Banks to benefit from loan growth next year

MUSCAT: Local banks are likely to benefit from a robust growth in loan book next year, although challenges are ahead due to the imminent entry of two Islamic institutions, said a brokerage house in a research report released yesterday.

With spending on mega projects, over RO10.4 billion investment planned in construction sector by 2014 and investments worth RO386 million in oil and gas projects in the pipeline, banks will comfortably show healthy loan books, said Al Maha Financial Services in its ‘banking sector – performance overview.’

“We believe that favourable demographics would continue to act as a key driver for growth in consumer lending segment and expect the banks to benefit from higher disposable income levels of the youth population,” noted the report.

However, Al Maha said next year is likely to be a challenging period for local banks as two new banks are expected to start Islamic banking services. “However, banks are gearing up and take this as an opportunity to offer new variety of products and services,” noted the report, which was jointly prepared by Suresh Kumar, Radhika Gadhia and Kushboo Badlani.

Though the expected reduction in the interest rates and the ceiling on consumer loans are likely to impact the banks’ interest income, it is likely to help the banks to minimise the default risk and in turn improve the asset quality.

Al Maha also noted that half of the listed banks are expected to raise new capital in order to comply with the regulatory capital requirement of RO100 million.

“The banks are also likely to raise additional capital through other means such as rights issue, private placements and subordinated debt to fund the growing credit demand.”

Al Maha report said the total loans and advances of the six listed banks stood at RO10.36 billion by end-September, 2011 as compared to RO9.07 billion a year ago, registering an increase of 14.2 per cent year-on-year. BankMuscat continued to remain as the market leader in terms of gross loans and advances.

The bank’s market share grew from 45.3 per cent by end-September 2010 to 45.8 per cent for the same period this year. Oman International Bank underwent a challenging phase during this time with its market share declining to 7 per cent from 7.65 per cent a year ago.

Healthy growth

The loan book of the banking sector witnessed a healthy growth, both in the corporate and consumer segments, during the last one year.

The corporate credit grew by 16.5 per cent year on year from RO5.22 billion to RO6.08 billion during the period under review, with major companies like Oman Cement, Raysut Cement, Renaissance Services, A’Saffa Foods availing credit to fund their capital expenditure programmes.

The consumer segment witnessed a growth of 12.9 per cent, year on year to reach RO4.28 billion by end-September 2011.

The increase in disposable incomes owing to the hike in remunerations of employees was one of the major drivers for the incremental demand in the retail segment.

Referring to liquidity, Al Maha report said the customer deposits, including certificates of deposits, of the six listed banks stood at RO10.24 billion by end-September 2011 from RO8.22 billion for the same period a year ago, showing a growth of 24.6 per cent year on year.

The banking sector witnessed marginal improvement in the interest spread irrespective of the drop in yield, as a result of the decline in interest rate. Cost of funds also showed a drop during the first nine months of this financial year compared to the same period last year as a result of banks’ endeavour to access low cost funds.

This has resulted in improvement of the spread from 2.73 per cent in the first nine months of 2010 to 2.85 per cent for the same period this year.

Omani banks showed an impressive performance in the first nine months of this financial year by improving their profitability, the report said, adding; “The six listed Omani banks together have achieved a year-on-year growth of 19 per cent in net profits in the first nine months of this year.”

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

“Total profits of the listed banks reached RO179.6 million during the nine months ended September, 2011 from RO150.8 million reported during the same period last year.” Also, all the three quarters of this year witnessed better profitability compared to their respective quarters in the last year.

Leave a Reply