Oman BankingSector 052007

Gl o b a l Re s e a r c h
Ma y 2 0 0 7
Se c t o r
Oman Banking Sector Report
O
m
a
n
Proxy to Omani Economy
Global Investment House KSCC
Sector Research
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Tel: (965) 240 0551
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Omar M. El-Quqa, CFA
Executive Vice President
omar@global.com.kw
Phone No:(965) 2400551 Ext.104
Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Phone No:(965) 2400551 Ext.304
Mihir J. Marfatia
Financial Analyst
mihir@global.com.kw
Phone No:(965) 2400551 Ext.421
Abeer Gouda
Financial Analyst
agouda@global.com.kw
Phone No:(965) 2400551 Ext.501
Table of Contents
Investment Summary ................................................................................... 1
Oman Economy ............................................................................................. 3
Oman Banking Sector .................................................................................. 5
Peer Group Comparison .............................................................................. 11
Oman Banking Sector Outlook ................................................................... 18
Valuation & Recommendation .................................................................... 19
Player Profiles ............................................................................................... 21
Bank Muscat .............................................................................................. 22
National Bank of Oman ............................................................................. 34
Oman International Bank .......................................................................... 45
Bank Dhofar .............................................................................................. 57
Alliance Housing Bank ............................................................................. 68
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Investment Summary
Omans economy continued its forward momentum and witnessed double digit
growth in 2006. Preliminary figures indicate that nominal GDP grew by 17% as
against 24% in 2005 to reach RO13.3bn. The strong macro-economic performance
witnessed in 2006 was mainly spurred by high oil prices, rising per capita income,
widening surpluses in fiscal and balance of payments accounts, modest domestic
inflation, rising public and private sector investments, and most importantly the
notable expansion in hydrocarbon exports boosted by the start-up of the third LNG
train in the Sultanate in 2006.
Besides the strong economy, other factors that contributed to banks growth were the
governments proactive measures with regard to diversification, privatization; and
foreign direct investments (FDI); coupled with strong population growth and high
percentage of youth which boded well for the growth in consumer lending.
Omani banking industry is currently attractive as more and more foreign banks are
getting banking licenses to operate into the Sultanate such as Bank of Beirut, Qatar
National Bank, and Gulf Merchant Group. In addition, a new local bank, Bank Sohar
launched its operations in 2007.
During the period 2003-06, consolidated assets of the five listed banks under review
grew at a CAGR of 18%. Going forward, we expect the assets size of these banks to
grow at a CAGR of 19% for the period 2006-10E.
Gross loans for the five listed banks under review grew at a CAGR of 11% during the
period 2003-06 to reach RO4bn. Going forward, we expect the consolidated loans to
grow at a CAGR of 20% for the period 2006-10E. We believe that growth prospects
are high for both corporate and consumer lending. The outlook for consumer lending
is very bright with enhanced per capita income, strong population growth, and
favorable demographics. In addition, strong economy and increased project spending
should bode well for corporate lending.
Customer deposits for the banks under review grew at CAGR of 16% during the
period 2003-06 to reach RO3.9bn in 2006. Going forward, we expect deposits to
grow at a CAGR of 22% for the period 2006-10E.
Average ROAE and ROAA for the banks under review stood at 21% and 2.8%
respectively in 2006. Profits for the banks under review grew at a CAGR of 39% for
the period 2003-06 to reach RO141mn in 2006. Going forward, we expect profits of
these banks to grow at CAGR of 23% for the period 2006-10E to reach RO328mn in
2010.
Omani Banks have been in full compliance with Basel II capital adequacy minimum
requirement since January 2007. To further enhance the capital base the Central Bank
of Oman requires a minimum capital adequacy ratio of 10% which is above the one
mandated by Basel II. All the banks under our coverage are adequately capitalized with
capital adequacy ratios that are well above the minimum 10% required by the CBO.
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Total non-performing loans of the banks under review amounted to RO300mn in 2006
which represented 5.2% of the banks aggregate loan portfolio at the end of 2006.
In 2006, the average coverage ratio for the banks under review (PLLs-to-NPLs) was
107.3%.
The Sultanates economy is growing and diversifying with many mega projects in
the pipeline such as Sohar Refinery, Sohar Aluminum, Oman Polypropylene and
Aromatic. We expect the banking industry to capitalize on this through actively
participating in the financing of many of these projects. Going forward, we believe
that there will be ample lending opportunities in Oman, and thus we expect credit to
expand further.
Table 01: Global Valuation Matrix
Price Target Reco.
Disc./
Prem.
BV* EPS* P/BV P/E
Bank Muscat 1.164 1.307 Buy 12.3% 0.411 0.093 2.8 12.5
National Bank of Oman 5.396 6.181 Buy 14.5% 2.007 0.437 2.7 12.4
Oman International Bank 2.435 2.811 Buy 15.4% 1.659 0.342 1.5 7.1
Bank Dhofar 0.403 0.500 Buy 24.0% 0.214 0.049 1.9 8.2
Alliance Housing Bank 0.280 0.301 Hold 7.6% 0.143 0.019 2.0 14.8
Source: Global Research, Market prices as on April 30, 2007.
* Based on 2007E.

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Oman Economy
Omans economy continued its forward momentum and witnessed double digit growth
in 2006, albeit at a lower rate than the growth witnessed in 2005. Preliminary figures
indicate that nominal GDP grew by 17% as against 24% in 2005 to reach RO13.3bn. The
strong macro-economic performance witnessed in 2006 was mainly spurred by high oil
prices, rising per capita income, widening surpluses in fiscal and balance of payments
accounts, modest domestic inflation, rising public and private sector investments, and
most importantly the notable expansion in hydrocarbon exports boosted by the start-up
of the third LNG train in the Sultanate in 2006. The US$700mn project has added an
annual output of 3.3mn tons, bringing up the total annual production capacity to 10mn
tons from the three LNG trains.
The growth in GDP was broad based with contributions from both oil and non-oil sectors,
with the oil sector growing by 18%, and the non-oil sector growing by 16%. The growth
in the oil sector came mainly on the back of a realized average oil price of US$62 per
barrel in 2006, exceeding the US$32 per barrel expected in the governments budget for
2006. The increase in the price of Omani crude oil resulted in an estimated record budget
surplus of RO2.4bn in 2006.
The growth in non-oil sectors reflected the governments strict commitment to the
diversification plan outlined in Vision 2020, with the highest growth rates witnessed in
the LNG sector which grew by 61%, and the tourism sector which grew by 22%. Over the
past couple of years, the focus of the government in Oman has been to develop the non-oil
sector and hence a policy shift towards economic diversification, privatization of state-
owned assets and structural reforms. We are seeing massive investments in areas such as
power, aluminum, fertilizers, petrochemicals, water desalination, infrastructure related
works and tourism sectors. In addition to multi-billion dollar investments in constructing
projects such as Sohar Refinery, Oman Polypropylene, and Sohar Aluminum etc., major
investments are also directed towards the tourism sector in Oman with projects such as
The Wave, Blue City, and Muscat Golf and Sultanate Club.
The robust performance of the economy is partly a reflection of the governments sound
macroeconomic policy towards creating an increasingly market-friendly economic
environment. Tentative steps towards privatization have been taken as part of the
structural reform program to support the Sultanates development strategy and to make
the Omani economy more attractive to investors. These include lifting impediments in
most sectors to foreign direct investment, streamlining business regulations and adopting
a one-stop investment center policy. The main thrust of privatization efforts is evident
in telecommunications, power and transport sectors. As part of Omans privatization
plans of the power sector, Al Kamil Power, AES Barka and Dhofar Power Company
are shining examples which further boosted the private sector participation in the energy
sector in the Sultanate. Privatization activities were strong in the telecom sector as well
with the partial privatization of Omantel. The government liberalized the telecom sector
in the Sultanate by allowing Nawras Telecom to provide GSM services in the Sultanate.
The fallout of the decision was beneficial in ramping up the mobile penetration rate in
the Sultanate to over 52% bringing over 1.5mn people under the communication network
and also a competitive pricing mechanism in telecom usage rates for customers.
Going forward, the governments budget for 2007 has projected state revenues of
RO4.5bn with oil and gas revenues representing 79% of total revenues. Oil revenues
were estimated at RO3.0bn based on a forecasted oil price of US$40 per barrel which
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is far below market expectations of an average price around US$50. Total expenditures
were projected at RO4.9bn resulting in a forecasted budget deficit of RO400mn.
Towards achieving a well-rounded economic growth, where the benefits of a thriving
economy reaches every strata of the population, Oman has been putting a lot of
importance in promoting socio-economic development in the Sultanate. An analysis of
the budgeted expenditures in Omans state general budget for the year 2007 indicates that
the budget for social security and welfare has been increased by 72% to reach RO117mn.
In addition, the budget for education has been increased by 16% over the 2006 budget to
reach RO609mn, while the budget for healthcare increased by 6% to RO199mn.
The Sultanate has also concluded the free trade agreement (FTA) with the USA which
came into effect starting January 2007, and is expected to provide a new edge to Omans
economy. Oman expects that the free trade agreement will undoubtedly boost Omani
exports through increasing the volume of trade with the United States and will also
attract investment from the USA. This is also likely to act as a conduit in integrating the
Omani economy with the larger global economy and will also provide Oman with access
to foreign capital, skilled manpower and latest technology.
The high levels of government expenditures on large infrastructure and industrial projects
have also led to increased investment opportunities and boosted the investor confidence
and interest to participate in the Sultanates growth. Even though the Muscat Securities
Market displayed weak performance in 2006, the loss was the lowest among all the GCC
stock markets. Also MSM has displayed lesser volatility, and is known for transparency
and good regulatory environment. The Omani stock market, though lacking in liquidity,
has proved resilient to the downward trend being experienced in the GCC region and we
believe that the improvement in the macroeconomic profile will soon trickle down to the
corporate performance and capital markets.
Mainly backed by the strength of international oil prices and therefore a comfortable
macro environment, the government is now gearing up to use this opportunity to
introduce wide-ranging structural reforms. Reform efforts over the past few years have
strengthened competition in many sectors of the economy and have fostered above
average growth trends in the vital non-oil sector. In addition, an economic diversification
program aimed at the development of its gas resources is well under way with massive
investments in key projects. Citing the governments healthy fiscal position and the
prospects for gas-led industrial growth from 2006 onwards, Standard & Poors (S&P)
upgraded Omans sovereign credit ratings from A- to A. Moodys also upgraded the
ratings from Baa 2 to Baa 1.

The outlook for Omani economy looks encouraging in the medium term underpinned
by healthy international oil prices, higher Liquefied Natural Gas (LNG) exports,
investments in new petrochemicals, power, telecom and tourism infrastructure projects
and ongoing efforts to encourage foreign direct investment. A number of mega projects
are in the pipeline involving large investments, which could change the structure of
Omans economy once these units become fully operational. The vast potential of
tourism as a major source of diversification is also being tapped in addition to the existing
infrastructure. Oman has made the most judicious use of oil revenue for expanding the
non-oil sector, which is expected to make the growth and development process in Oman
more sustainable in the long run.

