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Abdul Kader Askalan

OMAN - Finance

Everyone Wins

CEO, Oman Arab Bank (OAB)

Bio

Abdul Kader Ahmed Askalan began his career in 1957 with Arab Bank, going on to occupy many senior positions at the firm. He worked as Branch Manager in Ras Al-Khaimah and later in Muscat. In 1984 Omnivest and Arab Bank joined to create Oman Arab Bank and he acted as General Manager and Managing Director until 2000, when he became CEO. Askalan participates as a Board Member for a number of companies, including Omnivest and Gulf Investment Corporation of Kuwait, as well as being the Deputy Chairman of Omantel and Chairman of the Oman Association of Banks.

"We are one of the few banks nominated by the Ministry of Industry and Commerce to finance SMEs."

How has Oman Arab Bank (OAB) developed in recent years?

OAB has grown steadily over the years and we now have 62 branches with over 1,000 employees. Due to our prudent approach we have always generated profits for our shareholders. OAB began operations with $6 million in capital and now has $116 million. We have focused on corporate banking and financing industrial projects. We have been involved in financing for roads, hospitals, and schools, as well as many infrastructure projects, and we finance directly through contractors. Most of the roads in Oman today were financed by OAB. We do not finance the government, but always the contractor. We have heavily invested in Sohar Port, where we are financing projects worth over $600 million in total. We are now opening a branch in the industrial zone. We also financed all the companies that are working in Duqm and we were the first bank to open a branch there. OAB has given loans to the Duqm project totaling over $150 million. We continue to finance both projects. Our role is to concentrate on such businesses. Personal loans and retail banking are a part of the bank’s product portfolio, and we are gradually building this line of business. We are also increasing our activity in the project finance sector. Our focus is always to finance projects and trade. Investment Management Group (IMG), which is the comprehensive investment banking arm of the bank, manages an investment portfolio worth more than $650 million. IMG group is very active in local and regional equity markets.

What is your strategy for sourcing new project finance contracts?

We monitor all contracts being tendered constantly. We go to the Tender Board for the list of all projects and then we contact contractors in order to bid to arrange financing facilities. This ensures that we will arrange the financing facilities, irrespective of which contractor wins the contract. This is imperative because we do not know who the winner will be, but we have to make the contract, even if they are foreign companies. We are very active and utilize Arab Bank branches in foreign countries to contact the headquarters of those companies looking to invest here.

“We are one of the few banks nominated by the Ministry of Industry and Commerce to finance SMEs.”

What products and services do you offer SMEs?

We are one of the few banks nominated by the Ministry of Industry and Commerce to finance SMEs, with the government securing 50% and the banks taking 50% of the responsibility. We are very active in this field and finance many companies. We now also arrange seminars for small business owners to educate them about financing, managing their projects, and how to run a successful business. Participants receive a certificate of completion. There is a need to participate, to educate the people on how to operate businesses, how to manage, how to prepare a balance sheet, and how to analyze their business financially. This is crucial in order to give the banks enough confidence to loan them money. You have to prove to the bank that you are capable of managing your project, and these seminars will go a long way to help SMEs owners gain access to credit. I have advised the Ministry of Industry and Commerce that the only way to prevent SMEs from failing was to educate them about business.

How would you evaluate your personal lending strategy?

We are still conservative, but we are facilitating loans because the competition is very intense. The competition between the banks should be on service, not on reduced security. Reducing security will be a disaster for the banks in the end. When competition levels become too high, banks lose the fundamental rules of banking to access business. We find that all the banks are offering very low rates, without security sometimes. We are facing tough competition. OAB has to adapt with the market, but only to a certain extent. In the end, the strength of a bank is its portfolio; if your portfolio is weak, you are a weak bank and your rating will fall as you increase your provisions for bad loans. My expectation is that bad loans will increase in the future if banks continue in this way. Currently, the effects have not reached the surface, but in two or three years they will surface and their ratings will suffer.

How important is e-banking for OAB?

We concentrate and spend a great deal of money on e-banking. We were the first bank to issue the Smart Card, which is an internal system—not linked to Visa or other major companies—and it was very successful. We started issuing them in 2000, and for the 13 years we have been using it there have been no errors. Nobody can force or misuse this card since it can only be used for the purpose for which it was issued. It is a pre-paid card, but it is very secure and very comfortable. We have collected billions of rials through this. Eventually, the government will have its own internal system using our technology. If anyone pays by Visa, the money takes three days for approval to be given from a different country. With the Smart Card, the money is transferred instantaneously because it is not waiting for approval.

What are you expectations for Islamic finance, and how will OAB benefit from its international affiliations with existing Islamic finance institutions?

The difficulty here is that there is no background to the Islamic function in Omani banking. Educationally, people do not understand Islamic finance. But for now, people want to test it, they want to know how the services work and what are the costs. If they feel that the costs are much higher than the commercial banks, they will not continue, but maybe in the beginning they will go and try these new banks. The hope is that when people understand the procedures, the banks will be able to increase their customer base, but it depends on the management and services, and I think it is very important to educate customers. The window we have opened is like any other Islamic bank. Arab Bank group has an Islamic bank in Jordan and we benefit from its experience. It sends us people to help us to establish the systems, management and the responsibility, and we are forming an advisory board for the functioning of Islamic banking.

What are your expectations for the first government sovereign sukuk issuance?

The government is prudent and is studying this matter. It tried to avoid getting involved in Islamic finance and not to interfere, but this is not possible because of the duties of the Central Bank. The government must be involved to an extent, observing, auditing and regulating, but in general, it would prefer not to work with Islamic financing. It is not planning to issue sukuk; maybe the banks will create this product for their customers, but not the government.

What is your outlook for the banking sector in the medium term?

I think that because the government is financially comfortable here and extremely capable of spending money on projects, everyone is working. And since oil prices are good, we are making reserves; therefore, there is no problem. The challenge is if the government faces difficulty in financing the projects it announces. If you have a project and a contractor, a company, the bank, and the merchant are all working, then all the sectors are happy. However, if spending falls, everyone loses, including the bank. And therefore the banks are doing well until now, and with political and economic stability the future looks steady and promising. We are very confident in the ability and wisdom of the government.

What is your vision for the future of OAB?

We make progress every year. We have a strong team to face the competition and we have to persist with our activities to gain the majority of projects that are being tendered by strengthening our team and organizing ourselves to compete with other banks. Our competitors are very aggressive, and we have never faced such aggressive activity before. However, we are fine, we are optimistic, our background is strong, our base is solid, and we are supported by our affiliate Arab Bank.

© The Business Year – April 2013

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