▶ Merger would cap­i­talise on Oman’s fast-grow­ing Is­lamic bank­ing sec­tor

The National - News - - BUSINESS - SARAH TOWNSEND

The pro­posed merger be­tween Oman Arab Bank and Alizz Is­lamic Bank – the lat­est in a wave of planned con­sol­i­da­tions be­tween GCC lenders – would form an Is­lamic bank­ing en­tity with about $7.6 bil­lion in as­sets, Moody’s said on Fri­day.

An OAB and Alizz Is­lamic merger would help the banks to cap­i­talise on the fast-grow­ing Is­lamic bank­ing seg­ment in Oman.

The sec­tor ac­counted for 13 per cent of bank­ing as­sets in the sul­tanate in June, up from 2 per cent in March 2013 fol­low­ing the in­tro­duc­tion of the coun­try’s Is­lamic Bank­ing Reg­u­la­tory Frame­work in 2012.

“Suc­cess­ful com­ple­tion of the pro­posed merger would pro­vide OAB with a larger Is­lamic fran­chise and as­set base, al­low­ing it to im­prove its in­ter­est in­come and de­posit-gath­er­ing abil­ity,” the credit rat­ing agency said in a re­port.

The two Mus­cat-listed banks said in May they were “ex­plor­ing the pos­si­bil­ity of a strate­gic col­lab­o­ra­tion that may lead to an even­tual merger of the two en­ti­ties”.

Last week, they signed a mem­o­ran­dum of un­der­stand­ing pledg­ing to con­tinue merger talks, in­clud­ing ap­point­ing le­gal and fi­nan­cial ad­vis­ers to con­duct due dili­gence and pave the way for a po­ten­tial deal.

“The suc­cess of the merger be­tween the two in­sti­tu­tions will re­sult in the for­ma­tion of a new fi­nan­cial en­tity that will be more com­pet­i­tive, both lo­cally and re­gion­ally, and be in a po­si­tion to pro­mote the de­vel­op­ment of the fi­nan­cial sec­tor in the sul­tanate” said Rashad Al Zubair, chair­man of OAB in a state­ment to the Mus­cat Se­cu­ri­ties Ex­change.

The banks al­ready have com­ple­men­tary prod­ucts, sys­tems, tech­nolo­gies and cus­tomer seg­ments, he added.

Banks in the Ara­bian Gulf are in­creas­ingly look­ing at merg­ers and col­lab­o­ra­tions as low oil prices in the past three years have squeezed their profit mar­gins.

Re­gional banks are likely to be stronger per­form­ers this year and into 2019 as macroe­co­nomic con­di­tions im­prove, but they are still seek­ing cost ef­fi­cien­cies to drive growth.

Ear­lier this year, HSBC and Royal Bank of Scot­land in Saudi Ara­bia reached an ini­tial agree­ment on the terms of a pos­si­ble merger.

In July, Na­tional Bank of Oman and Bank Dho­far said their boards had agreed to dis­cuss a po­ten­tial merger – which would cre­ate $20bn in com­bined as­sets and be the sec­ond-largest fi­nan­cial in­sti­tu­tion in the coun­try, EFG Her­mes said in a re­port in Au­gust.

Moody’s In­vestors Ser­vice main­tained a neg­a­tive out­look on Oman’s bank­ing sys­tem in a sep­a­rate re­port last week, but said its econ­omy is set to re­bound this year and cap­i­tal will re­main sound, “pro­vid­ing loss ab­sorbency”.

Is­lamic bank­ing in par­tic­u­lar has con­sid­er­able po­ten­tial for fur­ther growth in Oman, given its re­cent in­tro­duc­tion and low pen­e­tra­tion com­pared with other GCC coun­tries and the coun­try’s al­most en­tirely Mus­lim pop­u­la­tion, ac­cord­ing to Moody’s re­port on the OAB and Alizz merger talks.

“The banks agreed that Alizz would con­tinue to op­er­ate as a ded­i­cated Is­lamic bank­ing fran­chise with man­age­ment au­ton­omy, which would help pre­serve Alizz’s cus­tomer re­la­tion­ships,” the re­port said.

The re­port es­ti­mated that the com­bined en­tity would have to­tal as­sets (both con­ven­tional and Is­lamic) of about $7.6bn as of June 2018, a 9 per cent share of the Omani bank­ing sys­tem.

OAB cur­rently has a 7 per cent mar­ket share in terms of to­tal as­sets and is larger than Alizz, which has a 2 per cent share, ac­cord­ing to Moody’s. How­ever, Alizz has a larger share of the Is­lamic as­sets mar­ket at 15 per cent as of the end of 2017, com­pared with 2 per cent for OAB.

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