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Oman Banking Sector
Strong growth
Strong economic performance, liberalization of the economy, diversification, major
infrastructure developments, accelerated privatization program, the in-flow of foreign
direct investments (FDI), and favorable demographics with strong population growth
and high percentage of youth were the driving forces for banks growth. Accordingly,
the banking industry in Oman enjoyed an outstanding year in 2005, and continued its
positive momentum in 2006. Total deposits of commercial banks expanded by 24.2%
from RO3.8bn at the end of FY05 to reach RO4.7bn at the end of FY06, while total bank
credit increased by 20.6% from RO3.9bn at the end of FY05 to reach RO4.7bn at the
end of FY06.
Table 02: Licensed Banks in Oman.
Date of Establishment Branch Network
Local Banks
1 National Bank of Oman 1973 50
2 Oman Arab Bank 1973 39
3 Oman International Bank 1975 82
4 Bank Muscat 1981 97
5 Bank Dhofar 1990 48
6 Bank Sohar 2006 1
Foreign Banks
7 HSBC Bank Middle East 1948 6
8 Standard Chartered Bank 1968 1
9 Habib Bank Ltd. 1972 9
10 Bank Melli Iran 1974 1
11 National Bank of Abu Dhabi 1976 2
12 Bank Saderat Iran 1976 1
13 Bank of Baroda 1976 3
14 State Bank of India 2004 1
15 Bank of Beirut 2006 1
Specialized Banks
16 Oman Housing Bank 1977 9
17 Oman Development Bank 1977 10
18 Alliance Housing Bank 1997 7
Source: Central Bank of Oman.
New players joining
The attractiveness of the Omani banking industry was also evident as more and more
foreign banks are getting banking licenses into the Sultanate. Three foreign banks have
recently applied for a commercial banking license in Oman. Bank of Beirut started
operation in 2006. Qatar National Bank recently received the approval from the Central
Bank of Oman (CBO) to open a full services branch in Muscat. Gulf Merchant Group, a
leading UK investment banking and asset management firm, has received initial approval
for a full banking license from the CBO to establish a new retail and commercial bank
and is expected to launch its operations by the end of 2007. In addition, a local bank,
Bank Sohar launched its operations in 2007.
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Others converting
In addition, Alliance Housing Bank, one of the oldest and established specialized
housing banks in Oman, has recently been given in principle approval to convert into
a full fledged commercial bank. The bank has conducted a study through an external
consultant, and the board will take a decision shortly on whether to convert or expand
the existing business model. On May 9, 2007, Bank Muscat submitted an offer to merge
with Alliance Housing Bank. The offer price was RO0.375 per share. However, on May
10, 2007, Alliance Housing Bank declined the offer and announced that it is currently
evaluating other strategic options and offers.
Currently, the banking sector in Oman consists of 18 banks, divided into 6 local
commercial banks, 9 foreign commercial banks and 3 specialized local banks. All
Omani banks operate under the supervision of the CBO, which is the sole regulator of
the banking industry in the Sultanate.
New barriers to entry
On March 25th, 2007, the CBO decided to double the minimum capital requirement of
new commercial banks to RO100mn from RO50mn, and to increase the minimum capital
requirement of new branches of foreign banks to RO20mn from RO10mn. However, this
capital requirement is not applicable to existing banks, including branches of foreign
banks. Therefore, we dont believe that the new requirement will impact existing banks,
though it might limit the number of banks applying for a banking license in Oman.
Revised capital adequacy ratio
Minimum capital adequacy norms were recently reduced to 10% from 12%, which is
above the BIS norm of 8%. However, this new revision will not impact the banks under
our coverage as all of them have capital adequacy ratios that are well above 10%. Other
regulations mandated by the CBO include:
The cap imposed on personal loans was recently reduced from 42.5% to 40% of a banks
total lending, in addition to a new cap of 5% for housing loans which were formerly
included in the 42.5% cap. Accordingly, the total cap on personal loan portfolio has
been increased to 45% (40% for personal loans and 5% for housing loans).
Lending ratio is capped at 87.5% of the total funding base comprising customer
deposits, subordinated loans, net borrowings from banks abroad as well as capital
and reserves.
The aggregate lending by banks to a person and/or corporation shall not exceed 15%
of the net worth of the bank.
The percentage of investments in bonds and equities was raised from 10% to 20% of
net worth.
Banks are not allowed to own more than 49% of any bank abroad, however they are
allowed to operate branches abroad.
Interest rates on personal loans are capped at 9%.
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Interest rates moving up with the US$...
In response to the fixed peg of the Rial Omani to the US dollar, and the rising US
interest rates, interest rates in Oman have picked up. Weighted average 28 days CD
rate increased from 3.11% at the end of Dec-05 to 3.63% in Dec-06. The average repo
rate also increased to 6.34% in Dec-06 compared to 4.15% in Dec-05. Average Rial
Omani deposit rates increased from 1.41% at the end of Dec-05 to 1.86% at the end of
Dec-06, while average Rial Omani lending rate increased from 7.01% to 7.42% during
the same period. As a result, the interest rate spread narrowed to about 5.56% in Dec-06
from 5.60% in Dec-05. Going forward, we expect marginal increases in interest rates
since higher interest rates could be a detriment to the governments long term target of
economic growth.
Chart 01: Interest rate trends
Liquidity remains at comfortable levels
Fuelled by higher oil revenues and higher overall surplus in the balance of payments, the
liquidity situation in Oman remains comfortable. Domestic liquidity (M2) represented by
narrow money (M1) and Quasi Money, registered high growth of 24% on year-on-year
basis reaching RO4.4bn in 2006. In terms of the components of (M1), while currency
with the public rose by 23%, Rial Omani demand deposits rose marginally by 0.6%.
Quasi-money, comprising Rial Omani time and savings deposits, margins and foreign
currency deposits, expanded by 32% to reach RO3.2bn in 2006. In terms of the sources
of increase in domestic liquidity, net foreign assets registered a growth of 21% y-o-y
from RO2.3bn in 2005 to RO2.7mn in 2006, while domestic assets registered an increase
of 30% from RO1.3bn in 2005 to RO1.7bn in 2006. Within domestic assets, claims on
the private sector increased by 20%.
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Banking systems consolidated balance sheet
The cumulative assets of Omani commercial banks grew at a CAGR of 17% during
the period from 2003 to 2006. The majority of assets was concentrated in credit to the
private sector constituting around 61% of the systems total assets in 2006, and grew at
a CAGR of 12.4% during the period from 2003 to 2006. During the same period, the
growth of credit to the private sector was the highest in 2006, growing by 20% y-o-y
compared to a growth rate of 11.6% in 2005. The increased pace of growth in credit to
the private sector reflects the active participation of the private sector in the economy
and the government s commitment to open up the economy for privatization which is
expected to continue gaining momentum going forward.
Table 03: Consolidated Balance Sheet of Commercial Banks
In RO mn 2003 2004 2005 2006*
Cash & Deposits with Central Bank 133.7 167.8 140.3 248.8
Due from banks abroad 350.4 545.6 776.1 1,282.9
Total Credit 3,308.3 3,505.7 3,896.4 4,694.7
Credit to Private sector 3,089.9 3,274.1 3,658.6 4,388.7
Credit to Public Enterprises 69.0 87.3 111.8 195.8
Credit to Government 149.4 144.3 126.0 110.2
Securities 544.1 503.1 597.4 722.7
Treasury Bills 138.0 149.0 6.0 0.0
Government Bonds 130.4 146.5 122.1 118.4
Other domestic securities 25.1 30.9 314.5 302.2
Foreign Securities 83.5 121.7 154.7 302.1
Others 167.1 55.0 0.0 0.0
Fixed Assets 36.6 35.4 37.3 36.1
Other Assets 117.5 131.1 182.4 214.3
Total Assets 4,490.6 4,888.7 5,630.0 7,199.5
Government Deposits 299.9 441.4 543.6 676.5
Deposits of public enterprises 166.4 136.8 137.8 144.4
Deposits of private sector 2,386.3 2,500.1 3,080.1 3,851.1
Demand 594.4 625.8 854.2 884.6
Savings 667.4 757.5 876.7 1,035.4
Time 1,124.5 1,116.8 1,349.2 1,931.1
Total Deposits 2,852.6 3,078.3 3,761.5 4,672.0
Due to banks abroad 472.8 374.1 281.9 751.7
Core capital and reserves 548.7 587.3 781.7 742.5
Provisions and reserve interest 371.2 357.0 278.1 255.7
Other liabilities 245.3 492.0 526.8 777.6
Total Liabilities 4,490.6 4,888.7 5,630.0 7,199.5
* Provisional
On the liabilities side, private sector deposits constituted the bulk of commercial banks
liabilities, constituting 54% of the total liabilities of commercial banks in 2006, and grew
at a CAGR of 17% during the period from 2003 to 2006. Private sector deposits recorded
the highest growth rate in 2006, growing by 25% y-o-y compared to a growth rate of
23% in 2005 on the back of the increase in interest rates on deposits during the year.
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Chart 02: Assets and Liabilities Mix (2006)
Deposits mix
On the back of strong liquidity and higher interest rates, total deposits expanded by 24%
in 2006, to reach RO4,672mn. It grew at a CAGR of 18% from 2003 to 2006, with private
sector deposits constituting the majority of total deposits of commercial banks, around
82%, and growing at a CAGR of 17% during the same period. Private sector deposits
grew by 25% y-o-y to reach RO3,851mn in 2006. Time deposits constituted 50% of
private sector deposits in 2006, while saving deposits accounted for 27% and demand
deposits accounting for the remaining 23%. During 2006, time deposits witnessed the
highest y-o-y increase and the highest CAGR during 2003-06, growing by 43% y-o-y
and 20% respectively. Its share of private sector deposits also increased from 44% in
2005 to 50% in 2006.
Chart 03: Commercial Banks Deposits

Source: Central Bank of Oman, * Provisional
Cash & Deposits
with Central Bank
3%
Total Credit
65%
Securities 10%
Fixed Assets 1%
Other Assets 3%
Asset Composition
Government
Deposits 9%
Liabilities Composition
Deposits of
public enterprises 2%
Deposits of private
sector 54%
Due to
banks abroad
10%
Core capital
& reserves
10%
Provisions & reserve
interest 4%
Other liabilities
11%
Due from banks
abroad 18%
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2000
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2003 2004 2005 2006*
Government Deposits Public Enterprises Deposits Private Sector Deposits
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Increasing credit penetration
Reflecting the healthy macroeconomic conditions in the Sultanate, credit off-take in
Oman has expanded rapidly especially in the past couple of years, growing by 11% in
2005, and 21% in 2006. It grew at a CAGR of 12% during 2003-06. The distribution
of commercial credit facilities by the banking sector at the end of 2006 indicates that
personal loans constituted around 39% of total credit facilities, followed by import trade
(9%), manufacturing (8%), services (7%) and construction sector (6%).
Table 04: Distribution of Commercial Bank Credit by Economic Sectors
2003 2004 2005 2006
Import Trade 9.9% 11.0% 10.1% 8.9%
Export Trade 0.1% 0.2% 0.3% 0.3%
Wholesale & Retail Trade 4.1% 4.2% 4.9% 4.3%
Mining & Quarrying 2.3% 2.8% 2.8% 4.0%
Construction 6.4% 6.4% 6.6% 5.8%
Manufacturing 8.5% 7.7% 7.9% 7.8%
Electricity, Gas and water 2.9% 3.3% 4.1% 3.7%
Transport and Communication 1.3% 1.3% 1.2% 1.4%
Financial Institutions 4.9% 4.7% 5.2% 5.0%
Services 7.0% 6.4% 6.1% 6.6%
Personal Loans 37.3% 38.3% 38.1% 38.9%
Agriculture and allied Activities 0.8% 0.9% 1.0% 0.8%
Government 4.5% 4.1% 3.2% 3.2%
Non-Resident Lending 1.7% 1.4% 1.1% 1.1%
Others 8.0% 7.2% 7.4% 9.2%
Total Credit (in mn) 3,309.7 3,505.7 3,892.7 4,694.7
Consumer lending on the rise
Personal lending captures the highest share of total credit extended by commercial
banks followed by import trade, and manufacturing. We are positive about the growth
in consumer and mortgage lending given the favorable demographic factors, and higher
per capita GDP. Although the expansion of personal lending is capped at 45% of a
banks total loans (including housing loans), the expected growth in corporate lending
supported by Omans current economic boom, and the increased projects expenditures
underlying the governments aggressive diversification plan, will allow for further
growth in consumer lending.
Major project spending to boost lending
The Sultanates economy is growing and diversifying with many mega projects in the
pipeline such as Sohar Refinery, Sohar Aluminum, Oman Polypropylene and Aromatic.
We expect the banking industry to capitalize on this through actively participating in the
financing of many of these projects. Going forward, we believe that there will be ample
lending opportunities in Oman, and thus we expect credit to expand further.
M+, ! +a||a :ectc| kec|t 11
Peer Group Comparison
Peer comparison is limited to the banks under our coverage which includes five local
banks namely Bank Muscat (BM), National Bank of Oman (NBO), Oman International
Bank (OIB), Bank Dhofar (BDOF) and Alliance Housing Bank (AHB) which collectively
accounted for 81% of the total assets of commercial banks in 2006, 83% of deposits
mobilized, and 87% of total credit disbursed.
Banking sector dominated by four local banks
The banking sector in Oman is dominated by 4 local banks, namely Bank Muscat,
National Bank of Oman, Oman International Bank, and Bank Dhofar. During 2006,
these 4 banks accounted for 78% of the total assets of Omans commercial banks, 82% of
total deposits, and 84% of total loans. These banks also have the largest share of branch
network in the Sultanate, accounting for 75% of the total banking branch network in
Oman.
Comparing 2006 Results
Looking at 2006 numbers, Bank Muscat is clearly the number one bank in Oman by
virtue of its size, constituting 51% of the combined assets of the five banks under our
coverage, and 41% of the combined assets of all commercial banks in Oman in 2006.
Bank Muscat also accounts for 26% of branch network in Oman and around 40% market
share of the ATM network in the Sultanate. In terms of the banks performance in 2006,
all banks performed well on the back of strong macroeconomic conditions.
Table 05: Key Indicators for FY06
In RO mn BM NBO OIB BDOF AHB
Loans and advances (Gross) 1,953 788 593 595 152
Total assets 2,955 1,082 920 667 175
Customer Deposits 1,817 817 685 497 76
Total Deposits 2,180 834 782 568 91
Paid-up Capital 83.2 80.0 75.5 46.1 21.0
Equity 320 185 125 93 32
Net interest income 99 35 35 26 7
Net profit 60 30 26 20 4
Source: Banks Annual Reports and Global Research.
Balance sheet growth
The balance sheet size of the banks under our coverage has grown by 30% from RO4.5bn
in 2005, to RO5.8bn in 2006 with Bank Muscat forming 51% of the total assets of banks
under our coverage in 2006, followed by NBO (19%), OIB (16%), BDOF (12%), and
AHB (3%). Bank Muscats balance sheet grew by 48.2% in 2006, recording the highest
growth rate among its peers. NBOs assets grew by 24.4% in 2006, followed by AHB
(12.8%), BDOF (12.4%), and OIB (12.0%).
1! +a||a :ectc| kec|t M+, !
Chart 04: Balance Sheet Size

In terms of market shares, Bank Muscat has by far the highest market share of system
loans and deposits, having a market share of 42% and 39% of total loans and deposits
respectively in 2006. Following Bank Muscat is the second largest bank in the Sultanate,
National Bank of Oman, with a market share of 17% of system loans and 18% of system
deposits. Not too far behind comes the other two commercial banks, Oman International
Bank and Bank Dhofar.
Chart 05: Market Share at year end FY06
3,000
2,500
2,000
1,500
1,000
500
0
I
n

