel all-round
growth. This basically gets translated into increased manufacturing activity,
which further requires more financial leverage.
Moreover, the gradual opening up of the economy to foreign direct investment is
likely to usher in increased need for banking and financial services. BankMuscat
is well entrenched in offering a variety of such services under its canopy.
With the economy picking up momentum, BankMuscat, with its deep rural reach, is
perched already. Above all, its obsession with innovation – remember the launch
of bancassurance, a novelty in Oman? – is bound to catapult BankMuscat to
BankMuscat Growth (in
* Jan-Sept 2005 # Annualised
Source: Corporate Research Division, Fincorp 2005
(Bank of New York)
Overseas Company LLC
Employees Pension Fund
Ahmed Ali Al Maashani
Authority for Social Insurance
open to all quality growth opportunities”
BankMuscat Chief Executive Officer Abdulrazak Ali Issa opens up to
share his thoughts on the bank in a dialogue with Group Editor Ramesh
It seems BankMuscat’s appetite remains insatiable. What is the
philosophy behind this urge to grow big? Did the failure of merger
process with National Bank of Oman impact you adversely?
Even as we speak, we actually comprise eight other banks today with
which we have been in successful merger situations. BankMuscat’s growth
strategy has been derived from our objective of becoming one of the
foremost banks across the region by the turn of the decade. Early on in
the history of the bank, one of the key components of growth identified
was the need for ‘critical mass’. The Board and Management of the bank
realised a long time ago that by continuing to be small, the bank would
call upon itself many restrictions and open it up to substantial risks
that it might not be in a position to take on. This drove us to look at
a strategy that combines the best of organic and non-organic growth
I really wouldn’t read too much into the failure of our merger talks.
The National Bank of Oman is the oldest, and second largest, bank in
Oman. I am sure they will continue to grow and prosper in their own
right. Our strategy continues to be open to considering all quality
growth opportunities that come our way, be they of an organic or
Recently your bank got listed on the London Stock Exchange and became
the first bank in GCC to do so. How is it going to help your
The Global Depository Receipts (GDR) issue is of great significance to
us as a bank and as a leading Omani institution. We have today become
the first bank from across the Gulf region and the first Omani
institution to be listed on the London Stock Exchange. This indeed is a
reason for pride and celebration as it has also allowed us to take Oman
– the country, economy and financial sector - to international investor
and fund manager audiences who have shown their overwhelming support for
the same. The GDR not only allowed us to significantly diversify our
investor base, but also allowed us to bring in an additional US$ 163
million into the country by way of the FDI route. The issue, you may
recall, was oversubscribed several times.
Is being a listed entity on the bourses a pain or pleasure? How do you
cope up with this inevitability?
BankMuscat has been a public limited company for quite some time now. We
have a full-fledged set-up at our head office in Oman that is focused on
managing our growing investor base in Oman and across Luxembourg, London
and Bahrain. We believe we have a duty to perform to each of our valued
investors and look upon meeting these to the best of our ability.
Oman is your playfield. How is your progress in terms of rural reach?
How fruitful has your attempt to go beyond Muscat proved?
BankMuscat has a retail network of 90 branches and close to 170 ATMs to
service the needs of the domestic retail customer in Oman. Fifty-five of
these branches are located outside the Capital region. The bank’s branch
network stretches from Khasab in the North to Taqa in the South and from
Buraimi in the West to Sur in the East. We are committed to providing
our customers with the finest banking experience across the country.
Either direct lending or assisting big borrowers to access money is your
forte. How far has BankMuscat succeeded in helping create small and
medium enterprises and building up an entrepreneurial class?
One of the most serious constraints the SME sector finds in most
countries is ready access to the finances that would help them move up
in terms of size/critical mass and consequently, the value chain. This
has also been reflected in the World Business Environment Survey, which
covers 4,000 firms across 54 countries. The SME sector has, by and
large, irrespective of country, cited inadequate access to finance as
its primary constraint to growth.
We, however, have been providing financial solutions to the SME sector
in Oman for several years. More recently, we launched a comprehensive
suite of programme lending services focused on the needs of the SME
We do not consider these services as merely an addition to the products
and services roster of the bank, but as our contribution to the valuable
efforts of the Ministry of Commerce and Industry, Ministry of Manpower
and the Central Bank of Oman to develop and nurture the small and medium
scale sector in the country.
