Rashad Al Musafir, CEO, Oman Arab Bank talks about the current status of and the rationale behind his bank’s proposed merger with Alizz Islamic Bank. Excerpts from an interview

Oman Arab Bank is working on a merger with Alizz Islamic Bank. At what stage is the process?

We have signed an MOU, firming up the key points of understanding between the two entities. The legal and financial due diligence is currently underway. The shareholders have provided us with a lot of support and we are excited about the merger. We see very little challenge as there will be no operational integration between the two entities post the merger. The merger will create a strong and profitable Islamic bank, fully owned by Oman Arab Bank, the conventional banking partner. The proposed structure is unique as it’s not been used in Oman and it will require the support of the Central Bank of Oman and the Capital Market Authority. We have managed to proceed with the MOU after detailed discussions with the regulators, and they see the value that the merger will create, but there are approvals that will be required from a regulatory and legal point of view since some of the structural aspects are not directly aligned with the current regulations.

What is the rationale behind Oman Arab Bank’s merger with Alizz Islamic Bank?

Our Islamic banking window is successful and profitable but it is very small in comparison to the banking sector. To compete in a market that is well capitalised and has a large reach we need to be a key player. Firstly, as a bank, we want to compete with a strong and powerful Islamic finance entity. Secondly, the shareholders have identified a number of synergies that an Islamic bank can leverage and benefit from as a result of the merger with Oman Arab Bank. The association of Oman Arab Bank with the government and private sector, its ability to attract large-scale transactions and to syndicate loans independently or along with other banks will add value to Alizz Islamic bank. Oman Arab Bank’s shareholder Arab Bank owns an Islamic subsidiary in Jordan, and this is one of the most successful banks in the region. They have been able to innovate, create and extend their reach to various areas, becoming one of the most profitable banks in the region. We are also leveraging on that knowledge and knowhow and believe that we can replicate that success in Oman.

Can you share your vision and focus areas of Oman Arab Bank?

The organisation’s primary focus is on people’s development as a key pillar in creating a competitive edge in the market. Whether it is the use of technology, creating an enhanced customer experience or growing organically or inorganically, people will always be a key pillar for Oman Arab Bank. One individual cannot build a successful organisation without the building blocks. Our key objective is to create a strong leadership team and a culture within the Bank that encourages self-development, self-initiative and collaboration between various teams. We have actually pushed for various programs at all levels to achieve this goal. Our flagship endeavour is our Lead Programme, which has already graduated 40 high potential leaders. We have also sent a few of our senior executives to universities, such as Wharton and the University of Pennsylvania, to complete programmes on innovation and leadership so they can lead their respective teams. We are also actively engaged in change management and innovation.

For the support staff, we have created programmes to impart them with basic language and computer skills, these are for people who have not had a chance to complete their basic education. So whether you come in at the entry level, the middle or higher end of the spectrum, there’s always a programme that caters to your needs. I am going to start an e-learning programme on innovation from INSEAD. It’s a big challenge as we are going digital and everyone including myself needs to lead by example.

How will this focus on people help the bank’s customers?

Whatever we do with our internal customers it is always with an objective of creating a leadership team that can help customers and resolve their challenges. As a bank, we were late adopters of technology, but we are proud to say that over the past few years, we have been able to build a state of the art technological infrastructure that is capable of delivering customer channels and products faster with more agility compared to other banks. Today Oman Arab Bank offers not only mobile banking and internet banking but we have created an Omni-channel solution, one that offers a seamless and common interface for all the electronic channels that we have. As a result, our customers can interact with us either on mobile banking, internet banking or on an ATM with the interface remaining exactly the same. This way they really don’t have to learn about each one of them as a different system.

In addition, we have introduced workflow models at the branch level so that all customer transactions are addressed on a priority basis. We have set Service Level Agreement (SLA) and Turn Around Time (TAT) for each type of customer transaction. As a result, when a customer carries out a transaction, it is tracked through a software solution ensuring that we deliver things within an agreed timeline. We are pro-active in monitoring customer delivery. Customer focus is a key determinant of everything that we do. We run an annual customer experience survey, which gives us valuable feedback from customers.