R
O

m
n
BM NBO OIB BDOF AHB
2006 2005
Bank Muscat
41.6%
National Bank
of Oman 16.8%
Market Shares of loans
Oman International
Bank 12.6%
Bank Dhofar
12.7%
AHB
3.2%
Others 13.1%
Bank Muscat
38.9%
National Bank
of Oman 17.5%
Market Shares of Deposits
Oman International
Bank 14.7%
Bank Dhofar
10.6%
AHB
1.6%
Others 16.7%
M+, ! +a||a :ectc| kec|t 1|
Strong growth
In terms of the growth in loans and advances, two banks outperformed the industrys
growth of 20.5%, namely Bank Muscat, and National Bank of Oman. The highest
performer in terms of the growth in loans was Bank Muscat with a growth rate of 31.8%.
Bank Muscat was successful in capitalizing on the Sultanates growing economy, and
the sizable financing opportunities. In terms of the growth in customer deposits, three
banks outperformed the industrys 24.2% growth namely Alliance Housing Bank, Bank
Muscat, and National Bank of Oman. The best performer was Alliance Housing Bank,
with a staggering growth of 74.9%.
Chart 06: Banks Loans and Deposits Growth Viz Industry growth in 2006
Time deposits, the highest share
Looking at the structure of customer deposits for the peer group, time deposits constituted
the bulk of customer deposits in all banks except for OIB, whose time deposits stood at
32% out of its deposits base in FY06, while saving deposits constituted 41% of deposits.
During 2006, time deposits share of total customer deposits witnessed an increasing
trend in all banks except OIB. Time deposits as share of total customer deposits were
the highest in AHB and Bank Dhofar, forming 89% and 61% of total customer deposits
respectively. Bank Muscat increased time deposits significantly in FY06, the share
of time deposits increased from 38% in FY05 to 48% in FY06. The increase in time
deposits supports the growth in loans, however, on the flip side, in a rising interest rate
environment, banks with a larger base of low cost short term funding will achieve better
margins, and spreads.
Loans Growth
OIB
AHB
BDOF
Industry
NBO
BM
1.3%
13.2%
15.4%
20.5%
23.9%
31.8%
Deposits Growth
OIB
BDOF
Industry
NBO
BM
AHB
3.9%
10.0%
24.2%
32.5%
40.7%
74.9%
1+ +a||a :ectc| kec|t M+, !
Chart 07: Structure of Customer Deposits
Asset quality improving
Asset quality for all Omani banks improved significantly over the past couple of years
on the back of strong macro-economic fundamentals. AHB had the lowest gross NPL
ratio and the highest coverage ratio among the five banks. Being mainly specialized in
mortgage lending, AHBs credit risk is minimized relative to other commercial banks
since the bank has the right to take possession of the house in case of default. In addition,
most of AHB loans are granted against regular salary accounts. It is worth mentioning
that over the past two years, NBOs gross NPL ratio had been reduced significantly from
35.2% in FY04 to 17.6% in FY05, and to 11.3% in FY06. Similarly, coverage ratio for
NBO improved from 81.2% in FY04 to 84.5% in FY05, and 95.0% in FY06.
Chart 08: Asset Quality

100%
80%
60%
40%
20%
0%
BM NBO OIB BDOF AHB
Current Savings Time Others
2
0
0
5
2
0
0
6
2
0
0
5
2
0
0
6
2
0
0
5
2
0
0
6
2
0
0
5
2
0
0
6
2
0
0
5
2
0
0
6
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
AHB BM BDOF NBO OIB
150.0%
120.0%
90.0%
60.0%
30.0%
0.0%
NPL/Gross Loans Coverage Ratio
110.3%
126.6%
139.8%
95.0%
100.0%
12.7%
11.3%
7.3%
4.8%
0.9%
M+, ! +a||a :ectc| kec|t 1]
Capital adequacy
Omani Banks have been in full compliance with Basel II capital adequacy minimum
requirement since January 2007. However, to further enhance the capital base, the
minimum capital adequacy ratio required by the CBO is currently set at 10%. As shown
in the graph, all the five banks under coverage are well above the minimum 10% required
by the CBO, with National Bank of Oman reporting the highest capital adequacy ratio
(23%).
Chart 09: Capital Adequacy Ratio
Healthy performance in 2006
The combined net profit of the banks under our coverage grew by 32% y-o-y in 2006
from RO106.4mn in 2005 to RO141.1mn in 2006, with National Bank of Oman (NBO)
recording a 50% increase in net profit, the highest among the five banks. Following
NBO, Bank Dhofar recorded the second highest increase in net profits, increasing by
42% y-o-y, followed by Bank Muscat wit a 33% increase, Oman International Bank
(19%), while Alliance Housing Bank recorded a 12% decline in net profits in 2006.
Chart 10: Net Profit

BM
BDOF
AHB
OIB
NBO
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
AHB
BDOF
OIB
NBO
BM
I
n

R
O

m
n
2006 2005
4.4
3.9
14.2
20.1
22.0
26.2
20.3
30.4
45.4
60.4
1e +a||a :ectc| kec|t M+, !
Core sustainable earnings
Operating income for the banks under our coverage increased by 21% to reach a total
of RO217mn in FY06, with Bank Muscat forming 46% of the total. The combined net
interest income witnessed a y-o-y increase of 17% in FY06, while fees and commission
income grew by 31%. Bank Muscat reported the highest y-o-y increase in net interest
income, increasing by 27%, followed by National Bank of Oman which witnessed a
growth of 16% in net interest income. Bank Muscat also reported the highest y-o-y
increase in fees and commissions income, growing by 47% followed by National Bank
of Oman which witnessed a 15% increase. Excluding Bank Muscat, the y-o-y increase
for the other four banks combined is 13% for operating income, 9% for net interest
income , and 6% for fees and commissions income. Unlike its regional peers, Omani
banks are not greatly exposed to stock markets investments which we believe is a good
indicator of earnings sustainability.
Chart 11: Breakdown of Operating Income
Spreads squeezed
Rising interest rates on the back of the peg to the US$ have negatively impacted margins
and spreads especially in the year 2005 forcing spreads to come down from 6.44% in
Dec-04 to 5.60% in Dec-05. However, although interest rates continued their increasing
trend in 2006, there were no drastic increases. As a result, spreads were reduced to about
5.56% in Dec-06 from 5.60% in Dec-05.
The average spread for banks under our coverage stood at 4.27% in FY06 down form
4.56% in FY05. With the exception of Bank Muscat, other banks under review witnessed
declining spreads with Alliance Housing Bank witnessing the steepest decline.
The average net interest margin for banks under our coverage stood at 4.39% in FY06 up
from 4.36% in FY05. Three banks reported declining margins namely Alliance Housing
Bank, Bank Dhofar, and Oman International Bank. National Bank of Oman reported the
highest improvement with net interest margin increasing to 4.26% in FY06 compared to
3.86% in FY05.
AHB
BDOF
OIB
NBO
BM
0 20 40 60 80 100 120
RO mn
Net interest income Fees and commission Other
Chart 12: Margins and Spreads

Returns improving
All Omani banks exhibited healthy performance in FY06. The average ROAE for
the banks under review stood at 21% in FY06 up from 19% in FY05. Three banks
outperformed the peer average ROAE in FY06, namely Bank Muscat, Bank Dhofar,
and Oman International Bank. Bank Dhofar, and National Bank of Oman reported the
highest y-o-y increase in ROAE ratio. Bank Muscat ROAE stood at 21.9% in FY06 as
compared to 20.7% in FY05. Bank Dhofar ROAE stood at 23.3% in FY06 as compared
to 19.3% in FY05, while NBO reported ROAE of 18.6% up from 15.7% in FY05. In
terms of ROAA, the average ratio for the banks under review stood at 2.8% in FY06 up
from 2.6% in FY05, with Oman International Bank, National Bank of Oman, and Bank
Dhofar outperforming the peer average.
Chart 13: Profitability
Net Interest Margin
AHB
BDOF
OIB
NBO
BM
2005 2006
4.44%
5.96%
4.50%
4.61%
4.07%
4.34%
4.26%
3.86%
4.57%
4.44%
AHB
BDOF
OIB
NBO
BM
Spreads
2005 2006
3.04%
4.25%
4.78%
4.81%
3.99%
4.27%
3.88%
4.25%
3.95%
3.94%
Average
AHB
BDOF
OIB
NBO
BM
ROAE
2005 2006
21.0%
19.0%
13.8%
16.0%
23.3%
19.3%
21.9%
20.1%
18.6%
15.7%
22.0%
20.7%
Average
AHB
BDOF
OIB
NBO
BM
ROAA
2005 2006
2.8%
2.6%
2.4%
3.2%
3.1%
2.4%
3.0%
2.9%
3.1%
2.5%
2.4%
2.3%
1~ +a||a :ectc| kec|t M+, !
Oman Banking Sector Outlook
With the outlook of Omans economy looking bright, the banking industry in Oman will
be one of the main beneficiaries through increased lending opportunities and improved
asset quality. Omans economy is set for another growth phase, and the potential for
increased lending opportunities are reasonably bright in the face of the governments
commitment to the long term goal of economic diversification, and the increasing
liquidity levels and fiscal surplus arising from high oil prices in the region.
We believe that the conditions underlying the remarkable performance in the past few
years are likely to prevail in 2007 as well. The government is aggressive in privatizing
state-owned industries and wants an active private sector participation in financing and
operating new projects, and banks in Oman are now active participants in the economic
development of the Sultanate.
We believe that growth prospects are high for both corporate and consumer lending.
With enhanced per capita income, strong population growth, and around 33% of the
Omani population between the ages 15 to 29 years, the outlook for consumer lending
is very bright. Booming real estate market and the relaxation of ownership regulations
encouraged banks to increase their exposure to home financing such as National Bank
of Oman launching Al Manzel housing loan and Bank Muscat launching Baituna,
which are offered to both locals and expatriates.
Though the CBO has placed a new capital requirement that might limit the number of
new licenses, new players which have recently joined the market will force existing
ones to improve and diversify their products and services. Rising competition from new
banks joining the market such as Bank Sohar, Bank of Beirut, Qatar National Bank, and
Gulf Merchant Group who recently applied for a banking license, will force banks to
defend their market shares through improving their customer services, improving their
technology infrastructure and diversifying their revenue base.
We believe that the growth prospects for the banking industry in Oman are positive
given the bright economic outlook, the governments commitment to diversification, and
buoyant consumer lending market.

M+, ! +a||a :ectc| kec|t 1)
Valuation & Recommendation
For arriving at the fair value of the banks under review, we have used two valuation
methods:
1. Cash flow approach represented by the Dividend Discount Model.
2. Market approach represented by the Peer Group valuation.
Dividend Discounting Model- DDM
The DDM model constructed is based on a 4-year forecast of dividends as cash flows
(2007-10E). The dividends for the forecasted period and the terminal value are then
discounted back at the cost of equity to arrive at the total NPV of the company. In our
calculations, we have made the following assumptions in order to arrive at the equity
value of individual banks:
1. Risk free rate of 6.63%.
2. Equity risk premium of 5.0%
3. Beta of 1.21 and 1.19 for Bank Muscat and Oman International Bank respectively.
We have taken a Beta of 1 for the remaining three banks under our coverage since
their calculated Betas are less than 1.
4. Cost of equity for Bank Muscat and Oman International Bank came out to 12.68%,
and 12.58% respectively. Cost of equity for the remaining three banks stood at
11.63%.
5. Terminal growth rate of 4%.
Table 06: Value as per DDM approach
RO DDM Value
Bank Muscat 1.386
National Bank of Oman 6.512
Oman International Bank 2.510
Bank Dhofar 0.495
Alliance Housing Bank 0.290
Source: Global Research.
Peer Group Valuation
The peer group valuation is done by comparing the price to book value (P/BV) multiples
enjoyed by the banks under our coverage.
Table 07: Companies average P/BV ratios for the banks under coverage

