A key proponent of the establishment of Islamic banking in Oman, which was only launched via a royal order in May this year, Bank Nizwa, the country’s first licensed Islamic bank, has been instrumental in supporting the Central Bank of Oman (CBO) in laying the groundwork for Shariah compliant finance in the country.
According to Ahmed Saif Al-Rawahi, its chairman and head of the bank’s five-member founding committee, Bank Nizwa is now finalizing its set-up amid its second quarter of 2012 target launch date and plans to initially undertake retail and corporate banking transactions upon the opening of its doors. In an exclusive response to Islamic Finance news, Ahmed Saif also said that the bank expects to garner between 6%-8% of the banking market share in the country within the next two years.
With an estimated 27% of Oman’s population of just under three million not even utilizing conventional banking services, and studies indicating that 70% of the population showing a keen interest for Islamic banking, the stage is set for Bank Nizwa to capture the latent demand for Shariah compliant financial services which has hitherto been unserved due to the absence of Islamic banking in the sultanate.
Comprehensive plans
“Bank Nizwa plans to start with about four branches at launch, reaching nearly eight over a 12-month period. The exact number of branches to be opened will be determined by market conditions, the availability of a skilled workforce, operational agility and a host of other issues. Further, the bank plans to heavily use other non-conventional distribution channels such as customer service centers, direct sales, ATMs and internet and phone banking,” said Ahmed Saif.
The bank, which aims to service corporate and retail clients and offer investment and asset management services at a later stage, has also not ruled out expanding abroad in the future, although its focus now will be to consolidate its position in its home market. However, Ahmed Saif added that the bank will look to servicing its clients’ foreign banking needs, for example, by offering trade and export financing or funding for machinery purchases abroad.
“On the retail side, the bank will offer mostly plain vanilla Shariah compliant products. On the corporate front, we anticipate rolling out a healthy array of trade finance, asset-based facilities, capital raising services and so on, all in their Shariah compliant contracts. In addition to an ever-increasing trade financing market, we see a huge opportunity in financing vehicles, heavy equipment, aircraft, oil rigs, pipelines, power generators and ships through Ijarah or Musharakah financing,” he said.
He added that at a later stage, the bank will also seriously consider becoming the leading Sukuk arranger in Oman in order to tap both the government and corporate Sukuk potential.
Almost open for business
Although Bank Nizwa received its Islamic banking license just this May, the bank has been busy dotting its I’s and crossing its T’s for its establishment since last year. According to Ahmed Saif, the bank; the brainchild of a handful of visionary founders, now has over 50 founding shareholders, many of whom represent the cream of the crop in Omani society, although he could not disclose names of shareholders due to certain legal considerations.
The bank is now also putting in place its management and staff and has already identified a CEO to lead the bank. “He is a time-tested Islamic banker of exceptional professional and personal qualities and has a vast wealth of experience in setting up greenfield Shariah compliant finance institutions. A few of his reports have already been identified and more are in the process of being headhunted,” said Ahmed Saif, who added that the bank is also working with two financial services recruitment firms to hire staff at different organizational levels.
“The final size of the workforce will depend on the final number of branches we may open at launch and over the next 12 months. Similarly, a four-member dedicated Shariah board is also in the final stages of being established,” he said.
He said that the bank has also built up a capital base of slightly over OMR150 million (US$389.57 million), with its authorized capital expected to amount to more than that to allow for an orderly increase of capital, should the need arise.
He added that while the bank’s founding shareholders and other investors have expressed firm commitments to fund the entire capital, Bank Nizwa will adhere to the CBO’s ruling requiring all new banks to sell 40% of equity through an IPO. “We have already appointed a lead manager to handle the process through the Capital Market Authority of Oman,” he said.
Behind the scenes player
In tandem with its journey, Bank Nizwa has also played a role behind the scenes in the establishment of Islamic banking in Oman. “The founding committee, supported by a determined group of founders, has spearheaded the introduction of Islamic banking in Oman by building a viable case with the official authorities in the country, principally the CBO,” said Ahmed Saif.
The bank has also worked closely with the CBO to identify areas in the existing regulatory framework that require a review to accommodate Islamic banking, benchmarking the regulatory regimes in other countries such as Bahrain, Malaysia, Turkey and the UK.
Ahmed Saif said that specific areas of the laws covered include the trading of assets, foreign exchange, property ownership, deposits, interbank movements, interest payable by the CBO on bank deposits and taxation.
The CBO has now commissioned Ernst & Young to advise it on the revamp of laws and regulations, to accomodate Islamic banking.
“My personal view is that the CBO is moving very well and with their usual professionalism in preparing for a new accommodating regulatory regime. It is expected that there would be an adequate Islamic banking operating regulation either by year-end or within the first quarter of next year,” said Ahmed Saif. — EB