We have also created a position for innovation within Oman Arab Bank and this person is responsible for innovation which is primarily focused on customer experience. We are questioning everything we are doing and trying to see if we can make our services faster and better innovatively. We are going to soon launch an Application Programme Interface (API), which will be plugged into various channels to introduce a more comprehensive customer experience. We are trying to integrate the Bank’s business with the lifestyle of individuals, which will help us provide them with banking services wherever and whenever needed.

Technology is changing the face of banking but it also enables FinTech firm to compete with banks. Do you see technology as an enabler or a threat?

As a bank, we embrace change and challenge. Our team does not fear competition from any quarter including FinTechs. We have signed an exclusive agreement with Thawani Pay, an Omani FinTech company to market their product. While Thawani Pay competes with our wallet solution, it is not a good enough reason for us to stifle competition. Collaborating with them helps Oman Arab Bank create a stronger and better customer service touch point for clients. As FinTechs are smaller they are more agile compared to large financial institutions, so instead of competing with them, we believe in collaborating with them, in the interest of our customers.

How was Oman Arab Bank’s financial performance in 2018?

Our performance has been stellar. We have done significantly better this year than in 2017 – both in terms of growth in the number of customers and in our business volumes. Our Q3 results for 2018 is impressive with a 12% growth in net profits and 9 per cent growth in loans YoY. To support the business growth Oman Arab Bank wanted to raise RO35mn of perpetual bonds and this was a challenge in light of the prevailing market conditions and the ratings downgrade. I am pleased to share that we not only managed to achieve the RO35mn but closed the bond at over RO42mn, which underscores our reputation and the strength of our relationships.

In what ways is Oman Arab Bank supporting SMEs and have you achieved the 5 per cent of the loan book lending mandated by the Central Bank of Oman for SMEs?

Oman Arab Bank has always focused on supporting SMEs and we achieved the 5 per cent mandated limit a long time ago and we are the only bank in Oman which has managed to have done so. We are pioneers when it comes to SME lending and handholding, and apart from helping them directly, we have tied up with various entities that are supporting SMEs. For example, Oman Arab Bank has signed a collaboration agreement with Sharakah and we are in discussion with SME fund. We truly believe that the SME sector is critical for job creation and generating value and this aligns with our vision for innovation and the creation of value.

What is Oman Arab Bank’s Omanisation rate and how important is this as a goal for the bank?

Omanisation is very important to us. Oman Arab Bank has the highest Omanisation level of over 95 per cent in the banking sector. We have a very successful model of Omanisation because we don’t believe that it is either a cause or a cost, but something that is of great value. One of the challenges that Omanisation brings in its trail is the lack of diversity and experience. In order to overcome this challenge, we are sending our Omani leadership team on overseas assignments, which in turn enables them to get that diversified experience.

Has the cost of borrowing gone up for banks in Oman, in light of the US Fed increasing interest rates, strengthening dollar and a challenging economic environment?

There is pressure in the market on the cost of borrowing. This is because of a combination of factors – one, the dollar is strengthening; two, the US Fed continues to increase interest rates on the dollar; and three, low oil prices has led to a pressure on liquidity in the market. Competition among banks for deposits has further raised the cost of funds. Our role as banking institution is to try and control the level of funding by issuing credits and to maintain a low cost of funding in order to fuel the growth of the economy. A high cost of funding is a risk to the economy.

What are your thoughts on 2019 and what is the bank’s focus going to be in the coming year?

We expect 2019 will be a better year on the back of rising oil prices. There are speculations that the oil prices will rise further, resulting in liquidity in the market and a relaxation of interest rates which will help the economy. We would like to see new projects being tendered, so that we can support them in their funding requirements. More projects translates into more jobs and a healthier economy. That’s what we strive for. As a bank we are clearly focused on investment, technology and people and we expect Oman Arab Bank to be the preferred bank in the market. We will continue to focus on healthy growth both in the corporate and retail sector. We are also on the lookout for opportunities that can help Oman Arab Bank get closer to lead positions in terms of efficiency, productivity and profitability.