Equity
2007
Shares
Out.
BV/Share Price
Market
Cap.
P/BV
(RO mn) (mn) (RO) (RO) (RO mn) (x)
Bank Muscat 376.1 916 0.411 1.164 1,065.72 2.83
National Bank of Oman 184.6 92 2.007 5.396 496.43 2.69
Oman International Bank 137.8 83 1.659 2.435 202.16 1.47
Bank Dhofar 113.7 531 0.214 0.403 213.92 1.88
Alliance Housing Bank 30.0 210 0.143 0.280 58.80 1.96
Total/Average 842.2 2,037 2.42
As indicated in table 7, the expected average P/BV multiple for the banks under coverage
is around 2.42x. Therefore, on the basis on this industry average of 2.42x, the value of
the banks under review is given in the table below.
Table 08: Value as per Market approach
RO P/BV Value
Bank Muscat 0.994
National Bank of Oman 4.854
Oman International Bank 4.014
Bank Dhofar 0.518
Alliance Housing Bank 0.345
Table 09: Valuation
RO DDM Value P/BV Value Weighted Price
Bank Muscat 1.386 0.994 1.307
National Bank of Oman 6.512 4.854 6.181
Oman International Bank 2.510 4.014 2.811
Bank Dhofar 0.495 0.518 0.500
Alliance Housing Bank 0.290 0.345 0.301
Table 10: Global Valuation Matrix
Price Target Reco.
Disc./
Prem.
BV* EPS* P/BV P/E
Bank Muscat 1.164 1.307 Buy 12.3% 0.411 0.093 2.8 12.5
National Bank of Oman 5.396 6.181 Buy 14.5% 2.007 0.437 2.7 12.4
Oman International Bank 2.435 2.811 Buy 15.4% 1.659 0.342 1.5 7.1
Bank Dhofar 0.403 0.500 Buy 24.0% 0.214 0.049 1.9 8.2
Alliance Housing Bank 0.280 0.301 Hold 7.6% 0.143 0.019 2.0 14.8
* Based on 2007E.
M+, ! +a||a :ectc| kec|t !1
Players Profle
!! +a||a :ectc| kec|t M+, !
The bank operates in two countries and employed 1,945 employees in 2006.
Bank Muscat has by far the highest market share of system loans and deposits,
having a market share of 41% and 39% of total loans and total deposits respectively
in FY06.
Bank Muscat also has a strategic stake in Centurion Bank of Punjab (CBOP), one of
the top 10 private sector banks in India in terms of total assets and has a network of
279 branches and 408 ATMs across 143 locations in India. Centurion Bank merged
with Bank of Punjab in FY05, giving Bank Muscat a 25.34% post-merger share. As
at 2006 year-end, the bank held 21.95% shareholding in Centurion Bank of Punjab.
The bank has a 49% stake in Bank Muscat International, Bahrain.
Recent Developments
The Bank announced that it has submitted an offer for a possible merger with
Alliance Housing Bank. The offer price was RO0.375 per share. On May 10, 2007,
Alliance Housing Bank rejected Bank Muscats proposal as it is currently evaluating
its strategic options and offers.
In the first quarter-07, the bank launched Hayatuna Family Protection, a group life
insurance product, for its customers whereby a customer needs to pay only RO 4 per
Reuters Code:
BMA.OM
Listing:
Muscat Securities Market
CMP:
RO1.164
Bank Muscat SAOG
Key Data
CMP (RO)
Market Cap (ROmn)
EPS (Baisas)**
BVPS (RO)**
P/E*
P/BV*
12M Average Volume
52 week Lo / High (RO)
1.164
1,065.7
93.0
0.411
12.51
2.83
545,502
0.725-1.181
*CMP: Current Market Price as of April 30, 2007
** 07 E
Background
Bank Muscat (BM) is the largest bank in the
Sultanate of Oman with a market share of
41% in terms of banking sector assets.
BM is engaged in commercial and investment
banking activity through a network of 97
branches, accounting for 27% of the total
Omani banking sector branch network.
April 30, 2007
Buy
M+, ! +a||a :ectc| kec|t !|
month with a direct debit option for future debits and derives a host of protection
benefits. A loss of life cover due to illness for RO5,000, a loss of life cover due to
accidents for RO10,000 and a permanent total disability cover due to accident of
RO10,000.
The bank opened its first branch in Riyadh in April-07, making it the first bank from
Oman to open a branch in the Kingdom.
In Jan-07, BM become the first banking institution in the GCC to make a foray into
the Indian securities sector with the acquisition, of a 43 % stake in the Mangal Keshav
Group (MKG), one of Indias brokerage house.
In Nov-06, Bank Muscat signed an agreement with TEMENOS SA to introduce a
new state-of-the-art core banking system, based on TEMENOS T24, the worlds
leading integrated banking system. The core banking system refers to the application
suite that manages the banks entire banking operations and facilitates the business
lines to provide fast and effective banking services. The major components of new
core banking system are - retail banking, corporate banking, finance, operations,
branch automation and administration.
In Sep-06, BM signed a memorandum of understanding (MoU) with Al Argan
Towell Investment to provide housing finance for purchasing residential properties
developed by the latter. To start with, both organizations have signed an agreement
for Al Argans 100 town houses called Al Hail Homes project coming up in Seeb.
In Mar-06, the banks shareholders approved a proposal to raise long-term funds up
to a maximum of RO250mn through the issue of senior or subordinated bonds within
a period of five years. The shareholders also approved the boards recommendations
to distribute 35% cash dividend and 10 % bonus shares for 2006.
Rating Reviews
In April-07, Moodys Investors Service upgraded the bank financial strength rating
to C- from D+. The local currency deposit rating assigned is A1/P-1. The foreign
currency deposit rating is unchanged at A3/P-2. The foreign currency bond rating
for senior obligations is changed to A1 from A3. The local currency bond rating for
senior obligations also is changed to A1 from A3. The outlook on the A3/P-2 foreign
currency deposit rating is positive. The outlook on all other ratings is stable.
In Feb-07, Fitch Ratings affirmed Oman-based Bank Muscats (BM) ratings at issuer
default A- (A minus) with stable outlook, short-term F2, individual C and
support 1. According to Fitch, the issuer default, short-term and support ratings
reflect the extremely high probability of support from the Omani authorities, should
the need arise. The assessment of support is based on the banks role in the domestic
economy and its 20.1 % ownership by the Royal Court Affairs (a division of the Oman
government). The Individual rating not only reflects BMs dominant franchise in
Oman, consistent profitability, sound capitalization and diversified funding structure,
but also tight liquidity ratios and some loan and deposit concentrations.
!+ +a||a :ectc| kec|t M+, !
In Jan-07, Standard & Poors Ratings Services raised its long-term counter-party
credit rating on BM to BBB+ from BBB. At the same time, the A-2 short-
term counter-party credit rating on the bank was affirmed. The outlook is stable.
According to S&P, the rating action reflects the banks sustained leading domestic
market position and improving financial performance. Although rapid asset growth
and international expansion have put pressure on capitalization, the bank plans to
raise new capital in 2007. Therefore, capitalization is expected to return to adequate
levels.
Financial Performance-FY06
BM outperformed our expectations made in our previous report as it reported net
profit of RO60.4mn in FY06 as compared with our estimate of RO58.7mn. The
banks assets at the end of FY06 reached RO 2.95bn as compared to our estimates
of RO2.76bn. The bank performed better on core banking activity as the net interest
income reached RO99.5mn in FY06 as compared to our estimates of RO93.7mn
made in our previous update.
BM reported strong growth in FY06 as the assets at the end of FY06 reached 2.95bn
registering a yearly growth of 48.2% in FY06. The bank balance sheet size grew at a
CAGR of 23.8% during the last three years as asset size increased from RO1.55bn in
FY03 to reach 2.95bn in FY06.
During the period FY03-06, customer deposits increased from RO1.01bn in FY03 to
RO1.82bn in FY06, registering a CAGR of 21.8%. Deposit base as a percentage of
total balance sheet decreased from 64.8% in FY05 to 61.5% in FY06.
Chart 01: Deposits break-up
Source: Bank Reports, Global Research.
Current Accounts
23.2%
Deposits Profile - 2005
Savings
Account 26.2%
Call
Account 12.2%
Deposits
Account 38.0%
Margin Accounts 0.4%
Current Accounts
22.0%
Deposits Profile - 2006
Savings
Account 23.0%
Call
Account 7.0%
Deposits
Account 48.0%
M+, ! +a||a :ectc| kec|t !]
The composition of deposits underwent a major change with the Deposit account
which constituted 38% of total deposits in FY05, witnessed strong growth and
accounted for 48% of total deposits in FY06 (FY05: RO866.5mn). We expect the
strong growth in deposits account to continue in medium term. Deposits from the
private sector constitute 77% of the total deposits in FY06 as compared to 79%
reported in the previous year. The remaining 23% of the total customer deposits in
FY06 was received from Ministries and other government organizations.
The bank has RO160.7mn of unsecured bonds and floating rate notes in FY06 (FY05:
RO151.0mn). Among these RO105.8mn were of the 1-5 year maturity while the
remaining RO54.8mn have maturity of more than five years. In 2006, the bank took
a subordinate loan of RO38.5mn denominated in US Dollars.
BMs gross loans and advances grew at a CAGR of 12.9% as it reached RO1.95bn
in FY06 as compared to RO1.35bn recorded in FY03. The gross loans and advances
registered a strong yearly growth of 31.8% in FY06. The provisioning for FY06
reached RO118.5mn as compared to RO109.9mn recorded in the previous year.
Table 01: Loans & Advances - Profile
2003 2004 2005 2006
Overdrafts 10.2% 10.2% 8.6% 6.8%
Loans 82.6% 80.4% 81.8% 86.0%
Loans against Trust receipts 2.7% 3.7% 3.4% 3.8%
Bills Discounted 2.3% 3.8% 3.3% 1.5%
Bills under Negotiation 0.0% 0.0% 0.6% 0.1%
Other Advances 2.1% 1.8% 2.2% 1.8%
Total (RO mn) 1,356 1,436 1,482 1,953
Gross loans to customer deposit ratio of the bank declined from 134.8% in FY03 to
107.5% in FY06. However, the equity to gross loans increased from 12.8% in FY03
to 16.4% in FY06.
Among the loans and advances of BM, sectoral concentration is skewed towards
personal loans which accounted for 42.6% of the total loans and advances in FY06
which increased as compared to 41.1% recorded in the previous year. We believe
the bank will continue to pay special attention to this high-margin lucrative banking
segment.
!e +a||a :ectc| kec|t M+, !
Table 02: Loans and Advances - Sectoral Concentration
2003 2004 2005 2006
Agriculture & Allied Activities 0.5% 0.5% 0.5% 0.4%
Construction 5.7% 5.0% 4.6% 3.6%
Export trade 0.1% 0.1% 0.3% 0.2%
Government 2.4% 2.4% 1.2% 0.7%
Import Trade 10.7% 11.0% 9.9% 6.5%
Manufacturing 13.0% 10.2% 8.5% 7.0%
Mining & quarrying 1.0% 1.6% 1.6% 3.3%
Real Estate 1.7% 1.6% 1.8% 2.9%
Services 6.8% 6.7% 7.3% 8.4%
Transport 1.5% 1.3% 1.4% 2.6%
Utilities 3.8% 3.8% 6.0% 5.9%
Other 4.2% 5.3% 6.8% 6.4%
Personal Loans 40.0% 41.0% 41.1% 42.6%
The banks non-performing loans amounted to RO93.45mn in FY06, down from
RO96.7mn recorded in the previous year. NPL Ratio has come down significantly
from 8.4% recorded in FY03 to 6.5% in FY05 to 4.8% recorded in FY06. The bank
has been able to maintain more than 100% coverage ratio in the last few years. The
bank has fully met the general loan loss provision requirement of CBO. The bank
held a general loan loss provision of RO31.1mn in FY06. During the year FY06,
the bank recovered RO7.3mn from provision for possible credit losses compared to
RO15.9mn recorded in the previous year.
140.0
120.0
100.0
80.0
60.0
40.0
20.0
-
2003 2004 2005 2006
140%
120%
100%
80%
60%
40%
20%
-
Non Performing Loans (RO) Loan Loss Reserve (RO) NPL Coverage
R
O

m
n
M+, ! +a||a :ectc| kec|t !
The net profit of the bank increased by a CAGR of 30.7% as it increased from
RO27.1mn in FY03 to reach RO60.4mn in FY06. The bank recorded an yearly growth
of 33% in its net profit for FY06 which increased on the back of 27.5% yearly growth
in net interest income coupled with 46.9% growth in fee and commission income.
The banks earnings per share increased to RO0.073 in FY06 as compared to RO0.058
recorded in the previous year.
The net interest income recorded a CAGR of 13.1% in FY03-06 period. Interest
expenses grew at a higher CAGR of 22.5% as compared to CAGR of 16.3% recorded
by the interest income for the same period. The interest expenses as percent of interest
income increased from 32.7% in FY05 to 37.4% in FY06 but the bank has been able
to maintain its spread at 3.85% in FY05 as well as FY06. However, the net interest
margin has improved from 4.44% recorded in FY05 to 4.57% registered in FY06.
Return on average equity reached 21.95% in FY06 compared to 20.7% in FY05.
Correspondingly, return on average assets increased from 2.33% in FY05 to 2.44%
in FY06.
Chart 03: Return Ratios

The fee and commission income registered a strong growth of 46.9% as it increased
from RO16.5mn in FY05 to reach RO24.3mn in FY06. The bank also made profit of
RO1.16mn on the sale of non-trading investments.
During the last three years, operating expense increased at a CAGR of only 10.4%
to reach RO53.30mn in FY06. The cost to average assets remained in the range of
2.2%-2.6% between FY03-06. The bank has done a good job in reducing the cost to
income ratio which declined from 44.8% in FY03 to reach 40.8% in FY06.
The Capital Adequacy Ratio of BM at the end of FY06 was 15.42% in FY06 as
compared to 17.82% recorded in the previous year. The Tier-1 capital ratio at the end
of FY06 reached 12.47% as compared to 16.03% in FY05.
25.00%
20.00%
15.00%
10.00%
5.00%
0.00%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
2003 2004 2005 2006
Return on Average Equity Return on Average Assets
R
O
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!~ +a||a :ectc| kec|t M+, !
In Mar-06, the nominal value of bank share was split from a nominal value of RO1
to a nominal value of RO0.1 each. The bank paid cash dividend of 35 % and stock
dividend of 10 % for FY06.
Quarter Results-2007
Bank Muscat reported a net profit of RO19.1mn for the first quarter ended March 31,
2007, achieving a remarkable growth of 43.8% compared to RO13.3mn recorded in
the same period in 2006.
Net interest income increased by 30% to reach RO28.2mn during the first quarter
of 2007 as opposed to the same period in 2006. Interest income increased by 46.8%
reaching RO48.3mn while interest expense increased by 79.2% to reach RO20.2mn.
Interest expense to interest income ratio increased to 41.7% compared to 34.2% in
Fees and commission income rose by 22.7% to reach RO7.3mn during the first
quarter of 2007 compared to RO5.9mn in the same period in 2006.
Operating expenses increased by 23.5% to reach RO13.9mn in the first quarter of
2007 compared to RO11.3mn in the same period in 2006 mainly on the back of the
increase in manpower and other administrative costs as a result of increased business
activities and expansion of business lines.
Total assets grew by 47% to reach RO3.2bn at the end of the first quarter of 2007 as
opposed to RO2.2bn in the same period in 2006.
Gross loans and advances increased by 34% to reach RO2.1bn at the end of the first
quarter of 2007 as opposed to the same period in 2006, while customer deposits grew
by 42% to reach RO2.0bn.
Table 03: Key indicators -Q1-07
RO mn Q1-07 Q1-06 Change
Interest income 48.3 32.9 46.8%
Interest expense (20.2) (11.2) 79.2%
Net interest income 28.2 21.7 30.0%
Fees & commission 7.3 5.9 22.7%
Operating expenses (13.9) (11.3) 23.5%
Net profit 19.1 13.3 43.8%

