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Banking Sector - Oman

Source: SICO Investment Bank

Still room for growth

Strong economic growth

Banking sector in Oman is ideally positioned to capitalize on the hydrocarbon boom driven by record high oil prices. Average nominal GDP growth rate in Oman during the period 2004-2007 stood at around 17.4%. The nominal GDP growth in 2008 is likely to be in excess of 25.0% while the current account surplus is likely to cross 11.0% of GDP.

Government initiatives focused on diversification-driven growth

Up until now, Oman’s economy has largely been driven by oil. Amassed with huge oil wealth translating into record current account and fiscal surpluses, Oman’s government has announced mega infrastructure projects totaling USD48bn over the next 5 years with a clear focus to diversify the economy away from hydrocarbon sectors. The banking sector is likely to be a major beneficiary of these investments by way of their direct and indirect participation in these investment projects

Favorable demographics and low penetration levels

Despite significant credit growth in the last few years, the penetration of banking services in Oman remains low, with an average population per branch of 7,300 people. Furthermore, the country’s population is very young with nearly 31.6% of the population under the age of 15 years. Credit to GDP ratio at around 42% is also low when compared with other GCC nations.

We initiate coverage of the sector with a positive outlook

Combination of strong economic growth backed by government focus on diversification of the economy form the key drivers of our positive view. We expect loan growth in Oman banking sector to average around 19% in the next 4 years driven by strong credit demand and high liquidity. Among the Omani banks we like Bank Muscat & Ahli Bank due to their strong focus on growth and profitability. We reiterate our Over-Weight stance on Bank Muscat while initiate our coverage of Ahli Bank with an Over-Weight rating. We feel that the current prices of Oman International Bank, Bank Dhofar and National Bank of Oman reflect their growth potential and accordingly we initiate with a ‘Neutral’ stance.

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