Bank Muscat will post a fall in second-quarter profit as it adopts a cautious approach to new lending and holds back expansion, its chairman said, adding that Gulf banks had yet to see the worst of the crisis. Bank Muscat, Oman's biggest lender, reported an 82-percent jump in first-quarter profit after it sold 81 percent of its holdings in India's HDFC Bank, but said it would hold on to the rest of its stake for now.
"Profit will not be like last year. Definitely it will be less," Sheikh AbdulMalik bin Abdullah al-Khalili told Reuters of the bank's second-quarter profit expectations. "It is not rosy but definitely the good years of 2008, 2007 2006 are not there anymore. This is a different reality and we have to face it. If we compare this with 2003 and 2004 I think we might maintain the growth at that level a little bit more."
Banks across the oil-exporting region had grown rapidly during a six-year economic boom spurred by high oil prices. A slump in oil prices and the global financial crisis have brought to an end that period of growth, and banks across the region have taken steep writedowns for losses on investments and provisions for an expected rise in bad loans.
"Maybe the crisis has almost (hit) the bottom, but I don't think so. Not yet," Sheikh AbddulMalik said in an interview. "I wish it is but I think we are still having some problems to come. This is a problem that is not local, it is an international problem, and we are waiting for the waves to come."
Sheikh AbdulMalik said the bank had adopted a cautious approach to all of its new corporate and retail business and would hold back on any global expansion plans, except opening its first branch in Kuwait "soon". "We do lend but we are revisiting all our plans, we are very careful ... Sometimes you do have the liquidity to lend but you are not sure of the borrower," he said.
NEW REALITY The bank was planning to keep its remaining 19-percent stake in India's HDFC Bank for now but might divest it by the end of the year if necessary, the chairman said. "We have to sell and to come out of there and also there is a need for growth and our requirements organically in Oman," he said. In the first quarter, Bank Muscat earned 35.3 million rials ($91.69 million) from the HDFC sale but also wrote down 7.5 million rials in losses on its investment portfolio.
Provisions taken by Bank Muscat have been adequate for now, but the bank is constantly reviewing economic developments, Sheikh AbdulMalik said. "We are very much less aggressive than last year in all of our operations." The global financial crisis has prompted many regional lenders to rethink expansion plans and is leading to speculation there could be more merger and acquisition activity as banks seek ways to weather the crisis.
"It is quite difficult. We have to revisit all that," he said of Bank Muscat's previous plan to raise its revenues from foreign operations to 20 percent from 10 percent in 2008. While the bank isn't looking at consolidation, other Gulf banks could move down that path, Sheikh AbdulMalik added. "I think it will happen in the GCC. It is not a luxury anymore it is a reality. I think this is the best time for M&A."
Comments
Comments are closed.