M+, ! +a||a :ectc| kec|t !)
Outlook
Bank Muscat being in the leadership position in the Oman banking sector will face
pressure from the coming of new local banks and international banks in the banking
arena. To counter that the bank has been increasing its product and services portfolio to
combat upcoming competition. The bank is also expanding geographically and has been
actively looking at emerging markets. It presence in Indian banking as well as capital
markets services sector (through its stakes in Centurion Bank of Punjab and Mangal
Keshav Group respectively) will provide access to the booming Indian financial markets
and will also help in tapping the non-resident Indian population based in Oman. The
bank seems to be aggressive in cross-selling its products and services and we believe
that the bank has the critical mass of branch network which it can use for cross-selling
initiatives.
The project financing in Oman especially in the infrastructure sector provides the bank to
be part of the big-ticket deals. The bank will be looking at the opportunities in the power,
petrochemicals and waste sector.
We believe that Bank Muscat will be maintaining its leadership position in the medium
term but can expect pressure on margins with competition increasing in the banking
sector. However, it will continue to look at opportunities abroad through its subsidiaries.
The bank is augmenting its presence in the home-loan market and is forging alliances
with various developers to provide home-finance for their projects. Recently, it signed a
memorandum of understanding with Al Madina Real Estate Company to provide its suite
of Baituna home finance to the purchasers of residential units at Al Madina various
developments across the country. The boom in the Omani real estate market will provide
Bank Muscat strong opportunity to grow its lending portfolio.
Valuation
Based on the current market price of RO1.164, the stock is trading at 12.51x 2007E
earnings and 2.83x 2007E book value. Based on 2008E, the stock is trading at 9.58x
earnings and 2.49x book value. The estimated fair value for Bank Muscat works out to
RO1.307 based on the DDM and peer group valuation methods, which is 12.3% above
the market price on April 30, 2007. Hence we reiterate our earlier rating on the stock and
recommend a BUY.
| +a||a :ectc| kec|t M+, !
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M+, ! +a||a :ectc| kec|t ||
Fact Sheet
Bank Muscat
2004 2005 2006 2007(F) 2008(F) 2009(F) 2010(F)
Profitability
- Return on Average Assets 1.97% 2.33% 2.44% 2.46% 2.52% 2.57% 2.69%
- Return on Average Equity 20.1% 20.7% 21.95% 28.0% 33.7% 37.3% 35.7%
- Net interest income/ Total Op. Income 74.1% 70.5% 71.8% 74.6% 76.1% 76.3% 76.6%
- Non-interest income/ Total Op. Income 25.9% 27.5% 28.2% 25.4% 23.9% 23.7% 23.4%
- Non-interest expense/ Total Op. Income 51.9% 49.0% 43.3% 39.9% 37.3% 36.2% 35.0%
- Fees & Commissions/ Total Op. Income 19.4% 16.9% 19.7% 17.7% 16.9% 17.2% 17.2%
- Dividend payout ratio 43.8% 58.3% 48.2% 70.0% 75.0% 75.0% 78.0%
Margins
- Net income/ revenues 32.6% 39.2% 38.0% 37.3% 38.2% 38.2% 38.7%
- Net profit / revenues 34.8% 44.8% 46.5% 48.8% 51.0% 51.9% 53.4%
- Interest Expense/ Interest Income 28.1% 32.7% 37.4% 39.8% 40.1% 41.2% 42.0%
- Interest Income/ Average Interest Earning Assets 6.45% 6.38% 6.93% 7.12% 7.17% 7.32% 7.52%
- Interest Expense/ Average Interest Bearing Liabilities 2.05% 2.44% 2.98% 3.15% 3.10% 3.20% 3.35%
- Net Spread 4.39% 3.94% 3.95% 3.97% 4.07% 4.12% 4.17%
- Net Interest Margin 4.74% 4.44% 4.57% 4.62% 4.63% 4.61% 4.63%
Efficiency
-Cost to Total Op Income 44.0% 43.5% 40.8% 38.4% 36.0% 34.8% 33.9%
- Staff Expense to Total Op Income 17.3% 14.5% 13.7% 12.8% 11.2% 10.4% 9.6%
- Cost to Average Total Assets 2.5% 2.3% 2.2% 1.9% 1.8% 1.7% 1.7%
Liquidity
- Loans to Interest Earning Assets 76.2% 76.4% 69.1% 69.7% 72.4% 74.2% 76.0%
- Loans to Customer Deposits 129.3% 114.8% 107.5% 103.7% 99.7% 99.7% 99.7%
- Customer Deposits to Equity 571.5% 451.3% 567.7% 676.4% 773.1% 828.7% 878.7%
- Due from Banks to Due to Banks 174.6% 633.8% 176.5% 140.9% 159.7% 159.4% 159.7%
Credit Quality
- Provisions to Total Op Income 17.3% 9.1% 8.9% 8.9% 8.8% 8.3% 8.3%
- Provisions to Average loans 1.3% 1.0% 0.5% 0.5% 0.5% 0.5% 0.5%
- Non Performing Loans (RO) 104,830,238 96,681,000 93,457,000 112,065,080 123,601,191 138,433,334 142,388,572
- Loan Loss Reserve (RO) 106,179,000 109,903,000 118,526,000 139,620,603 162,692,825 188,401,873 214,506,445
- NPLs to Gross Loans 7.3% 6.5% 4.8% 4.3% 3.8% 3.5% 3.0%
- NPLs to (Equity+Loan loss reserve) 34.9% 24.4% 21.3% 21.7% 20.9% 20.7% 18.8%
- Loan Loss Reserve to Gross Loans 7.4% 7.4% 6.1% 5.3% 4.9% 4.8% 4.5%
- NPL Coverage 101.3% 113.7% 126.8% 124.6% 131.6% 136.1% 150.6%
Capital Adequacy
- Equity to Total Assets 10.2% 14.3% 10.8% 9.5% 8.8% 8.5% 8.3%
- Equity to Gross Loans 13.5% 19.3% 16.4% 14.3% 13.0% 12.1% 11.4%
Constitution of Total Income
- Net Interest Income to Total Op Income 72.3% 70.5% 71.8% 74.6% 76.1% 76.3% 76.6%
- Fees & Comm. to Total Op. Income 19.4% 16.9% 19.7% 17.7% 16.9% 17.2% 17.2%
- Investment Income to Total Op Income 2.3% 2.5% 1.2% 1.3% 1.1% 1.0% 0.9%
- FX Income to Total Op. Income 3.4% 2.5% 2.6% 2.3% 2.2% 2.3% 2.3%
- Other Income to Total Op. Income 2.6% 1.8% 1.3% 1.0% 0.8% 0.8% 0.7%
Operating Performance
- Change in Interest Income 16.6% -2.1% 51.1% 43.6% 29.9% 19.9% 21.0%
- Change in Fees and Commission 11.9% 3.6% 46.9% 20.0% 20.0% 20.0% 20.0%
- Change in Investment Income 7.9% 156.2% -17.4% 7.2% 7.2% 7.3% 7.3%
- Change in Fx Income 4.4% -12.3% 32.1% 20.0% 20.0% 20.0% 20.0%
- Change in Other Income 18.5% -15.3% -12.1% 5.0% 5.0% 5.0% 5.0%
RATIOS USED FOR VALUATION
- Shares in Issue 59,815,355 75,666,424 832,330,000 915,563,000 915,563,000 915,563,000 915,563,000
- EPS (RO) 0.493 0.642 0.073 0.093 0.1215 0.147 0.179
- Book Value Per Share (RO) 3.249 3.781 0.385 0.411 0.467 0.523 0.592
- Market Price Year End (RO) 6.350 8.830 1.171 1.164 1.164 1.164 1.164
- P/E 12.87 13.76 16.13 12.51 9.58 7.92 6.50
- P/BV 1.95 2.34 3.05 2.83 2.49 2.23 1.97
* Market price of 2007 and subsequent years on April 30, 2007.
|+ +a||a :ectc| kec|t M+, !
Reuters Code:
NBO.OM
Listing:
CMP:
RO5.396
National Bank of Oman
The bank operates with a branch network of 50 branches in Oman. The bank also
operates five branches in Egypt and has one branch in Abu Dhabi (UAE). The bank
employed 1,065 employees in 2006.
In July-05, Commercial Bank of Qatar acquired a 34.9% stake in NBO, increasing
shareholders equity in the bank by RO44.5mn. NBO, issued 10mn new shares to
CBQ, which also purchased 17.92mn shares from existing NBO shareholders in
the secondary market. It was the GCC regions first cross border strategic alliance
between banks. NBO also has a Management Services Agreement with Commercial
Bank of Qatar for an initial period of three years starting June-05.
Table 01: Shareholding Structure
% Holding
The Commercial Bank of Qatar 34.85
Suhail Bahwan Group(Holding) LLC 14.74
Ministry of Defense Pension Fund 7.66
Civil Service Employees Pension fund 6.34
Public Authority for Social Insurance 5.89
United Development Company 3.41
National Equity Funds 3.15
Royal Oman Police Pensions Trust L.L.C. 2.88
Abna Sultan Trading Co. LLC 2.85
Source: NBO Website.
Key Data
CMP (RO)
Market Cap (ROmn)
EPS (RO)**
BVPS (RO)**
P/E*
P/BV*
12M Average Volume
5.396
496.4
0.437
2.01
12.35
2.69
52,553
4.291-5.500
** 07 E
Background
National Bank of Oman (NBO), incorporated
as the first local bank in the Sultanate of Oman,
was founded in 1973.
NBO is now the second largest bank in
Oman with a market share of 15% in terms
of banking sector assets and 17% in terms of
banking sector deposits.
April 30, 2007
Buy
M+, ! +a||a :ectc| kec|t |]
Recent Developments
In Jan-07, NBO announced the implementation of a National ID (Smart card reader)
plus fingerprint reader solution at its selected branches. This facility was launched for
the first time in the Sultanate and is a pioneering progress in banking technology and
customer service in the country.
In Nov-06, NBO was been awarded the Best Bank in Oman 2006 Award by The
Bankers magazine and Financial Times Business of UK.
In Nov-06, NBO concluded a structured project facilities arrangement of US$50mn
for a project being undertaken by Galfar Engineering & Contracting LLC in the
hydrocarbon segment. This arrangement was by way of a club deal with NBOs
strategic partner, Commercial Bank of Qatar.
In Oct-06, NBO signed an agreement with The Wave to provide home mortgage loan
scheme for purchasing properties. NBO was the first such commercial bank to tie up
with The Wave for home financing.
In Sep-06, NBO was part of the consortium that signed a US$225mn general purpose
corporate facility for Qatars United Development Company.
Rating Reviews
In April-07, Moodys upgraded the bank financial strength rating to D+ from D-. The
local currency deposit rating assigned is A3/P-2. The foreign currency deposit rating
is unchanged at A3/P-2. The outlook on all ratings is stable.
In Aug-06, Capital Intelligence announced that the foreign currency long-term rating
of NBO has been upgraded to BBB from BB+, and the financial strength rating to
BBB- from BB. The upgrade reflected the continued improvements in the banks
overall financials which appeared to be sustainable over the long-term. The outlook
for the financial strength rating was Positive. The support rating was also raised
to 2 from 3 since the likelihood of support from the major shareholders and the
government was believed to be high.
NBO reported strong growth in net profit as it recorded a yearly growth of 49.7% as
it reached RO30.4mn in FY06 as compared to RO20.3mn recorded in the previous
year. NBO registered strong growth in the last couple of years as it returned in the
black in FY04 from a RO51.7mn loss recorded in FY03. The return of average assets
improved to 3.1% in FY06 as compared to 2.5% recorded in the previous year.
NBO assets grew at a CAGR of 9.9% in the last three years as it reached RO1.08bn
in FY06 as compared to RO815.9mn recorded in FY03.
|e +a||a :ectc| kec|t M+, !
Chart 01: Asset Break-up by segment-FY06

NBO Loans and advances as a percent of total assets declined from 89.3% reported
in FY03 to 72.8% in FY06 as loans and advances grew only by a CAGR of 2.6% in
the said period. Gross loans advances which had reported declined in FY04 and FY05
as a result of bank managing its loan portfolio, again grew at an yearly rate of 23.9%
in FY06. Now, with the situation improving at NBO, we expect strong growth in the
loan in the coming years.
Table 02: Loans and Advances - Geographic Distribution
(FY06)
Consumer &
Personal Loans
Business &
Government
Real Estate &
Others
Total
Oman 38.1% 38.7% 6.8% 83.6%
UAE 2.5% 7.0% 1.7% 11.2%
Egypt 0.3% 2.6% 0.0% 2.9%
Others 0.0% 2.2% 0.0% 2.2%
Total 40.9% 50.5% 8.6% 100.0%
Majority of the loans and advances are personal and other loans which accounted for
89.7% of the total loans outstanding in FY06 (FY05: 90.0%). Gross loans to customer
deposit ratio of the bank declined from 117.2% in FY03 to 96.5% in FY06.
Table 03: Loans and Advances Break-up
2003 2004 2005 2006
Overdrafts 12.0% 10.6% 6.7% 5.0%
Personal Loans 38.7% 39.1% 43.8% 40.9%
Other Loans 46.9% 47.8% 46.2% 48.8%
Loans Against Trust Receipts 2.4% 2.4% 3.2% 4.9%
Consumer Banking
25%
Corporate Banking
32%
Investment Banking
2%
Others
(Unallocated)
41%
Among the loans and advances of NBO, 40.8% of total loan book in FY06 was
attributed to the personal and consumer sector, followed by the wholesale and retail
trade sector which accounted for 10.5% of the total loans in FY06.
The bank had a major problem of non-performing loans in the past which seems to be
in control now. In FY03, the NPL ratio of the bank was at a whopping 37.6% which
the bank has been able to bring down to 16.3% in FY05 and 11.3% in FY06. On the
other hand, the NPL coverage improved from 73.2% in FY03 to 95% in FY06. The
bank made substantial improvement in recoveries of debt written off as it recovered
RO2.2mn bad debts in FY06 as compared to recoveries of only 0.3mn recorded in
FY05.

