Muscat: Oman's banking regulator, Central Bank of Oman, will consider a proposal from ahlibank to acquire the assets and liabilities of Taageer Finance on Sunday.
This move follows the bank's signing of a memorandum of understanding (MoU) with Taageer Finance last month in an apparent move to strengthen its position for small and medium enterprise (SME) funding at a time when the financial market is being challenged by tough competition.
ahlibank, which has ample cash for investment, is focusing on strengthening its small and medium enterprise funding in line with the proposed five-per cent minimum stipulation for SME funding by banks and on strengthening its Islamic finance products in its leasing business.
Taageer has very good exposure in the SME sector and in micro-finance. "Also, we look at Taageer in terms of leasing products. It could be a good platform for us to market Islamic products. We have designed very good products, and by using their network, system, and people, we could strengthen our position. It is going to fit very well in our synergy," the bank's Chief Executive Officer (CEO) Abdulaziz Al Balushi said earlier.
Further, the CEO noted that ahlibank's cost of funding is much lower than that of Taageer Finance or any other leasing company, which is another advantage for the bank.
High capital-adequacy ratio
According to sources, ahlibank, which has a high capital-adequacy ratio of 16.8 per cent against the regulatory requirement of 12 per cent, will acquire only the assets and liabilities of Taageer, which is not in line with the typical merger practice, wherein both parties agree to a swap ratio.
Later, Taageer will distribute the proceeds of the sale to its shareholders. Although Taageer will retain its leasing licence, according to the MoU, the company cannot continue its leasing business, and therefore, it will eventually shut down these operations. Sources also said that the management of ahlibank had opted for this route to avoid any dilution of capital, which would affect shareholders' earnings.
The price consideration ranges between 176 and 177.5 baisas per share, and therefore, ahlibank will have to spend an where between OMR38.1 million and OMR38.5 million to acquire the leasing firm.
ahlibank's total loans and advances soared by 21 per cent to OMR927 million in 2012, compared with the previous year.
If everything goes as planned, the acquisition will enable ahlibank to enhance its loan book by 10 per cent since Taageer Finance has a loan book of OMR92 million, compared with ahlibank's present loan book of OMR927 million.