When it comes to lending a helping hand to mega projects, your track
record seems to be good. What is your forecast for 2006 in terms of
We have built considerable expertise in Project Finance in the domestic
Omani market where we have been involved with almost all the large
ticket project finance transactions with a significant role in several
projects. With the increase in our equity, following the bank’s maiden
GDR issue, and growing ability to take on cross border exposure, we plan
to leverage on our project finance expertise in other GCC markets. We
already have cross border exposure in syndicated transactions, and are
looking to expand this activity further into primary top tier arranger
and syndication roles.
Among the various facets where BankMuscat has a presence such as
corporate banking, retail, investment banking, treasury, private banking
and asset management, where do you stand in each of these categories
vis-à-vis competition? What, according to you, is your weakest link and
what is the strongest one? In 2006, what kind of growth strategy you are
Today, BankMuscat is very much the leading bank in the Sultanate and has
a market share in excess of 35 per cent across each of its key business
lines. It would, therefore, not be right to try and identify which of
the business lines are stronger than the others. Each have their own
rightful position in the overall portfolio of our offerings and
contribute to their own potential to the Bank’s bottom-line.
In 2006, the bank will continue to ride upon the strong foundations that
it has laid in the past and will continue to forge ahead on its path to
realise its ambition of becoming one of the foremost banks across the
region by the turn of the decade. It will also continue to ride on its
pillars of excellence and quality in everything it does and provide its
customers with an even more superior customer experience.
Our growth strategy has traditionally spanned organic and inorganic
growth opportunities. The bank will continue to explore all quality
opportunities that come its way during the new year, both in Oman and
across the geographies that have an abiding interest in the GCC
countries. Whether this will be through BankMuscat or BankMuscat
International remains to be seen.
In terms of innovative products, will BankMuscat surprise the financial
world this year?
I am afraid you will have to wait and see! The year 2006, as I mentioned
earlier, promises to be exciting for at least three key developments
that promise to impact the banking sector both directly and indirectly
in the Sultanate: It will be a watershed year with the WTO regulations
coming into play at a national level and the Basel II regulations being
implemented by the banking sector. To cap it all, year 2006 has begun
with the signing of the Free Trade Agreement (FTA) between Oman and the
United States of America.
While the Basel II regulations are essentially an issue that will impact
the banking sector alone, the WTO regulations and the FTA will have a
huge, overall impact.
For, while they promise to help the country integrate much farther into
the global economy, in line with the vision of His Majesty, they are
also expected to result in the emergence of substantial opportunities
for the local industry to extend its competencies overseas. Finally,
they will also result in many more global organizations looking at the
Sultanate and its dominating youth market as a potential destination on
the global map.
What challenges and opportunities that these three developments throw up
for the banking sector, and in turn, customers across the Sultanate,
remains to be seen. One thing, however, is certain: increased economic
spending will both directly and indirectly help the sector and this
indeed will result in leading players reaching out to woo discerning
customers all the more persistently during the year ahead. Whether this
will result in a slew of customer-focused initiatives or products and
services, remains to be seen.
In pure numbers, what kind of growth percentage are you looking in 2006?
Historically, we have grown at close to 20 per cent over the past 10 to
15 years. However, I would not like to comment further on this at this
point in time. We shall, however, continue to grow on the strong
foundations laid during 2005 and the years that have preceded it, in our
quest to move ahead.
What is your success rate in achieving the Omanization targets? Do you
find any problems in meeting the targets at any levels? If so, how are
you trying to overcome those areas?
Omanization is a key national objective. As the nation’s largest bank,
we have a duty to provide quality employment opportunities to the
talented youth of the country and Omanization ensures that each one of
us play our part in the process. However, that is not to say that we do
not have our fair share of expatriates working with us as well. Our
Omanization levels as on 30 October 2005 was in the region of 91.23 per
cent, the balance comprising talented professionals from the UK,
Australia, Canada, Egypt, Jordan, Sudan, Kenya, Lebanon, Syria, India,
Sri Lanka and Pakistan.
Every country, whether Oman, India or the United States, has room for
its fair share of talented professionals from overseas. These people
play a key role in bringing specialized skill sets to the table, which
are otherwise wanting.
In the context of Omanization, the expatriates play an additional role
of imparting knowledge and training to our people who are guided through
their formative years by strong in-house mentors. Without the presence
of strong talent at senior positions, many of our young people who start
work immediately after college may indeed consider going abroad.
When we are on the verge of opening our national borders to
international companies, we cannot really close our doors to
international talent because of Omanization. Yes, the market will
choose, and providing right opportunities to our youth will continue to
be our priority, but in some fields we would need fresh expertise from
abroad. This trend is valid for people from Oman as well. Tomorrow,
these Omanis may indeed go abroad and play a meaningful role in the
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