During the period FY03-06, customer deposits increased from RO621.8mn in FY03
to RO816.6mn in FY06, registering a CAGR of 9.5%. Deposit base as a percentage of
total balance sheet has remained in the range of 70%-76% range in FY03-06 period.
Term Deposits, which constitutes the major chunk of total deposits grew by a strong
49.5% in FY06 reaching RO500.5mn out of the total deposits base of RO816.6mn as
the bank went aggressive in garnering the market share of Omani banking deposits.
However, this put a squeeze in the bank spreads as they went down to 3.18% in FY06
as compared to 3.53% recorded in the previous year.
300.0
250.0
200.0
150.0
100.0
50.0
-
40.0%
30.0%
20.0%
10.0%
0.0%
2006 2005 2004 2003
Non Performing Loans NPLs to Gross Loans Loan Loss Reserve
R
O

m
n
|~ +a||a :ectc| kec|t M+, !
Chart 03: Break-up of Deposits-2006

The bank pre-paid remaining outstanding RO8.8mn of subordinate loan to Ministry
of Finance which it took in 2000-01.
The net interest income of NBO reported a strong yearly growth of 16.1% as it
reached RO35.1mn in FY06 as compared to RO30.3mn recorded in the previous
year. Due to the increase in the higher-cost time deposits, the effective yield of
average interest bearing liabilities reached 3.25% in FY06 from 2.85% reported a
year earlier. However, the yield on average earning asset recorded a marginal increase
as it reached 7.12% in FY06 as compared to 7.11% recorded in the previous year.
Chart 04: Yields and spreads
Current Accounts
16%
Savings Accounts
21%
Term Deposits
61%
Certificates of Deposits
2%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
2003 2004 2005 2006
Interest Income/Average Interest Earning Assets
Interest Expense/Average Interest Bearing Liabilities
Net Spread
M+, ! +a||a :ectc| kec|t |)
The fee and commission income has been in the range of 6%-7% of net operating
income in the last couple of years but we expect it to improve in the medium term as
the bank increase the thrust of fee-based activities. Total non-interest as proportion
of total operating income reached 31.3% in FY06 as compared to 24% recorded in
the previous year. The bank made a substantial profit of RO1.38mn in FY06 on sale
of investments.
The Capital Adequacy Ratio of NBO the end of FY06 was 22.93% in FY06 as
compared to 25.86% recorded in the previous year. As the AGM approved the
dividend payout of RO26mn, the revised ratio now is 21.29%.
NBO distributed the 17.5% cash dividend to the shareholders and a stock dividend of
15.0% for FY06.
NBO reported a net profit of RO9.6mn for the first quarter ended March 31, 2007,
achieving a remarkable growth of 73% compared to RO5.5mn recorded in the same
period in 2006.
Net interest income increased by 12.2% to reach RO9.4mn during the first quarter
Fees and commission income rose by 42.5% to reach RO1.2mn during the first
Operating expenses increased by 21.7% to reach RO5.8mn in the first quarter of 2007
compared to RO4.8mn in the same period in 2006.
Total assets grew by 28% to reach RO1.12bn at the end of the first quarter of 2007 as
opposed to RO0.88bn in the same period in 2006.
Gross loans and advances increased by 22% to reach RO845mn at the end of the first
by 31% to reach RO849mn.
Net profit 9.6 5.5 73.1%
Outlook
NBO is a turnaround story as the bank rebounded from the losses it registered in 2003 to
record strong growth in 2004-06 period. The bank had a major problem of NPL which
have been reduced but are still at higher levels compared to its peers. The bank which
tried to manage its loan-book in the past became aggressive in 2006 to grow its loan
portfolio through prudent lending mechanism and we expect the growth in loans to be
strong in the medium term. NBO has shown intent to diversify its income stream and
decrease its reliance on increasing risk assets as an driver for growth.
The banks strategic partnership with Commercial Bank of Qatar provides new avenues
for growth as the two banks can collaborate on serving the customers of both banks and
strong synergies can emanate for share best practices with each other. According to
the management, corporate lending will be the prime driver of growth and the loans to
deposit ratio is expected to be in the 90%-110% range. The banks strategic partnership
with Commercial Bank of Qatar has added additional strength to the bank in getting
mandates.
NBO margin witnessed pressure in 2006 but the management believes it to be the tradeoff
to gain market share. We expect fee income to increase on the back of investment
banking activities, corporate finance, transactional banking, and treasury activities.
Concerning regional operations, the banks strategy regarding Egypts operations is
care and maintain. However, the recoveries from the Egypt operation are high as
the Egyptian economy is improving. The bank is focusing on expanding UAE branch
activity as the economy of UAE is undergoing a strong growth trajectory and the bank
intends to capture growth in economy/banking sector of the country.
Valuation
earnings and 2.46x book value. The estimated fair value for National Bank of Oman
works out to RO6.181 based on the DDM and peer group valuation methods, which
is 14.5% above the market price on April 30, 2007. Hence we initiate our coverage on
NBO with a BUY recommendation.
M+, ! +a||a :ectc| kec|t +1
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++ +a||a :ectc| kec|t M+, !
Fact Sheet
2004 2005 2006 2007 (F) 2008 (F) 2009 (F) 2010 (F)
Profitability
Margins
- Operating profit / revenues 56.8% 92.1% 93.6% 91.5% 84.5% 81.9% 79.9%
- Net Spread 4.48% 4.25% 3.88% 3.95% 4.05% 4.10% 4.20%
Efficiency
Liquidity
Credit Quality
- Non Performing Loans (ROmn) 256.2 103.8 88.8 259.2 260.2 261.2 262.2
- Loan Loss Reserve (RO) 208.2 94.4 84.3 94.2 106.5 120.7 137.0
- NPL Coverage 81.2% 91.0% 95.0% 36.3% 40.9% 46.2% 52.2%
Capital Adequacy
- Net Interest Income(incl Prov.) to Total Op Income 55.9% 76.0% 68.9% 69.6% 67.9% 68.2% 68.4%
- Other Income to Total Op. Income
- Provisions to Total Op. Income
- Change in Net Interest Income -8.8% 14.7% 16.1% 23.2% 26.4% 23.9% 22.0%
- Change in Fees and Commission -6.5% 30.8% 30.6% 20.0% 20.0% 10.0% 10.0%
- Change in Investment Income 25.2% -44.0% 86.2% -12.0% 20.2% 17.6% 18.6%
- Change in Fx Income -6.5% 30.8% 30.6% 20.0% 20.0% 10.0% 10.0%
- Change in Other Income 35.9% 20.0% 99.6% 30.0% 25.0% 15.0% 15.0%
- Shares in Issue 70,000,000 70,000,000 80,000,000 92,000,000 92,000,000 92,000,000 92,000,000
- Basic EPS (RO) 0.075 0.290 0.380 0.437 0.526 0.637 0.768
- P/E 32.31 11.74 14.50 12.35 10.25 8.48 7.02
- P/BV 1.65 1.53 2.59 2.69 2.46 2.27 2.10
M+, ! +a||a :ectc| kec|t +]
Reuters Code:
OIB.OM
Listing:
CMP:
RO2.435
Oman International Bank SAOG
The bank operates with a branch network of 82 branches in Oman. The bank overseas
branch network comprises of two branches in India (Mumbai & Kochi) and two
branches in Pakistan (Karachi & Lahore). In addition, regulatory approvals have been
received for opening a third branch in Pakistan in Gwadhar.
Founding shareholders of the bank Dr Omar Abdulmuniem Al Zawawi has around
10% stake in the bank while the public holds around 61.54% of the total shares. Other
shareholders include well-known establishments such as Zawawi Trading Company
and Waljat International Projects.
The bank hold a 5% stake in Oman Orix Leasing Company.
Recent Developments
In November 2006, OIB was part of the syndicate lead by Mizuho Corporation
Bank for a US$1.089bn term loan facility to Aromatics Oman through a secondary
participation. The loan with a 14 year tenor was provided to set up a manufacturing
unit for paraxylene and Benzene at Sohar. It was priced at LIBOR plus 75 bps with a
step up to 80 bps.
In Sep-06, OIB was part of a consortium to refinance a debt facility for Oman Gas for
pipeline construction which was taken out in 2000. The US$234.5mn refinancing has
a 6.5-year tenor and margins have been reduced to 50 bps from the original pricing
Key Data
CMP (RO)
Market Cap (ROmn)
EPS (RO)**
BVPS (RO)**
P/E*
P/BV*
12M Average Volume
2.435
202.16
0.34
1.65
7.12
1.47
53,899
2.435-3.545
** 07 E
Background
Oman International Bank (OIB) started
operations in 1984 and was the first 100%
Omani owned commercial bank in the
Sultanate of Oman
OIB now is the third largest bank in Oman with
a market share of 13% in terms of banking
sector assets and 15% in terms of banking
sector deposits.
April 30, 2007
Buy
+e +a||a :ectc| kec|t M+, !
which had stepped up in three stages to 115 bps. Gulf International Bank (GIB) was
the book-runner and underwriter on the deal with syndication banks.
In July-06, OIB was part of the syndicate that provided US$120mn loan to Oman
Refinery Company. The loan, which had a two-year tenor, was to be used for working
capital requirements. The deal was the largest in the Kingdom to be underwritten
solely by Omani banks.
In March 2006, OIB was part of the syndicate led by Sumitomo Mutsui Banking
Corporation for US$1.285bn term loan facility to Sohar Aluminium Company. The
loan, with a 14 year tenor, had stepped up margin between LIBOR plus 45 bps to 95
bps and was intended to finance the construction of an Aluminum smelter in Sohar.
Rating Reviews
In April-07, Moodys Investors Service upgraded the bank financial strength rating
to D+ from D. The local currency deposit rating assigned is A3/P-2. The foreign
currency deposit rating is unchanged at A3/P-2. The outlook on all ratings is stable.
In Feb-07, Fitch Ratings affirmed OIB ratings at Issuer Default BBB+ with Stable
Outlook, Short-term F2, Individual C and Support 2. According to Fitch, the
issuer default, short-term and support ratings reflect the high probability of support
for OIB from the Omani authorities, should the need arise. The assessment of support
is based on OIB large retail franchise and the Central Bank of Omans ability and
strong propensity to maintain confidence in a relatively small market. The individual
rating of OIB reflect its market position, consistent profitability, and comfortable
capital and liquidity ratios. The rating also considers the banks loan concentrations,
moderate diversification of revenues and funding and reliance on the small domestic
market.
OIB outperformed our expectations made in our previous report as it reported net
profit of RO26.2mn in FY06 as compared with our estimate of RO24.1mn. Net profit
grew by 19% on a y-o-y basis in FY06 compared to net profit of RO22.02mn reported
in FY05.
M+, ! +a||a :ectc| kec|t +
Other 1%
Oman 71%
Pakistan 2%
India 2%
OEDC
14%
Other GCC
10%
Chart 01: Asset Structure

Source: Bank reports, Global Research.
OIBs balance sheet size grew at a CAGR of 12.2% during the last three years as
asset size increased from RO651.4mn in FY03 to reach RO919.5mn in FY06.
Chart 02: Geographical distribution of Assets-FY06
OIBs gross loans and advances grew at a CAGR of 9.3% as it reached RO592.7mn
in FY06 as compared to RO454.3mn recorded in FY03. The gross loans and advances
registered a marginal yearly growth of 1.3% in FY06. The provisioning for FY06
reached RO75.8mn as compared to RO72.8mn recorded in the previous year.
1,000.0
800.0
600.0
400.0
200.0
-
2005 2006
Retail Corporate Treasury & Investments Common
54.3
256.3
264.8
245.5
61.4
341.1
288.5
228.5
R
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+~ +a||a :ectc| kec|t M+, !
Table 01: Composition of Loans and Advances
2003 2004 2005 2006
Overdrafts 15.7% 12.3% 10.9% 12.4%
Loans 83.7% 87.3% 88.6% 87.2%
Bills Discounted/Purchased 0.6% 0.5% 0.5% 0.4%
Loans accounted for 87.2% of the total loans and advances in FY06 (FY05: 88.6%).
As loans and advances grew at a lower CAGR from FY03-06 period, its proportion
as a percent of total assets was reduced to 64.5% in FY06 as compared to 69.7%
recorded in FY03. Gross loans to customer deposit ratio of the bank declined from
96.1% in FY03 to 86.6% in FY06.
Table 02: Loans - Economic Sector Concentration
2003 2004 2005 2006
Personal & Consumer 41.5% 42.4% 42.7% 40.2%
Import Trade 6.6% 10.7% 6.1% 4.6%
construction 5.6% 6.4% 4.8% 5.3%
Manufacturing 8.5% 6.7% 10.9% 11.9%
Export Trade 1.4% 1.2% 1.0% 1.1%
Electricity, Gas, Water, Transportation & Communication 3.2% 6.7% 7.6% 6.4%
Services 7.7% 6.0% 4.7% 4.0%
Mining & Quarrying 6.7% 6.6% 8.6% 15.0%
Others 11.8% 2.6% 2.7% 2.1%
Among the loans and advances of OIB, 40.2% of total loan book in FY06 was
attributed to the personal and consumer sector, followed by the manufacturing sector
which accounted for 11.9% of the total loans in FY06.
The banks non-performing loans amounted to RO75.1mn in FY06, up from RO73.7mn
recorded in the previous year. Although the NPL ratio increased slightly to 12.7%
in FY06, as compared to 12.6% recorded in the previous year, the bank has reduced
NPL ratio significantly from 20.2% reported in 2002. The banks coverage ratio too
has seen improvement from 83.6% in FY03 to 100% in FY06.
M+, ! +a||a :ectc| kec|t +)
Current 21%
Others 7%
Time Deposits
32%
Savings 40%

to RO684.8mn in FY06, registering a CAGR of 13.2%. Deposit base as a percentage
of total balance sheet decreased from 80% in FY05 to 74.6% in FY06 as deposits
grew by a meager 3.9% in FY06. According to the management, the slow growth
witnessed in FY06 was due to the fact that OIB didnt want to be aggressive on
personal lending which was the main driver of the sectors loan growth in FY06.

