Oman banks’ merger to strengthen financial sector

Muscat: Oman’s banking sector is expected to gain from the planned merger between Bank Dhofar and Bank Sohar, resulting in the improved ability of well-capitalised banks to effectively compete within the region and the synergies that are expected to stem from such a merger.
The Sultanate’s Bank Dhofar and Bank Sohar had last week reached a swap ratio of one share of BankDhofar in exchange of 1.29 shares of Bank Sohar for merging both financial institutions. This is one of the major mergers for Omani banks, after the merger of HSBC Bank Oman and the Oman International Bank almost four years ago.
“Oman is a very much over-banked with seven locally incorporated banks, two exclusive Islamic banks and several foreign banks. The size of these banks are small and therefore, the merger will be in favour of the banking system having sizable entities, which can compete within Oman and with regional players,” said Joice Mathew, head of Research at United Securities.
“The merged entity is expected to have an asset base of OMR6 billion, a loan book of OMR4.5 billion and capital of OMR300 million, which essentially means that the new entity will be able to compete within the country. This is a good step in the direction towards strengthening the banking system,” added Mathew.
The merger of Bank Dhofar and Bank Sohar will also help to create a highly capitalised institution, which will create strong syndication initiatives, while the single party lending limit will go up.
S Suresh Kumar, head of research at Al Maha Financial Services, had said earlier that there are too many players in the market, which is causing severe competition. “Therefore, consolidation will help banks improve their operating efficiencies and value-added offerings for customers,” added Kumar.
In the recent past, the Sultanate’s banking sector has witnessed a host of mergers—the Commercial Bank was acquired by Bank Muscat, the Majan International Bank was acquired by Bank Dhofar and Oman International Bank was merged with HSBC Bank Oman.
Bank Dhofar has 63 conventional banking offices/branches, while Bank Sohar had another 26 operating branches for conventional banking by the end of December 2015. Therefore, the merged entity will take the total branch network to 89 branches for conventional banking. In addition, Bank Dhofar has five Islamic windows in operation, while Bank Sohar has four Islamic windows in operation.
The Sultanate’s banks have achieved an incremental growth of OMR2,354.9 million or 12.6 per cent in credit to OMR20.98 billion for the 12-month period ending March 2016. The total deposits of banks also rose by OMR1,213.9 million or 6.49 per cent to OMR19.91 billion during the same period. The Sultanate’s total bank branch network stood at 548, which includes 427 branches of local banks, 38 branches of foreign banks, 23 branches of specialised banks and 60 branches of Islamic banks and window operations at conventional banks.