Oman to encourage consolidation in financial sector

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An Omani banknote with Sultan Qaboos bin Said’s image. Photo – Alrroya.com

The Capital Market Authority (CMA), Oman’s financial regulator, believes that active measures must be taken to encourage consolidation in the country’s financial sector. Consolidation in the financial sector will allow Omani banks to grow bigger in scale and also build a long-term regional presence in the Gulf region.

Sharing his views in an interview, Abdullah Salem Al Salmi, CMA’s executive president, stated that, “maybe we are overbanked in a way, so limiting the number of banks would be better for the market, especially for banks starting from scratch. We would like to see some consolidation.” Industry figures point out that growth in the country’s banking sector has slowed down in recent months. The assets in commercial banks grew by 13.9 percent in 2012, compared to 17.6 percent in 2011.

Last year, a major merger took place between HSBC Holdings and Oman International Bank. The merger created HSBC Bank Oman, the country’s second largest bank by market capitalization. The country’s first full-service Islamic banks, namely Al Izz Islamic Bank and Bank Nizwa, were also established last year. A total of 18 banks now operate in the sultanate.

The banking market in Oman is highly crowded and competitive, with three largest lenders making up for around two-thirds of banking assets. As a result of the stiff competition, new entrants may find it difficult to enter and compete in the market. Even the newly established banks may struggle to stabilize and earn profits. Fierce competition had led to rumors that Oman’s Bank Sohar and Bank Dhofar may consider a merger. Meanwhile, Oman’s eight state-run pension funds are also considering a consolidation of operations.

Similarly, Oman’s insurance sector is also seen as overcrowded, with premiums estimated at around OMR300m (USD 779 million). About 23 insurance companies currently operate in the tiny sultanate to serve the needs of the population. The CMA is under process of drafting specific rules for takaful and sukuk (Islamic bonds) in the country to allow the Islamic financial market to become more efficient.

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