Chart 04: Break-up of deposits-FY06

The bank undertook a syndicated borrowing of US$150mn (RO57.75mn) in 2006,
which significantly increased due to banks and financial institutions, from RO34.3mn
in FY05 to RO97.4mn in FY06.
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
2002 2003 2004 2005 2006
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
NPLs Gross Loans NPL Coverage
N
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RO13.2mn in FY03 to reach RO26.2mn in FY06. The bank recorded a yearly growth
of 19% in net profit for FY06, which increased on the back of 6.6% yearly growth
in the net interest income coupled with strong growth in the dividend income which
amounted to RO1.5mn in FY06 as compared to only RO0.71mn reported in the
previous year. However, this sudden spurt in the dividend income in FY06 was a
one-off transaction and we expect to see dividend return to the normal levels seen
in the medium term. The banks earnings per share increased to RO0.347 in FY06
as compared to RO0.292 recorded in the previous year. Return on average equity
increased from 12.8% in FY03 to 21.9% in FY06.
Chart 05: Interest Rate Movement

The bank spread registered a decline as they reached 3.9% in FY06 as compared to
4.2% recorded in the previous year. The bank has seen the yield of interest earning
liabilities increase from 1.96% in FY05 to 2.42% in FY06 as the bank went for a
syndicated loan and increased its thrust towards garnering time deposits. But its yield
on interest earning assets grew at a lower rate from 6.23% in 205 to 6.41% in FY06
resulting in the squeeze in the spreads. We expect that the spread will stabilize in the
next couple of years.
The bank has been able to reduce cost as a percent of operating income from 41.4%
recorded in FY05 to 37.3% in FY06. We believe that this trend is likely to continue
in the medium term as the bank adopts more cost cutting initiatives.
8.0%
6.0%
4.0%
2.0%
0.0%
40.0%
30.0%
20.0%
10.0%
0.0%
2006 2005 2004 2003 2002
Interest Expense / Interest Income Interest Income / Average Interest Earning Assets
Interest Expense / Average Interest Bearing Liabilities
M+, ! +a||a :ectc| kec|t ]1
Chart 06: Operational Efficiency

The Capital Adequacy Ratio of OIB the end of 2006 was 22.05% as compared to
21.1% recorded in the previous year.
OIB distributed 21% cash dividend and 10% stock dividend to its shareholders and
its paid-up capital increased to RO83.02mn.
Oman International Bank reported a net profit of RO5.2mn for the first quarter ended
March 31, 2007, decreasing by 21% from RO6.6mn recorded in the same period
in 2006. The decrease was mainly on account of dividend income recorded in the
previous year.
Net interest income declined by 4.2% to reach RO8.1mn during the first quarter
of 2007 as opposed to the same period in 2006. Interest income increased by 18%
Interest expense to interest income ratio increased to 43% compared to 30% in the
same period in 2006.
Other operating income declined by 37.7% to reach RO2.2mn during the first quarter
of 2007 compared to RO3.4mn in the same period in 2006.
Operating expenses increased marginally by 0.9% to reach RO4.2mn in the first
Total assets grew by 14% to reach RO945mn at the end of the first quarter of 2007 as
opposed to RO828mn in the same period in 2006.
Gross loans and advances decreased by 3% to reach RO573mn at the end of the first
by 6% to reach RO724mn.
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
3.5%
3.0%
2.5%
2.0
1.5%
1.0%
5.0%
0.0%
2002 2003 2004 2005 2006
Cost to Total Op Income Cost to Average Total Assets
]! +a||a :ectc| kec|t M+, !
Net interest income 8.1 8.5 -4.2%
Other operating income 2.2 3.4 -37.7%
Net profit 5.2 6.6 -21.4%
Outlook
OIB has been innovative in introducing new products and services. The bank is known
as an innovative bank with a long list of firsts to its name, the first bank in the Gulf
region to offer mobile banking service, the first Omani bank to issue a Visa Card, and
it is the only bank at present in Oman which enjoys the advantages of having a fully
automated branch network. As per management, Omans economy is booming and there
is a great potential for banking business with high expenditures being put in the tourism
projects, infrastructure projects, privatization of power companies and oil refineries.
OIB is planning to capitalize on the booming economy by focusing on project financing
which will be one of the core activity going forward.
The bank has implemented a new risk model and we expect that the asset quality of
OIB will improve further in the near term. Though the spreads have deteriorated in the
previous years, we expect spread to stabilize and remain around 4% in the medium term.
The bank has a branch network through which it can improve the low-cost deposits. But
the emergence of new players and entry of the foreign bank will definitely pressurize
bank margins. The bank has an experienced management which has been for a long time
and have helped bank reach the leadership position in Oman.
We believe that the banks branch network will act as a catalyst to cross-sell its products,
especially to the lucrative retail customers. The bank has been investing in off-branch
banking initiative and currently operates around 104 ATMs in the country. The bank has
also done alliances with other financial services sector players such as Muscat Insurance
for marketing its insurance products which will augment its non-interest income.
Valuation
earnings and 1.32x book value. The estimated fair value for Oman International Bank
works out to RO2.811 based on the DDM and peer group valuation methods, which is
15.4% above the market price on April 30, 2007. Hence we reiterate our earlier rating on
the stock and recommend a BUY.
M+, ! +a||a :ectc| kec|t ]|
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(
3
3
,
5
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1
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(
3
6
,
2
6
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)
N
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i
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7
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4
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3
2
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5
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2

3
4
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6
6
6

3
8
,
6
6
4

4
2
,
6
5
7

4
5
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9
3
5

5
1
,
3
0
7

F
e
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s

a
n
d

c
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m
m
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s
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4
,
5
2
3

4
,
6
1
7

4
,
8
3
6

5
,
3
2
0

5
,
8
5
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6
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4
3
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7
,
0
8
0

F
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e
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g
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1
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2
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3

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1
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3
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3
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D
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5
5

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1
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O
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,
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2
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2
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3
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3
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6
0
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3
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4
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3
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G
a
i
n
/
(
l
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s
s
)

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n

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(
3
9
1
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(
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1
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7
1
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-

-

-

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P
r
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v
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f
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l
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6
0
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6
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6
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(
2
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(
2
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3
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2
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7
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6
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5
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4
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8
8
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4
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3
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3
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5
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3
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5
6
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T
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O
p
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I
n
c
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e

3
2
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6
7
2

4
2
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4
7
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1
8
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5
1
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5
4
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5
5
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5
9
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5
9
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5
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6
5
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7
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S
t
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1
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7
8
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(
1
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m
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1
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9
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8
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C
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S
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3
3
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1
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5
5
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5
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D
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-

(
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0
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(
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2
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(
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6
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6
0
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(
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6
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O
c
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c
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(
1
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3
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O
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D
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3
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N
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N
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O
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E
x
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7
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3
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7
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P
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T
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1
5
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3
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2
4
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3
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2
9
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3
2
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3
5
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4
0
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4
4
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1
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I
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c
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T
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x
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8
6
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2
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(
3
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3
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3
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(
4
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3
0
8
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4
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8
2
2
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(
5
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3
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N
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P
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f
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1
3
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3
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2
2
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2
6
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2
8
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4
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3
1
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3
5
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3
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3
9
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P
&
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A
p
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A
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c
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O
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B
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R
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E
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1
8
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9
4
7

1
8
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2
7
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2
3
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8
7
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2
8
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8
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4
4
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6
1
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9
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2

A
d
j
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m
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(
6
3
6
)

-

-

-

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-

N
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P
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f
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f
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1
3
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2
2
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2
6
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2
8
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3
1
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3
5
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3
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3
9
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T
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L
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R
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-

(
2
,
6
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5
)

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S
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d
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(
1
2
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(
7
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E
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(
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D
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R
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(
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(
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4
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(
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5
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6
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7
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C
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B
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R
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2
3
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2
8
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8
8
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4
4
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6
1
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9
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8
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C
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F
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B
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0
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(
F
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2
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(
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(
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O
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A
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1
6
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2
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2
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3
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3
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4
4
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P
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4
4
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D
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c
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&

A
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1
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1
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1
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1
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P
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f
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3
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)

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2
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3
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I
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(
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6
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3
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6
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(
2
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-

-

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U
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(
g
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3
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9

-

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F
a
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v
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g
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3
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1
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1
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-

-

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E
f
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3
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(
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P
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D
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I
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2
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5
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8
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I
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T
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D
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R
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5
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W
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C
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3
4
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6
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]e +a||a :ectc| kec|t M+, !
Fact Sheet
Oman International Bank
2004 2005 2006 2007(F) 2008(F) 2009(F) 2010(F)
Profitability
Margins
- Net profit / revenues 37.8% 48.7% 49.9% 44.9% 50.7% 50.5% 50.7%
- Net Spread 4.13% 4.27% 3.99% 4.00% 4.05% 4.00% 4.15%
Efficiency
Liquidity
Credit Quality
- Non Performing Loans (RO mn) 75.5 73.7 75.1 64.0 62.2 61.0 64.0
- Loan Loss Reserve (RO mn) 68.8 73.7 75.1 78.1 80.9 83.8 86.8
- NPL Coverage 91.2% 100.0% 100.0% 122.0% 130.0% 137.4% 135.6%
Capital Adequacy
- Change in Interest Income 2.6% 27.8% 16.2% 20.4% 12.1% 12.2% 10.1%
- Change in Fees and Commission 13.6% 2.1% 6.9% 10.0% 10.0% 10.0% 10.0%
- Change in Fx Income 4.1% -3.5% 1.6% 5.3% 5.3% 5.3% 5.3%
- Change in Other Income 16.4% -10.4% -1.7% 10.0% 10.0% 10.0% 10.0%
- Shares in Issue (000) 62,897 62,897 75,476 83,024 83,024 83,024 83,024
- EPS (RO) 0.213 0.350 0.347 0.342 0.381 0.426 0.471
- P/E 16.79 9.67 9.75 7.12 6.40 5.72 5.17
- P/BV 2.15 1.86 2.04 1.47 1.32 1.18 1.05
Reuters Code:
BDOF.OM
Listing:
CMP:
RO0.403
Bank Dhofar SAOG
In 1998, BDOF floated 40% of its capital on the Muscat Securities Market.
With the merger of Majan International Bank with Bank Dhofar on March 31 2003,
there has been a significant increase in the size of Bank Dhofar operations. Bank
Dhofar currently operates with a branch network of 48 branches and 84 ATMs. The
bank had 636 employees at the end of 2006.
Table 01 : Major Shareholders
(as on Dec-2006) Holding
Dhofar International Development & Investment Co. 30.06%
Civil Services Pension Fund 10.00%
Ministry of Defense Pension Fund 8.57%
Public Authority for Social Insurance 8.15%
Qais Omani Establishment LLC 6.46%
Malatan Trading & Contracting LLC 6.39%
Source: Zawya.
The bank hold 16.36% stake in Oman Foods International.
Key Data
CMP (RO)
Market Cap (ROmn)
EPS (Baisas)**
BVPS (RO)**
P/E*
P/BV*
12M Average Volume
0.403
213.9
49.4
0.214
8.15
1.88
199,140
0.257-0.422
** 07 E
Background
Bank Dhofar (BDOF), an Omani commercial
bank, was established in 1990 after the
acquisition of the branches of French bank
Banque Paribas.
BDOF now is the fourth largest bank in
Oman with a market share of 10% in terms
of banking sector assets and 11% in terms of
banking sector deposits.
April 30, 2007
Buy
]~ +a||a :ectc| kec|t M+, !
Recent Developments
In Apr-07, the bank introduced its new and enhanced Property loan scheme. The
scheme caters to those looking to renovate and refurbish their existing homes or
transfer their housing loan from other banks. In addition to buying, building or
renovating a house, consumers can take a loan for more than one property, buy land
for a residence and invest in a residential project. Additionally, if the customer wants
to purchase land for residential purpose and construct it can also be financed. Besides,
the bank offers property loan applicants the opportunity of getting an amount of up
to 80 times their salary sanctioned for a maximum period of 25 years. The bank will
also provide refinancing options to customers with existing property loans from other
banks.
In Feb-07, BDOF unveiled Omans first-ever Visa chip credit card with enhanced
security. The technologically advanced full-option Visa chip card is the latest in
banking security technologies and offers multiple benefits to customers.
In Oct-06, the Central Bank of Oman approved the request from Bank Dhofar, Bank
Muscat and Oman Arab Bank to convert their debt in National Rice Mills to equity.
With the restructuring, banks will now own a majority shareholding in the equity
of National Rice Mills. Following the approval, Bank Dhofar now owns 16.4% of
National Rice Mills.
In Mar-06, BDOF signed a US$100mn medium-term syndicated loan agreement with
a consortium of international banks.
Rating Reviews
In Dec-06, Fitch Ratings affirmed BDOF ratings at Issuer Default BBB+ with
Stable Outlook, Short-term F2, Individual C and Support 2. According to Fitch,
the Issuer Default, Short-term and Support ratings reflects the high probability of
support from the Omani authorities, should the need arise. Fitch considered that
support would be forthcoming based on BDOF franchise and a history of support
being provided by the Central Bank of Oman. The individual rating reflects the banks
growing franchise, consistent profitability and conservative approach to business.
BDOF outperformed our expectations made in our previous report as it reported net
profit of RO20.1mn in FY06 as compared with our estimate of RO16.0mn. However,
the net interest income was below our estimates of RO27.1mn as it reached RO26.2m
in FY06. The banks assets at the end of FY06 reached RO694.8mn as compared to
our estimates of RO721.7mn.
BDOF assets grew by CAGR of 13.6% in the last three years as the assets at the
end of FY06 reached RO694.8mn as compared to RO474.1mn recorded in FY03.
The assets reported an yearly growth of 12.4% in FY06 as compared to the previous
year.
M+, ! +a||a :ectc| kec|t ])
Chart 01: Assets Break-up by Segment-FY06
Source: Bank Reports ,Global Research.
BDOFs gross loans and advances grew at a CAGR of 13.7% as it reached RO594.7mn
in FY06 as compared to RO404.8mn recorded in FY03. The gross loans and advances
registered an yearly growth of 15.4% in FY06. The provisioning for FY06 reached
RO45.9mn as compared to RO44.4mn recorded in the previous year.
Table 02 : Assets Composition
2003 2004 2005 2006
Cash & balances with CBO 2.9% 6.9% 13.6% 12.2%
Treasury Bills 6.9% 9.2% 0.0% 0.0%
Placements with banks 4.3% 3.4% 4.2% 4.2%
Loans and advances (Net) 77.5% 73.7% 76.2% 79.0%
Other assets 1.7% 0.7% 0.8% 0.6%
Trading investments 1.2% 3.4% 2.2% 1.3%
Non trading investments 3.6% 1.2% 1.8% 1.6%
Tangible net fixed assets 0.7% 0.6% 0.6% 0.6%
Intangible assets 1.1% 0.8% 0.6% 0.6%
Loans and advances (net) constituted 79.0% of the total assets in FY06 , up from
73.7% recorded in 2004 as the bank went aggressive in increasing its market share on
the lending side. The bank has improved on its cash as a percent of total assets as it
reached 12.2% in FY06 as the bank tried to maintain its liquidity profile.
Retail Banking
31%
Corporate Banking
49%
Treasury &
Investments
15%
Unallocated
5%
Table 03: Loans & Advances Composition
2003 2004 2005 2006
Overdrafts 12.6% 12.3% 12.2% 12.7%
Loans 80.6% 80.7% 80.4% 79.2%
Loans against trust receipts 4.5% 3.7% 4.4% 5.6%
Advance against Credit Cards 1.0% 0.9% 0.8% 0.7%
Others 0.7% 1.3% 1.4% 1.6%
Majority of the loans and advances are loans which accounted for 79.2% of the total
loans outstanding in FY06 (FY05: 80.4%). Gross loans to customer deposit ratio of
the bank has been above 100% in last four years. Among the loans and advances of
BDOF, 38.6% of total loan book in FY06 was attributed to the personal and consumer
sector, followed by the international trade sector which accounted for 11.3% of the
total loans in FY06.
The banks non-performing loans amounted to RO41.6mn in FY06, up from RO39.6mn
recorded in the previous year. NPL ratio is steadily declining as it went down to reach
7.3% in FY06 as compared to 8.7% recorded in FY03. The banks coverage ratio
too has remained above 100% in the period FY03-06. Out of the total provisions of
RO45.9mn in FY06, general provision amounted to RO7.5mn (16% of the total).
The reversal from provisions for impaired assets in FY06 amounted to RO3.5mn as
compared to RO2.1 recovered in FY05.
to reach RO497.1mn in FY06, registering a CAGR of 12.6%. Deposit base as a
percentage of total balance sheet decreased from 76.4% in 2004 to reach 71.6% in
FY06. Time Deposits constitute the major chunk of deposits as it accounted for 57.5%
of the total deposits in FY06. (FY05: 58.2%) According to the bank, current and time
deposits include deposits from the government amounting to RO108.8mn in FY06
Chart 02: Deposits Break-up

