2012-09-02 16:56:10 - Recently published research from Business Monitor International, "Oman Commercial Banking Report Q3 2012", is now available at Fast Market Research
BMI View: Oman's banking sector looks set to be a regional outperformer in 2012, driven by strong government spending and the introduction of Islamic finance. We are forecasting an expansion in the industry's aggregate balance sheet of 18.0% this year. That said, there is a risk that underlying profitability may suffer in the near term due to the government's recent decision to limit the maximum interest rate that can be charged on personal loans. Following a strong performance in 2011, we expect Oman's banking sector to continue posting healthy rates of growth over the coming quarters, and are forecasting an expansion in the industry's aggregate balance sheet of 18.0% y-o-y in 2012. A combination of elevated oil prices, loose fiscal
and monetary policy, and the introduction of Islamic finance into the country should all leave the sector in good stead, and help shore up underlying profitability in the months ahead. To be sure, in 2011 Bank Muscat and National Bank of Oman saw net profits increase 15.7% and 25.7% respectively. 2011 was a relatively bright year for Omani banks, with the sector's aggregate loan portfolio expanding by 17.0% y-o-y, compared to 6.6% in 2010 and 2009 respectively. Deposits also grew at a healthy clip, having increased 19.5% y-o-y (bringing the loans-to-deposit ratio to 98%), compared to 14.6% and 5.8% in the previous two years. Paradoxically, this improvement was driven in no small measure by the events Oman Commercial Banking Report Q2 2012 © Business Monitor International Ltd Page 34 surrounding the Arab Spring. This was due to the fact that as a result of the regional upheaval, Oman's government announced a series of new populist spending measures (such as the creation of new public sector jobs and hikes to the minimum wage) which eventually filtered through into an improved bottom line for the nation's banks. As the country also largely avoided large-scale anti-government demonstrations, domestic banks have also benefited to a certain extent from Oman's improved status as a safe haven in the GCC, albeit to a lesser extent than what we have seen in the UAE and Qatar. Given our view that fiscal policy will remain loose over the coming quarters (particularly with oil trading near multi-year highs), government largesse is likely to remain a key driver behind underlying asset expansion in the near term. Our sanguine outlook on the Omani banking sector in 2012 is also underpinned by the recent introduction of Islamic finance into the country. Indeed, in 2011 the government reversed its longstanding position of not allowing banks to specifically offer products and services that complied with Islamic law (shari'a). Muscat subsequently granted operating licenses to Bank Nizwa and Bank Al Izz, who announced in January that they intended on floating 40% of their shares by June. The introduction of Islamic finance into Oman (which is the last country in the GCC to allow shari'a-compliant financial services) opens up the possibility that banks will finally be able to enter a relatively untapped market, with some reports indicating that the next five years could see the industry gaining up to 15% market share. Of course, the sudden introduction of two new shari'a-compliant players into the market could see profitability at well established conventional banks suffer in the near term. Despite the broadly optimistic outlook however, there is a concern that a recent government decision to limit interest rates on loans could see profitability weaken in the near term. Indeed, in late March it was reported that the central bank was to lower the maximum interest rate for bank-issued personal loans to 7% from 8% previously. According to a statement on the central bank's website, the decision was taken in order to "reduce the financial burden on borrowers and to encourage banks to offer more credit to finance productive projects". The decision had an immediate impact on Omani banks' share prices however (see accompanying chart), as concerns were raised that the move would undermine net interest income in the near term.
Full Report Details at
- www.fastmr.com/prod/451341_oman_commercial_banking_report_q3_201 ..
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