Amid unprecedented levels of public investment in industry and infrastructure, the Omani banking sector is undergoing strong growth for the second consecutive year.
In November 2006, in an important step towards the establishment of Oman’s newest bank, the Capital Market Authority (CMA), the Sultanate’s capital market regulator, approved the release of a $51.95 million initial public offering (IPO) for Bank Sohar.
Bank Sohar, scheduled to begin operations early next year, will be the sixth locally incorporated bank in the Sultanate. There are currently 14 commercial banks, five local and nine branches of foreign banks.
Going public
The IPO – the first on the MSM since the release of Oman Telecommunication in June 2005 – opened on December 9 and runs until January 7. Bank Sohar will release 40 million shares at $1.37 on the Muscat Securities Market (MSM). This offering represents 40% – the minimum a company needs to list on the MSM – of the total paid up capital of $129.87 million, which will launch Sohar Bank early next year.
The latest figures from the Central Bank of Oman (CBO) show an expansion of all major variables in commercial banks. At the end of September, the combined balance sheet of commercial banks showed that total assets reached $17.4 billion, a 27.8% increase on the same period last year.
The growth of the sector is not unique to Oman, but is a regional phenomenon on the back of record high oil prices in 2006.
In August 2006, Standard & Poor’s ratings services issued a report focusing on banking sector growth in the Gulf Cooperation Council (GCC) region. The report concluded that the sector would see continued growth led by the sector displaying solid financials, capitalization, and liquidity well into the foreseeable future.
The CBO, the sector’s regulator, has placed special attention to high standards of governance and transparency. After several months of preparation, Basel II – a set of capital adequacy requirements – will be launched this month, according to Hamoud bin Sangour al-Zadjali, the executive president of the CBO.
High hopes on Basel II
Earlier this month, a workshop was held on Basel II implementation organized by the CBO and the US Department of Treasury. On that occasion, Zadjali told local press that Basel II implementation was challenging and would demand additional human, financial and technical resources.
Basel II will strengthen the financial stability and transparency of the sector. Zadjali described the program’s scope as having three mutually reinforcing pillars: minimum capital requirement, supervisory review and market discipline.
Meanwhile, at the end of 2006, Moody’s rating service announced some latest upgrades for the sultanate’s banks. Moody’s upgraded four of the largest banks ratings from BAA1 to A3 for long-term foreign currency deposit.
This followed Moody’s recent upgrade of Oman’s foreign and local currency country ceiling from BAA1 to A3. Moody’s attributed the upgrade to the strong likelihood of support from the authorities, should the need arise, combined with the improved capacity of the government to provide such support, as a result of the significant improvements in Oman’s economic fundamentals over the past several years.
