Foreign institutions mop up Omani bank stocks

02/12/2010 00:00 AST

Foreign institutional investors are mopping up stocks of major Omani banks, which resulted in shares of two leading banks — BankMuscat and National Bank of Oman (NBO) — touching two-year highs on the Muscat Securities Market (MSM).

Market analysts cited the comparative better valuation, difference between BankMuscat’s GDR and local share price and growth potential for banks in view of soaring government expenditure on infrastructure projects as major reasons for the renewed interest in Omani bank stocks. “There has been a hectic activity in BankMuscat and NBO counters in the last seven to eight trading sessions. BankMuscat shares formed 29.5 per cent of total trading of RO22.34 million last week.

The foreign institutions were net buyers of shares worth RO1.9 million on the MSM during the week ended on November 25,” said Kanaga Sunder, senior analyst(Research) of Gulf Baader Capital Markets. “It shows that foreign institutions are looking at BankMuscat at this level,” he added.

Echoing a similar view, Gigi Tharian Varghese, associate vice-president of Vision Securities, said that BankMuscat is trading at a price to book value multiple of 1.4 to 1.5 times, which is against a banking sector average of 1.75 to 2 times in other Gulf Cooperation Council (GCC) countires

“A major portion of bad loans is linked to their exposures outside Oman,” Varghese noted.

The momentum in BankMuscat counter started one week ago when there was a price difference between the bank’s global depository receipts (GDRs) and locally listed shares, noted Kannan Rajagopal, assistant general manager of the Global Omani Investment Company. “There was an opportunity for institutions to take advantage on the price difference. Probably, they must have bought BankMuscat shares here after selling the same there (London bourse),” Rajagopal added. Highlighting another positive indication, Sunder said that leading Omani banks like BankMuscat and National Bank of Oman are major beneficiaries of growing government expenditure on infrastructure projects.

Incremental spending by government will create better demand for credit.

Mega projects

Of late, the government has awarded several mega projects worth billions of rials, which include Muscat and Salalah airport expansion and several road and sewage water projects. “Investors are confident on the growth potential in 2011.”

The banking sector witnessed a 9.2 per cent growth in over all credit off take at RO10.38 billion by August-end from RO9.51 billion for the same period last year.

“This shows that bank assets are growing at a faster pace than liabilities,” Varghese noted. However, this growth is just a fraction when compared to a phenomenal 42 per cent credit growth achieved in 2008. “It is not a big growth to excite about it,” Varghese added. Unlike Omani banks, the provisions of regional banks might go up next year, as these institutions are yet to come out of the bad loan menace.

Times of Oman