OAB’s potential merger with Alizz Islamic would be credit positive, says Moody’s

Muscat - 

The proposed merger between Oman Arab Bank (OAB) and Alizz Islamic Bank, which has regulatory approval in principle, would be credit positive for OAB, Moody’s Investor Service said.

OAB and Alizz Islamic Bank recently announced that they had signed a memorandum of understanding on the broad framework for the potential merger.

‘Successful completion of the proposed merger would provide OAB with a larger Islamic franchise and asset base, allowing it to improve its interest income and deposit-gathering ability. The banks agreed that Alizz Islamic would continue to operate as a dedicated Islamic banking franchise with management autonomy, which we expect would help preserve Alizz Islamic’s customer relationships’, Moody’s said in an issuer comment report.

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Islamic banking is a fast-growing segment in Oman, accounting for 13 per cent of banking assets in June 2018, up from just two per cent in March 2013 following the introduction of Oman’s Islamic banking regulatory framework in 2012.

‘This growth reflects the religious affinity of the country’s almost entirely Muslim population for Sharia’a-compliant products. Islamic banking has considerable potential for further growth in Oman, given its recent introduction and low penetration compared with other GCC countries’, the ratings agency said.

Moody’s said, OAB, with a seven per cent market share in terms of total assets (conventional and Islamic), is larger than Alizz Islamic, at two per cent share. It estimates that the combined entity would have had total assets (conventional and Islamic) of around US$7.6bn as of June 2018, translating to a nine per cent share of the Omani banking system. However, Alizz Islamic has a larger share of the Islamic assets market at 15 per cent as of the end of 2017, compared with two per cent for OAB.

‘Both banks engage in corporate and retail lending. OAB has a more seasoned loan book and higher profitability, while Alizz Islamic has higher capitalisation. Both banks have a low reliance on market funding and modest liquidity’, Moody’s said.

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