Jan 28 - Feb 03, 2008

The spreads of the commercial banks on fresh disbursement of loans and collection of deposits ensure a positive momentum higher than the first quarter of the financial year 20007-08.

The spreads on outstanding stock of loans and deposits estimated at 7.19% for November 2007 taking the YTD spread to 7.31%, 8bp that is however lower than the corresponding period last year. The friendly and supportive attitude of the central bank seems to be added appeal besides attractive profits still offering for fresh investments as after recent arrival of Barclay Bank, Muscat Bank is soon to arrive in Pakistan.

In fact, the deposit franchises boast over 60% the Current Account Savings Account (CASA) ratios and ensure lower cost deposits. In addition, structural under-penetration of credit in general and consumer finance in particular (4-5% of GDP) is an indicator of latent loan demand.

It is interesting to note that despite recent political events and disturbance, Pakistan remains one of the favorite banking markets in the region for 2008. The wide spread damages incurred to all economic segments the banking sector was not an exception which suffered huge losses of over Rs1.6 billion.

Meanwhile, the official figures released by the State Bank of Pakistan indicated that Pakistan banks have continued to compensate sluggish loan growth (+6.4% YTD and +11.6% YoY by Noví07) by focusing on low cost deposit generation initiatives.

DEPOSIT GENERATING ACTIVITY: Actually, the banks have benefited immensely from a benign deposit generating environment of late. With loan growth witnessing a lull during 2007 (ADR down from 80% in Dec-06 to 72% in Nov-07), banks have apparently cooled off the race for high cost deposits. While the cost of outstanding deposits has remained stable in the 4.11-4.14% range for the past four months, cost of fresh deposits has receded by 65bp in two months (44bp in Nov and 21bp in Oct).

The incremental deposit costs for the last two months have maintained a downward bias; incremental loan yields have been volatile. Data for November depicts that the sudden 51bp jump in loan yields seen in Oct-07, was followed by a 25bp reduction in yields during Nov-07. Yield on the stock of loans outstanding however has remained stable in 11.30-11.35% range.

Deposit generating activity historically gathers pace leading to higher costs in December, as banks close off their financial years. This could distort deposit costs and hence spreads, not only for the month of December. The tenure of these deposits could span over a month, and hence distort the underlying trends beyond December as well to some extent.


BankMuscat, the nationís leading bank, is acquiring a majority stake in Saudi Pak Commercial Bank in Pakistan in association with Sinthos Capital, International Finance Corporation, Washington and Nomura International.

The consortium has already signed the Share Purchase Agreement with Saudi Pak Investment Company (SAPICO) to buy a 68% stake in the Bank. BankMuscatís total stake in the Saudi Pak Commercial Bank will be 35%. BankMuscat has obtained the necessary regulatory approvals in Oman to go ahead with this investment. An approval from the State Bank of Pakistan, the countryís banking regulator, is currently awaited.

Commenting on the acquisition, Sheikh Abdul Malik Bin Abdullah Al Khalili, Chairman, Bank Muscat, said: Pakistan and Oman have historically had longstanding economic and social ties. Our entry into the country is therefore both strategically and commercially important to us. We will be pleased to be of service to the local business community in Pakistan and hope this move will further strengthen our ties with members of the community who are well settled across the GCC region. We definitely look forward to contributing significantly to the economic and social development of Pakistan, even as we take another step toward fulfilling our goal of establishing a significant presence in countries that have an abiding interest in Oman and the GCC region.

As per the consortium agreement, Sinthos Capital will manage the Bank. Sinthos Capital is an organization founded by Shaukat Tarin and Sadeq Sayeed. Shaukat Tarin has over 32 years of successful banking experience with Citibank, Habib Bank and Union Bank. He is known for having turned around Union Bank, which was subsequently sold to Standard Chartered Bankís Pakistan operations. Sadeq Sayeed, on the other hand, is a banker with 25 years of International Investment banking experience in the Arbitrage Trading, Asset Management, and Private Equity.

The Saudi Pak Commercial Bank was set up in the year 2001 and currently services its client base across a network of 50 branches nationwide. The total assets of the Bank were $ 975 million; with deposits were USD 700 million as on September 2007.

Also speaking on the occasion, Abdul Razak Ali Issa, Chief Executive of BankMuscat said: We are very excited about taking our business and services to the country and believe that this new international experience will be of significant value both to the banking industry in Pakistan and to BankMuscat, as it continues to grow into a strong regional bank.

The banking sector in Pakistan has shown significant growth since the onset of banking reforms in 1997. The past 5 years have especially seen increasing interest from leading foreign financial institutions like Standard Chartered, ABN Amro, Temasek and SAMBA, who have made sizeable investments in the sector.

Confirming these developments, Bilal A. Moti, Head of International Operations of BankMuscat said: ěBankMuscat is pursuing a prudent and realistic international expansion strategy. Pakistan is a clear opportunity for domestic and regional business, and is a valuable compliment to our growing international presence. We are committed to applying BankMuscatís professional standards to our operations in Pakistan, along with the local and international banking expertise coming from our strong consortium and management partners.

With assets worth over USD 9.6 billion, BankMuscat (SAOG) is the largest bank in Oman with strong capabilities in Corporate Banking, Consumer Banking, Investment Banking, Treasury, Private Banking, Project Finance and Asset Management. The Bank serves over 43% of the market through its domestic network of 107 branches and over 260 ATMs nationwide.

Internationally, the Bank has a branch in Riyadh, Kingdom of Saudi Arabia, since April 2007; a representative office in Dubai, United Arab Emirates, for over the past decade; owns a 49% stake of BankMuscat International, Bahrain, since January 2005; and is present in India through a strategic stake in Centurion Bank of Punjab - one of the fastest growing private sector banks in the country - since 2004. To further capitalize on the booming Indian equity markets, the Bank also acquired a 43% stake in Mangal Keshav Group, one of the oldest securities firms in India, early last year. BankMuscat sees its international operations as one of the key growth of the future.

Among many distinguished awards, BankMuscat holds the rare distinction of being voted the ‘Best Bank in Oman’ seven times by Global Finance Inc., seven times by Euro money and six times by The Banker, FT London. The Bank has also been awarded the People Development Award at Oman Awards for Excellence three years in a row.