Banks to watch in 2013, Bank Nizwa

In May 2011, Oman issued directives authorising the introduction of Islamic banking services for the first time in
the country’s history. The decree also approved the establishment of Oman’s first standalone Islamic bank, Bank Nizwa, which opened its doors to the public in January 2013.

Established as a retail bank with a capital of $389m, Bank Nizwa is looking to tap the demand for sharia-compliant products and services that is currently being met by Oman’s neighbouring countries, resulting in a liquidity transfer from the country to other centres in the Gulf. It is estimated that the equivalent of $11bn in local currency (Omani rials) is currently deposited in Islamic banks across the Gulf Co-operation Council countries.

Bank Nizwa is looking to curb that outflow, and the signs are that Islamic finance is ripe for the picking in Oman, as made apparent by the bank’s successful initial public offering of a 40% share in May 2012 – attracting $1.77bn-worth of bids in the form of 37,000 subscribers, making it 11.3 times oversubscribed.

The bank offers products such as current and savings accounts, personal finance, as well as corporate business services and treasury operations. Initially it plans to build its presence at home, where it launched with three domestic branches and opened a further five by the end of 2012.

Aside from catering to an untapped audience, Oman is a very under-banked market, with a 14% penetration rate compared to an average 22% across the rest of the countries in the Gulf.

Ernst & Young forecasts that a successful roll-out of Islamic banking infrastructure could see the industry in Oman gaining up to $6bn in Islamic assets over the next few years. The country’s current total banking assets stand at about $42bn.

According to chief executive Jamil Ak El Jaroudi, Nizwa’s long-term vision is to become an international bank, but the short-term strategy is to help diversify the country’s accounting portfolio. Currently, 40% of loans are allocated to consumer finance and 10% to the construction sector, suggesting that there are many remaining economic sectors in Oman that are not being well served. Bank Nizwa is intending to reach out to these sectors, as well as extending greater support to small and medium-sized enterprises and encouraging investment in equity.

The bank was set up by Sheikh Saud bin Ali Al Khalili, a former Omani minister of education, and 92 other Omani founding partners including individuals, companies and pension funds, all of whom are locked in as shareholders for the first two years of Nizwa’s operation.