Bank Sohar:
Surfing on SMEs
A sixth bank has appeared on Oman’s financial horizon after 12 years. Abhijit Sinha checks out CEO Nani B. Javeri’s start-up USP of ‘not just selling a product but also a solution with that product’

January 1, 2006 – a group of Omani investors are given the go-ahead by the Central Bank of Oman (CBO) to set up a new bank with a capital of RO 100 million, of which half is paid up and half will be called within a three-year period. The founders’ committee meets in October, and a decision is taken to launch an initial public offering (IPO) for RO 20 million, divesting approximately 40 per cent of the initial capital base. The Capital Market Authority (CMA) clears the IPO (at face value of RO 1) on November 25, and the issue is oversubscribed six times by the time it closes on March 5, 2007.

On April 9 this year, Bank Sohar is launched as the sixth commercial bank in Oman. Prior to that, at an AGM held at Crowne Plaza Hotel, shareholders elect a seven-member board of directors – with Sheikh Hilal Bin Hamood Al Maamari as chairman, and Dr Mohammed Abdul Aziz Kalmoor as deputy chairman. The other board members are Abdullah Humaid al Maamari, Hussain Al Shalwani, Hamed al Rawahy, Taher al Amri and Salem Al Mashaiki.

The first new bank in the country in 12 years, Bank Sohar is all set to capitalise on the surge in financial liquidity and brimming investment potentials in the country. “We are starting with the ambition of being a universal bank, covering most of the areas other than investment and brokering, which we will do separately. But we plan to gradually build ourselves into a full-fledged commercial bank,” says Nani B. Javeri, Chief Executive Officer. Targeting risk assessment is the strategy – thus carving out a niche for the bank in Oman. “We have deliberately given risk a very high profile, as we believe this is very important – and increasingly more as the world has seen – particularly for a new bank,” says Javeri.

No legacy baggage
But Bank Sohar does not want to be seen as an easy mark for anyone seeking a loan, as no application can be passed by a line manager. The Head of Corporate Banking cannot sign an approval facility without getting the clearance from the head of risk assessment, in this case from HV Seshadri, the senior-most deputy general manager who assesses enterprise risks – be it credit risk, operational risk, market risk or reputational risk. For all practical purposes, he is the second in command as there is no general manager yet. From there, the application goes to the credit committee, where the head of risk assessment says whether it is bankable or not.

The corporate banking division is another large area for the bank and it handles:

• Large Corporates,

• Small and Medium Enterprises (SMEs),

• Public Sector Enterprises,

• Corporate Liabilities,

• Financial Institutions (FIs) – groups that deal with other banks and other FIs, and

• The Treasury.

Javeri is confident that coming after 12 years, the new bank will “jolt and wake people up a little bit.” The advantage of a start-up is having no legacy baggage, and that’s the focus of this new bank – which wants to fill gaps in the banking scene in Oman in next three years.

Risk vs opportunities
“Our focus is SME, a segment that’s somewhat neglected in Oman as people have found it to be of high risk and stayed away from it. We believe there’s a huge opportunity in this sector. The rest of the world has also seen it, but they were pressurised for different reasons to get into SME – which, by nature, is a higher risk business. They were pushed into this primarily because margins of large corporates came under huge pressure – and they found that they were not getting any returns on the huge money they were lending. So, there was a disintermediation where corporates could borrow directly and not have to go through the intermediation of any bank. This pushed the banks gradually into the SME sector,” says the Bank Sohar CEO.

Javeri believes there’s a huge opportunity in SME banking, “as it creates lots of jobs and plays a huge role in the development of the country.” With huge projects in the pipeline, there will be downstream opportunities for the SMEs – and that’s where he will like the new bank to participate actively. “SME will be one of our bigger focus areas,” he affirms. But that’s not the USP of Bank Sohar. “In every market, there are opportunities, and we do recognise it’s got a degree of risk which is higher than the corporate segment. But we believe that we have the management skills to understand – and manage – these risks,” he stresses.

So what’s the thrust area of the latest entrant in the commercial banking sector of Oman? Identifying gaps in the market, says Javeri – some of which are in the “linked knowledge base sectors,” where the bank is not just selling a product but also a solution with that product.

Solution provider
A consistently high efficient service and need-based products which give solutions to the customer, that’s the target area of Bank Sohar. For instance, treasury will not be just buying and selling spot. People, especially the SMEs, want to know how, and where, to invest their money – or to cover themselves from certain risks.

“We will be giving them solutions of how to manage their business better,” says the ebullient CEO, who plans to expand from one branch to a countrywide network of 15-20 branches in the next six years. By the end of 2007, there will be at least five branches. All this will, of course, be subject to CBO approval.

Core areas for Bank Sohar are the three investment arms – treasury, SME and consumer/retail banking. The consumer banking division has housing and personal loans sections, while private banking is within retail banking. To differentiate between the high networth customers and the low-end customers, the bank will be encouraging alternate channels of delivery like SMS, internet, ATMs and call banking. The middle group – the largest community of customers – will be serviced from the main branch.

Alliances and syndication
Javeri says there’s enough room for a sixth bank in the economy which is growing at an exponential rate. The oil and gas revenue surplus is having a catalytic effect on manufacturing, tourism, retail and exports.

“Banks are the engines of growth. Get the savings and deploy them as investments. Overseas loans, to a very significant extent, are financing the mega-projects coming up in Oman. That’s because we can’t expect to do it all ourselves. The banking assets are only about RO5 billion, whereas the projects are three to four times that number. These are the opportunities for banks to participate – not competitively but more as alliances,” he adds.

Bank Sohar is looking at opportunities to do business with different banks and financial institutions, acknowledges the bank’s CEO. Reluctant to talk about investment alliances, as the start-up is not even a month old, Javeri says the bank has a fair amount of money to invest and will be participating in syndicates. “We will put the money into our lending portfolios judiciously, which could be across the GCC. So, we are talking to loan syndicates, banks that participate in loan syndicates, and, of course, corporates, to borrow from us,” is all that can be elicited from the canny banker.

Parting shot from the Bank Sohar CEO: “The problems Oman’s banking sector faced in the year 2000 have largely gone. But in a growth phase, banks have to be even more careful than before, as one tends to take more risks at times of rapid growth. The CBO has some valid concerns about consumer lending. There has to be a balance between judicious and injudicious lending. Banks do have an advisorial role to play. Bank Sohar will lend money not only in a judicious manner but also to prevent people from over-extending themselves.”

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