Making the case for Oil

For resuscitating the economy of Oman, we posit that the two critical sectors of the Omani economy — oil & gas and tourism — hive off independent entities in the form of Oman Oil & Gas Bank (OGB) and Oman Tourism & Culture Bank (TCB).

Conceding that oil and gas sector has been sustaining the economy for long and there is a growing need to consolidate the sector for long-term sustainability; a banking institution may be carved out by the Ministry of Oil and Gas (MOG). Likewise, Oman’s tourism sector holds immense possibilities for economic resuscitation in the future and a banking institution would be instrumental in channelising the efforts of the Ministry of Heritage and Culture (MoHC) at promoting culture and heritage of the country.

On the one hand, the oil and gas sector is flagging signs of caution and on the other hand, the tourism sector is showing signs of opening up new vistas. Oil and gas sector contributed to around 72 per cent in the country’s GDP in 2016 and there is an anticipation of a minor fluctuation over the next five years. That the tourism sector is witnessing a stupendous growth in Oman is attested by the increment in the tourist arrivals from 123,000 in June 2016 to 278,000 in July 2017.

We posit that both the sectors would benefit by tapping funds earned through banking transactions into productive sectors. While the two governing ministries would conduct their day-to-day operations in their focus areas, the institutionalization of banks would facilitate in cross-domain interchange of ideas and views. There is no gainsaying the fact that teething troubles might be encountered in the process of ideation and execution of the banking institutions but the longterm benefits are not far to conceive.

As such, there are instances across the globe where the public sector departments-mostly the postal departments — have hived off independent banking and financial entity and such initiatives paid off in the long run.

For instance, Russia Post — the postal department of Russia — offers banking services through its collaboration with Leto Bank. Likewise, there is Postal Savings Bank of China which contributes to China’s economic development by offering financial services to different communities-including farmers, small and medium sized companies, large projects and clients. In Switzerland, there is Post Finance which runs as a retail financial institution. In Uganda, there is Post Bank catering to diverse needs of its clients including students and entrepreneurs.

Further, the Postal Department of Italy set up a Poste Italiane Bank and the same example was followed in India where the India Post Payments Bank was instituted. For Oman, however, we cite the criticality of the two economic sectors as the prime desideratum for hiving off banking and financial entities.

The Banking Law of Oman (2014) underscores that one of the primary objectives governing the banking sector in Oman is “to promote the development of banking institutions, which will ensure the maintenance of financial stability, contribute to the economic, industrial and financial growth and enhance the position of the Sultanate in international financial affairs.”

As per the stipulations of the Central Bank of Oman (CBO), banking licence may be procured by any local bank as long as it maintains a “paid up capital of RO 20 million” and maintains “one tenth or one per cent of its global banking resources as capital deposit with the Central Bank, with a minimum of RO 50,000 and a maximum of RO 500,000”.

The Ministry of Oil and Gas and the Ministry of Heritage and Culture should move ahead with the institutionalization of the bank by providing the initial seed capital and meeting the other requirements for the setting up of the banks. OGB and TCB may function as conventional banks to cater to functions like maintaining demand or time or savings deposits; opening of current accounts and credits; providing loans of money on personal, collateral or real property security; operating credit card business; payment and collection of checks, orders, payment vouchers