Opportunity Oman: Financial industry

The Financial sector acts as a catalyst for economic development through various key functions.

Firstly, it facilitates efficient capital allocation by connecting savers and investors. Secondly, it provides funding for investments in infrastructure, technology, research and development and other critical sectors, driving investment and innovation. Thirdly, it offers risk management tools like insurance and derivatives to mitigate risks for businesses and individuals.

Moreover, the financial sector directly creates jobs within financial institutions and indirectly stimulates economic activity in other sectors. It also promotes financial inclusion benefitting from digitalization, ensuring access to affordable financial services. By mobilizing savings and ensuring economic and financial stability, the financial sector fosters a favorable investment climate, attracts foreign investment, and supports sustainable economic growth. Additionally, it supports entrepreneurship and small business development by providing capital, advisory services, and financial expertise.

This is evident from the investment opportunities in the country’s rapidly growing financial services sector encompassing Islamic finance and fintech. Further, Development of microfinance, mobile banking, and fintech solutions demonstrates Oman’s mission toward financial inclusion of the underserved communities.

The banking sector in the Sultanate of Oman consist of 16 conventional banks (7 domestic banks and 9 branches of foreign banks), two government-owned specialized banks, two fully-fledged Islamic banks and five dedicated Islamic windows of domestic conventional banks. The total number of branches spread across Oman exceeds 567 at the end of 2022. Oman’s banking sector is in a healthy and a profitable position, backed by risk-based supervision from the Central Bank of Oman (CBO).

The decision by the CBO to support the banking sector during unfavorable economic situations, stemming from, for example, the steep fall of oil prices and Covid-19, has been fruitful. Indeed, the capital adequacy ratio of the banking sector improved to 20.2% at end-December 2022, from 19.9% at end-2021 and 18.9% at end-2020. Further, the ratio of non-performing loans to the total lending portfolio rose slightly to 4.4% at end-December 2022, from 4.2% in 2020-21, and despite the termination of the loan deferment scheme by the Central Bank for corporate borrowers in June 2022.

Meanwhile, the combined net profit after Provisions and Taxes of the eight listed banks at Muscat Stock Exchange (Bank Muscat, National Bank of Oman, Bank Sohar, Oman Arab Bank, Ahli Bank, Bank Dhofar, HSBC Oman and Bank Nizwa) rose by 20.7% y-o-y to $1,064 million (RO 409 million) in 2022, exceeding its pre-pandemic level of $1,052 million (RO 404 million) in 2019. Strong net interest income and “fees and commissions” income coupled with reduced net impairment charges were the main drivers of net profit growth.

Oman’s financial sector has been cautiously managed and this approach was vindicated by the mild impact the global financial crisis had on the sector. However, Oman should have taken advantage of its institutional progress in allowing the financial sector to play a larger intermediary role in the economy.

Financial institutions in Oman are amongst the most profitable institutions. This is due to a number of reasons including a relatively limited players, government support, sound management practices, prudent oversight and low exposure to risky assets. Oman’s macroeconomic stability is critical for the growth of its financial sector services. Continuous development of the existing strong and transparent institutional and legal framework and prudential regulations and supervision framework will further enhance its ability to grow. Further, the banking sector is expected to benefit from the mergers and acquisitions that taking place (Bank Sohar acquired HSBC Oman while the takeover of Ahli Bank is expected to finalized soon either by the Ominvest-led consortium or Bank Dhofar). This consolidation will further strengthen the banking sector by raising efficiency and financing options.

Oman presents a range of investment prospects for local and international investors, aiming to facilitate strategic partnerships between parties. The recently launched venture capital initiative by Oman is one of the many such opportunities. Venture capital funds can play a significant role by investing in promising areas such as tourism, logistics, agriculture, mining and addressing untapped financing opportunities in emerging segments

As a driver in stimulating growth, financial institutions are expected to play a major role in supporting opportunities in:

Green Financing: Oman has announced its commitment to achieve the target of net zero emissions by 2050, offering a substantial potential for transitioning to green energy. In line with the Sultanate of Oman's National Strategy for an Orderly Transition to Net Zero, this transition presents investment opportunities valued at $190 billion. It also provides avenues for collaborating with international partners for knowledge sharing, technology transfer, and attracting low-cost capital funds to finance the plan.

Islamic Finance: there is a growing demand for Shariah-compliant products and services. Establishing an Islamic bank or offering Islamic financial products, such as Sukuk (Islamic bonds) and Takaful (Islamic insurance), can be a lucrative opportunity.

Wealth Management and Private Banking: Oman has a high-net worth individual population, and the demand for professional wealth management and private banking services is increasing. Providing personalized investment advice, asset management, and financial planning services can be a profitable venture.

Insurance and Reinsurance: Oman's insurance market is expanding, driven by economic growth and regulatory changes. There are opportunities to establish insurance companies, offer specialized insurance products (such as marine insurance or energy insurance), or provide reinsurance services to local insurers.

Financial Technology (Fintech): Oman is keen on promoting fintech innovation and digital transformation in the financial sector. Developing fintech solutions for payment processing, blockchain technology, robot-advisory services, or online lending platforms can tap into this growing market.

Capital Markets: Oman's stock market, the Muscat Stock Exchange, offers investment opportunities for brokerage firms, asset management companies, and investment advisory services. Additionally, there is potential for debt and equity capital market activities, including initial public offerings (IPOs) and bond issuances.

E-commerce and Digital Payments: Oman's e-commerce market is expanding rapidly, driven by increased internet penetration and changing consumer preferences. Providing e-commerce platforms, digital payment solutions, logistics services, or online marketplaces can be a profitable business opportunity.

Financial Education and Training: With the development of the financial sector, there is a growing demand for financial education and training. Establishing a financial education institute or offering specialized training programs for professionals can fulfill this demand.

Fintech Incubators and Accelerators: Setting up an incubator or accelerator program to support fintech startups can be a lucrative opportunity. Providing mentorship, funding, and networking opportunities can help nurture and grow the local fintech ecosystem.

Corporate Advisory and Consultancy: As businesses expand and seek investment opportunities in Oman, there is a demand for corporate advisory and consultancy services. Providing guidance on mergers and acquisitions, capital raising, strategic planning, or market entry can be a lucrative business venture.

To conclude, the financial sector in Oman is growing rapidly, and so are the need for more financial services, funding, and investment instruments to meet Oman’s developing economy. It is imperative that the financial institutions lead this growth by adequately funding private sector initiatives for economic diversification.