Oman Arab Bank has played a role in extending project finance to some of Oman’s strategic large-scale projects. What major infrastructure projects are you currently involved in?

ASKALAN: Oman Arab Bank has always concentrated on project finance. We have been involved in infrastructure development, industrial, and private sector projects. In fact, Oman Arab Bank is the most active in the industry when it comes to project finance. For example, we are financing 90% of the industrial project that is currently underway in Sohar. We are involved in these projects by directly financing them or by financing the contractors. Most of the contractors are dealing with us. We follow all of the projects from the very beginning when they are tendered. We then follow all of the companies who are looking to become involved and then we contact them until we know who is going to win. We are very active in this field. As a result, we are not concentrating on personal loans. We feel that the role of the banking sector should be geared towards helping the government by financing its infrastructure development projects.

Oman Arab Bank is expected to offer 25% of its capital in an upcoming IPO. Given the recent success of Bank Nizwa’s IPO, what are your expectations for Oman Arab Bank?

ASKALAN: The decision for Oman Arab Bank to go public was made from the board. The government has given us an exemption from the law and it has allowed us to offer 25% of our capital instead of 40%. 4% of it will be from Oman Arab Bank and 21% will be from Ominvest (Oman International Development and Investment Company). We are very keen to keep the shares of Oman Arab Bank a certain way so that the bank is to take the maximum. We have nominated an audit company, lawyers, and a bank to evaluate what our share price should be for our IPO. We are in the final stretch. In our next board meeting we will decide what the share price will be and then we will finalize it.

Islamic financial products, authorized by the government in 2011, are set to take off later this year. How would you describe the current state of demand for Islamic financial products and services here in Oman?

ASKALAN: Islamic financing is a new product and not many people know a lot about it. Actually, the Central Bank is not ready for such a step. All of the regulations have not been issued yet to organize the functioning of Islamic financial products. The Central Bank is still studying things in order to find a way of how they will manage and control Islamic banking. Most of the large banks, including Oman Arab Bank, will incorporate Islamic financing into their services. In fact, we are recruiting people and we are nominating where our Islamic branches will be. However, we are still waiting to see what laws will be put into place by the Central Bank. When this step is complete, we will then start offering Islamic banking services. There is no previous knowledge of how the Islamic bank functions. When dealing with the Islamic bank, you must take into consideration theirs costs and services. In the beginning, many people will go to the Islamic bank because it offers a new product and they feel that it will cost them less. However, they may discover that the costs will be much higher then commercial banking and they may choose not to stay with that bank. Therefore, it depends on not only how the Islamic bank will offer their services but also what the overall cost of these services will be.

What is your general outlook for Oman? What indicators are showing the most positive trends and which are showing the most negative?

ASKALAN: I believe that there have been many positive trends here in Oman. Oman was not badly affected by the crisis from 2008-2009. The government was hardly impacted because it was not pressured to place investments into foreign banks. As a result, the government currently has a surplus, no debt, and is able to continue to finance its projects. There have been no complaints from the banks, contractors, and traders. However, there have been complaints from the employees asking to raise their salaries. This is the issue that we are currently facing. In some areas a raise in salary is right but in the end it should be controlled. What is reasonable is OK but what is not reasonable should be avoided. In certain levels, maybe the larger companies can afford handing out bigger salaries. However, some of the smaller companies cannot afford it and they will go bankrupt. Caution should be taken in order to encourage and protect SMEs. We should not exhaust SMEs by forcing them to provide larger salaries. This is the only area that we need to take into consideration but everything else has been positive.

Many articles have stated that the industry may be crowded or over-banked  How would you describe the current state of competition throughout the banking sector? What is your market share and how do you see this evolving over the next 2-5 years?

ASKALAN: Oman Arab Bank is a conservative bank and we adopted this policy a long time ago. We are not so aggressive. As a result, we may have the cleanest portfolio out of all of the banks. But of course, we still have to compete. I am against the notion that banks should be aggressive for personal loans. The Central Bank has to organize the sector and prevent banks from going too far for personal loans. This will create a complicated society where all of the people are in debt. This type of policy also creates further competition between banks. With regards to personal loans, we initially started at 5x the salary and now we are reaching about 70x the salary because of increased competition. Furthermore, we originally issued personal loans starting at 4-5 years and now they are 35-40 years relying on the individual’s same salary. No one can be certain that any employee will remain in his job for 40 years taking on the same salary. He may potentially die and inherit his debt to his children. This situation creates complications in society and it should be avoided. You should not lend more than 50% of the individual’s salary as an installment and for 10 years maximum and 25 years for a housing loan. However, 90% of the people are in debt because they are spending their money on cars and vacations. They are not using their money to increase the country’s productivity. On the contrary, they are increasing consumption by buying unnecessary luxuries. With regards to our market share in the industry, we have an investment arm for the bank that manages our portfolio. We have been very successful in this field. However, foreign investors can negatively impact the market. In certain scenarios, if the market is bad in their country, foreign investors will start to sell their shares in our market. This will bring the prices of shares down. Foreign investors are playing a very critical role in the fluctuations of share prices. However, this is not affecting our portfolio. In the end, we are actually making profits.

How will the implementation of Basel III affect Oman’s banking sector? More specifically, how will Basel III impact the Islamic financial services industry?

ASKALAN: We must take into consideration who is issuing such regulations like Basel III. Their country has not exactly adhered to it. However, it is being imposed here and rankings rely on how closely banks adhere to Basel I, Basel II, and Basel III. It is understood that if you adopt these regulations then it will benefit the bank. However, sometimes certain regulations are difficult to impose on your customers and it takes time to become accustomed to it. We have started implementing most of the regulations put forth by Basel III in certain areas. I believe that Basel III will be fully implemented by 2015. We are ready for it and we don’t have any problems with it.