Merger may boost new bank's market share

Muscat: The recently-announced merger between Bank Dhofar and the National Bank of Oman (NBO) will result in a greater combined market share for the new entity, experts have revealed.
The banks made the announcement in separate disclosures to the Muscat Securities Market (MSM) but added that they were still in talks regarding the merger.
“The Board of Directors of Bank Dhofar (SAOG), in a meeting held on July 29, 2018, resolved to commence discussions with NBO to explore the possibility of the (merger of the) two entities, subject to final approval from their respective boards, shareholders, stakeholders, and regulators,” said Abdul Hakim Bin Omar Al Ojaili, CEO of Bank Dhofar.
The NBO made a similar confirmation through an identical disclosure to the MSM.
The research department of financial investment advisory firm United Securities believes that conditions are favourable for the merger.
Bank Dhofar currently holds 13 per cent of the market, while the NBO has 11 per cent. The combined assets of the two would account for a 24 per cent market share, based on an estimate given by United Securities.
“Oman has a highly-concentrated banking sector, with the largest player controlling close to 35 per cent of the total banking assets,” read an official statement from the United Securities research team. “The quest to build scale and increase customer base, as well as competitive pricing, are driving banks in Oman to scale-up through mergers. Moreover, the declining credit growth rate, deposit squeeze, higher cost of funds, and deteriorating asset qualities are additional factors that we consider to be the foundation for a favourable case for a merger.”
Suresh Kumar, head of research at Al Maha Financial Services, agreed that the merger would improve the market share of the new entity.
“The merger will certainly boost the credit market share of the two banks,” he said. “Also, the banks would have a wider integrated network. A lot will depend on the efficiency of operations after the merger.”
Second largest bank
The merger would result in the creation of a bigger bank, the second-largest in Oman, added the United Securities statement. Al Maha and other financial services firms concurred with the observation.
“If the potential merger materialises, the resulting entity would have a credit market share of 24 per cent, and a deposit market share of 25 per cent,” read the statement, which added that the merger is likely to avoid the major hassles that other planned mergers encountered.
“The merger between the two entities, Bank Dhofar and NBO, is subject to stakeholder and regulatory approvals,” it said. “Bank Dhofar had earlier made an attempt to merge with Bank Sohar, but was unsuccessful due to resistance from the board and the management.”
“However, in this case, we assume there had been some initial discussions between the boards of both banks and an in-principle agreement,” it continued. “We also feel that the management of both banks are likely to take the merger in a positive sense as a successful completion of the potential merger offers significant synergies and economies of scale for both the banks.”
The United Securities statement also explained that the NBO’s cheap valuation could attract new investors.