BankMuscat leads Oman's Islamic boom

Call it Sharia euphoria. Anything in Oman with the words "Islamic bank" in the name has been selling like hot cakes recently.

The surge comes as the sultanate eases long-standing restrictions on the rapidly growing industry and investors plough in.

BankMuscat is the latest beneficiary. Its rights issue, completed yesterday, raised 96.7 million Omani rials. The rights issue was 127.49 per cent oversubscribed - all the more remarkable given the fact Dubai Group, the bank's second-biggest shareholder, did not participate. Dubai Group is an arm of Dubai Holding. The group owns a 14.7 per cent stake in BankMuscat.

The bank said the proceeds would be used for "financing growth resulting from the credit expansion and following general economic growth in Oman, capitalising the Islamic banking business and enhancing capital adequacy ratio to enable readiness for adoption of Basel III when introduced".

The Islamic bank is what is really exciting investors. Oman's largest lender would also start from an established position of strength, unlike newly established rivals.

Bank Nizwa attracted $1.77 billion in an initial public offering concluded in May, which is impressive, considering it has no branches, customers or operations to speak of. And bringing up the rear - but no less potent - is Al Izz Islamic Bank, which boasts support from Abu Dhabi's Aabar Investments and Tasameem Real Estate, two deep-pocketed investors with links to government.

Experience in other markets shows the establishment of Islamic banks has been a "key system growth driver", according to a recent report from Deutsche Bank.

Such lenders grow the size of the market by adding customers who shun bank accounts that bear interest, prohibited under Sharia law.

"We believe BankMuscat will be a key Islamic banking participant, reflecting its incumbent position, its superior distribution infrastructure and likely broad product suite," the report said.