It’s a cut-throat competition in Oman's banking sector

Muscat: It is beginning to be a cut-throat business in the banking sector in Oman with only the biggest financial institutions are fit enough to survive the competition leaving smaller banks struggling to win over customers.

There are 18 commercial banks in the country but the ones that are in the comfort financial zones are only five with the rest just scrapping for business. Bank Muscat is still the only mega bank whose net profit in 2013 is equivalent to the combined earnings of about 70 per cent of all financial institutions in the country.

Formidable competition
Bank Dhofar and National Bank of Oman (NBO) come a very distant second and third respectively in terms of annual net profits behind Bank Muscat. Oman Arab Bank, Bank Sohar and ahlibank are doing 'catch up' while HSBC Oman may soon find the competition is much more formidable than they previously thought when they took over the assets of the former Oman International Bank (OIB). It is a matter of too many banks chasing fewer customers. For the financial institutions, the survival of the fittest begins now.

If in the last five years, the gap in financial performance between big banks and smaller ones has been tipping the scales, then obviously in the next five years it may be curtain time for some vulnerable financial institutions. Unless, of course they start merging with bigger banks. Oman is never going to be a super economic power. We are limited with a relatively small population and a negative attitude towards business expansion. Unlike much what we would like to think, there is no financial innovation or development of new business models in the Omani market.

With financial automation advancing very fast, these poorer banks will need to dig deeper in their resources to acquire expensive technology to keep themselves competitive. They are now faced with two options: To come up with the money to upgrade their electronic tools or lay off some of their staff to raise the finance.

Splashing out on technology
The problem is that smaller banks are reluctant to splash out on technology to speed up transactions relying on the strength of their staff to do all the work manually. With the exception of Bank Muscat, and perhaps a couple of banks behind them, financial institutions are not aware of Second Generation of Machine Age. To compete better, they must balance out the need of human capital and technology because the latter, whether they admit it or not, starts to eat up jobs in retail banking.
Smartphones are unleashing the power of social media making Internet and phone banking look like a couple of old ladies with too many mileage to walk any further.

Business sense
All this is now made possible by the new epic mainframe computers with their blockbuster operations to reach millions of customers in seconds. Smaller banks need to realise that simply opening up new branches does not anymore make business sense. There are more cost effective ways of reaching customers than simply employing ten staff looking after few hundred thousand rial deposits. It is not worth the trouble or the investment.

The other challenge small local banks are now facing up is the rising cost of funding loans, which is getting expensive all the time. Bigger banks have deep relationship with their customers and this is very important in Oman. They also give the same priorities to their customers in the interior areas in the same way as in Muscat.

Financial muscle
Much of that is accomplished by technology, which smaller banks don't think is important. With over OMR150 million in annual net profits, Bank Muscat is eclipsing everyone else and there is a fear that we are heading to a near one-bank-dominance factor. With that financial muscle, such mega bank can pay mega dividends and can afford to extend financing facilities much cheaper to a different range of customers. 
We certainly don't need all these banks around because pluralism of banking has not really translated to success to some of them. Mergers are the only way out for smaller banks. In this context, a hostile takeover of a big bank over a struggling financial institution makes better business sense.

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Reader Comments

The most sensible financial article Ive read in a long time. And I agree, there is an overlapping of services in the banking sector. Theres nothing much to differentiate the services of most banks, except for the fact that smaller banks cater to customers faster than the big ones in Oman. The service of the top banks at their branches can sometimes be called nothing short of lethargic. Maybe the employees need a field trip to see how banking services work abroad. Again mergers make a great deal of sense in Oman. or maybe they should try converting one of the banks to All Women Banks. Might encourage women to involve themselves in financial matters.