100%
75%
50%
25%
0%
2003 2004 2005 2006
Current Accounts Savings Accounts Time Deposits
CDs Margin Accounts
M+, ! +a||a :ectc| kec|t e1
In FY06, the bank entered into a medium term syndicate loan agreement for
US$100mn with three-year maturity. The bank also has subordinate bonds amounting
to RO7.36mn given to the shareholders of Majan International Bank, which will
mature in 2008.
The shareholders equity of the bank reached 93.3mn in FY06 as compared to
RO79.4mn recorded in the previous year. Transfers included RO2.01mn to the legal
reserves (10% of net profit), RO1.47mn to the subordinated bond reserves (20% of
the net profit) and RO2.81mn to the retained earnings.
RO10.2mn in FY03 to reach RO20.1mn in FY06. The bank recorded a strong yearly
growth of 41.8% in net profit for FY06. EPS increased from RO0.034 in FY05 to
reach RO0.045 in FY06. The banks return on average assets improved to 3.07% in
FY06 as compared to 2.43% recorded in the previous year.
The net interest income of the bank reached RO26.24mn in FY06, up 7.6% as
compared to RO24.4mn recorded in the previous year. Spreads registered a marginal
decline as they went down from 4.81% registered in FY05 to reach 4.78% in FY06.
The net interest margin of the bank too declined to reach 4.5% in FY06 as compared
to 4.61% recorded in the previous year.
The share of non-interest income to the total operating income increased in FY06
to reach 24.4% in FY06 as compared to 19.1% recorded in FY05. The bank made
significant investment income in FY06 as it amounted to RO3.5mn in FY06 as
compared to RO1.3mn registered in FY05.
The bank has been able to reduce cost as a percent of operating income from 44.9%
recorded in FY05 to 38.3% in FY06. The net operating expenses registered a modest
yearly growth of 3.4% in FY06 as it amounted to RO13.6mn. Staff expenses which
constituted 54.9% of the total operating expenses in FY06, registered y-o-y growth of
25%
20%
15%
10%
5%
0%
4%
3%
2%
1%
0%
2002 2003 2004 2005 2006
Return on Average Assets Return on Average Equity
R
O
A
E
R
O
A
A
e! +a||a :ectc| kec|t M+, !
9.4% as it reached RO7.4mn in FY06. However, with the entry of newer players we
expect staff expenses to rise in the medium term as the bank tries to retain its staff.
Chart 04: Efficiency Ratios

The Capital Adequacy Ratio of BDOF the end of FY06 was 16.4% in FY06 as
compared to 15.3% recorded in the previous year.
BDOF distributed 15% cash dividend and 15% stock dividend to its shareholders for
FY06.
Bank Dhofar reported a net profit of RO4.1mn for the first quarter ended March 31,
2007, achieving a remarkable growth of 10.6% compared to RO3.7mn recorded in
Net interest income increased by 5.9% to reach RO6.8mn during the first quarter of
2007 as opposed to the same period in 2006. Interest income increased by 15.7%
Fees and commission income rose by 47% to reach RO0.6mn during the first quarter
of 2007 compared to RO0.4mn in the same period in 2006.
Operating expenses increased by 9.9% to reach RO3.9mn in the first quarter of 2007
compared to RO3.5mn in the same period in 2006.
Total assets grew by 20.3% to reach RO751mn at the end of the first quarter of 2007
as opposed to RO624mn in the same period in 2006.
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
3.0%
2.0%
2.0%
1.5%
1.0%
0.5%
0.0%
2002 2003 2004 2005 2006
Cost to Total Income Cost to Average Total Assets
M+, ! +a||a :ectc| kec|t e|
Gross loans and advances increased by 17.2% to reach RO608mn at the end of the
first quarter of 2007 as opposed to the same period in 2006, while customer deposits
grew by 23.5% to reach RO555mn.
Net profit 4.1 3.7 10.6%

Outlook
Bank Dhofar is actively looking to expand its base in the lucrative retail banking
segment as in FY06 it restructured its consumer banking division to meet the upcoming
competition. The bank is focusing on expansion along with diversification of distribution
channels. The bank intends to have more aggressive targets and intend to come out
with innovative, value-added products and services for both retail as well as institutional
clients.
To cater to the strong non-resident Indian community, and enhance the marketing
and distribution of its products, the bank signed a Co-operation and Distribution
Agreement with ICICI Bank, which is the second largest bank in India. The bank is
planning to capitalize on the growth opportunities offered within Omans prosperous
economy through actively participating in the finance of various projects. The bank has,
in the past, participated in big-ticket projects such as Sohar Refinery, Oman Gas, Salalah
Port and Sohar Aluminum. Management has also indicated that it intends to increase its
presence in the buoyant real estate market.
We expect an increase in operating expenses going forward since more departments will
be expanded such as marketing and investment departments. Also the bank is planning
to increase its branch network to reach 51 branches by the end of 2007. The bank is also
planning to increase its ATM network from current 20 ATMs to reach 30 by the end of
2007. The bank is focusing on getting the low-cost saving deposits to help stabilize the
spreads and margins. Bank Dhofar (like other banks) has completed Basel 2 compliance
migration in 2007 as mandated by the Central Bank of Oman.
Valuation
earnings and 1.57x book value. The estimated fair value for Bank Dhofar works out to
RO0.500 based on the DDM and peer group valuation methods, which is 24% above the
market price on April 30, 2007. Hence we reiterate our earlier rating on the stock and
recommend a BUY.
e+ +a||a :ectc| kec|t M+, !
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M+, ! +a||a :ectc| kec|t e
Fact Sheet
Bank Dhofar
2004 2005 2006 2007(F) 2008(F) 2009(F) 2010(F)
Profitability
Margins
- Net Spread 4.94% 4.81% 4.78% 4.77% 4.79% 4.76% 4.74%
Efficiency
Liquidity
- Loans to Interest Earning Assets 82.6% 91.1% 92.3% 90.6% 91.0% 91.3% -18.7%
Credit Quality
- Provisions to Total Op Income 13.4% 2.3% -1.9% -2.5% -2.2% -2.1% -1.9%
- Provisions to Average loans 0.6% 0.1% -0.2% -0.2% -0.1% -0.1% -0.3%
- Non Performing Loans (RO) 37,229 39,575 41,623 44,604 50,527 59,622 70,354
- Loan Loss Reserve (RO) 42,565 44,364 45,897 48,675 51,593 54,656 57,872
- NPL Coverage 114.3% 112.1% 110.3% 109.1% 102.1% 91.7% 82.3%
Capital Adequacy
- Change in Interest Income 8.5% 15.7% 21.7% 19.5% 19.9% 20.9% 17.7%
- Change in Fees and Commission 26.0% 20.3% -1.8% 25.0% 25.0% 20.0% 20.0%
- Change in Investment Income -11.4% -16.7% 182.7% 11.3% -8.3% -26.7% 10.0%
- Change in Fx Income 14.1% 22.8% 32.9% 20.0% 10.0% 10.0% 10.0%
- Change in Other Income -6.3% 12.4% 41.5% 20.0% 15.0% 12.0% 10.0%
- Shares in Issue 41,962 41,962 461,582 530,819 530,819 530,819 530,819
- EPS (RO) 0.264 0.338 0.044 0.049 0.061 0.072 0.088
- P/E 14.20 10.64 9.88 8.15 6.61 5.58 4.60
- P/BV 2.32 1.90 2.13 1.88 1.57 1.33 1.12
e~ +a||a :ectc| kec|t M+, !
Reuters Code:
AHBK.OM
Listing:
CMP:
RO0.280
Alliance Housing Bank SAOG
Though AHB is a small sized bank, with a market share of 2% of the total assets
of commercial banks in Oman in 2006, it is a leader in its field by virtue of its long
expertise in the housing finance market. The bank was also the first bank to extend
mortgage services to expatriate population in Oman.
The bank has been taking new initiatives to reinforce its position in the housing
finance market. These initiatives include forming a direct sales unit, providing
residential project financing, tying-up with property developers and setting-up new
delivery channels. Throughout the years, the focus of AHB business has been to
provide the best customer service in Oman which according to management would
still remain the core focus of the banks business model going forward.
In December 2006, AHB received the CBO in principle approval to operate as a
commercial bank. The bank has conducted a study through an external consultant,
and the board will take a decision shortly on whether to convert or expand the existing
business model.
Management Change
In February 2007, AHB appointed a new CEO, Mr. Abdul Aziz Mohammed Al
Balushi, former deputy CEO of National Bank of Oman (NBO).
Key Data
CMP (RO)
Market Cap (ROmn)
EPS (Baisas)**
BVPS (RO)**
P/E*
P/BV*
12M Average Volume
0.280
58.80
18.9
0.143
14.7
1.96
476,362
0.202 - 0.293
** 07 E
Background
Alliance Housing Bank (AHB) was
incorporated in 1997. The bank is considered
to be GCCs first private sector housing
bank and was formed to create a niche as a
specialized housing bank. AHB operates
through a network of 7 branches and 2 service
centers throughout Oman and is expected to
open 3 more branches and another service
center in 2007.
April 30, 2007
HOLD
M+, ! +a||a :ectc| kec|t e)
Recent Developments
In May-07, the bank announced that it has received an offer from Bank Muscat for
a possible merger between the two banks. The offer price was RO0.375 per share.
On May 10, 2007 the bank rejected Bank Muscats proposal and announced that it
is currently evaluating its strategic options and offers and will not accept the merger
offer.
In Sep-06, The bank signed up an agreement with The Wave- one of Omans
flagship freehold tourist projects-to provide mortgage loans to locals as well as
expatriates buying residential units in the project. Under the terms of the agreement,
locals can receive a mortgage of up to 90% over a maximum period of 25 years, while
GCC nationals can finance up to 70% over the same period. Expatriates can apply for
a mortgage of up to 60% over 15 years.
AHB recently launched a new initiative, the mobile branch initiative where a team
of mortgage sales advisers will be touring the country, offering home loans with spot
approval.
AHB also launched recently The Twin Offer package which guarantees a housing
loan fixed rate for three years plus a personal loan.
Rating Reviews
In April-07, Moodys upgraded the bank financial strength rating to D from D-. The
local currency deposit rating is unchanged at Baa1/P-2. The foreign currency deposit
rating is unchanged at Baa1/P-2. The outlook on all ratings is stable.
AHB did not experience a good year in 2006. During the year, the CBO allowed
commercial banks to allocate 5% of their total loan portfolio to housing loans, a must
cease opportunity in a heated real estate market. Accordingly, commercial banks
such as National Bank of Oman and Bank Muscat started to increase their exposure to
the real estate sector, which increased competition for AHB and limited the growth in
its loan book. On the back of intense competition and squeezed spreads and margins,
net profit for FY06 dropped by 11% to reach RO3.9mn compared to RO4.4mn in
FY05, against our estimate of RO4.5mn projected in our latest update on the bank.
AHBs loan book grew by a mere 13% on y-o-y basis to reach RO152.4mn in FY06,
compared to a growth rate of 30% in FY05. Total assets grew by 13% y-o-y to reach
RO175mn in FY06, with net loans and advances forming 87% of total assets.
+a||a :ectc| kec|t M+, !
Chart 01: Trend in loans

Unlike the modest growth in AHBs loan book, customer deposits witnessed a
remarkable growth, increasing by 75% on a y-o-y basis to reach RO76.2mn. Time
deposits constituted 91% of total deposits and grew by 95% on a y-o-y basis while
saving deposits formed the remaining 9% and decreased by 3% on a y-o-y basis. Due
to the limitations on the growth of mortgage loans, the bank has been parking excess
funds in banks placements which have increased by RO9.2mn in FY06.
Chart 02: Trend in deposits

Interest income increased by 14.2% to reach RO12.6mn in FY06 compared to
RO11mn in FY05 compared to a growth rate of 33.4% in FY05. Interest income to
interest bearing assets ratio have decreased from 7.9% in FY05 to 7.6% in FY06.
On the other hand, since most of AHBs deposits are time deposits, rising cost of
funds led to the increase in interest expense to interest bearing liabilities ratio which
rose from 3.6% in FY05 to 4.6% in FY06. Accordingly, spreads and margins were
squeezed in FY06. Spreads declined to 3.0% as opposed to 4.3% in FY05, while
net interest margin declined from 5.9% in FY05 to 4.4% in FY06. Interest expense
to interest income ratio jumped to 47.7% from 34.9% in FY05. Net interest income
declined by 8% to reach RO6.6mn compared to RO7.2mn in FY05.
160
140
120
100
80
60
40
20
0
60%
50%
40%
30%
20%
10%
0%
2003 2004 2005 2006
Growth Loans
R
O

m
n
100
80
60
40
20
0
100%
80%
60%
40%
20%
0%
2003 2004 2005 2006
Deposits Growth
R
O

m
n
Chart 03: Net interest margin and spreads.
Fee income increased marginally by 1.8% on a y-o-y basis to reach RO0.5mn. On
the other hand, other operating expenses increased significantly by 167.7% as on the
back of increased marketing expenses, the implementation of a new loan approval
system, and fees for the consultants that the bank appointed to study the feasibility of
converting to a commercial bank.
Loan loss provision witnessed a 50% decline to reach RO0.565mn in FY06 compared
to RO1.13mn in FY05. The decline in provisions was attributed to the higher base in
FY05 on the back of additional provisions undertaken in FY05 to fulfill the CBOs
general provision requirement of 1% of performing corporate loans and 2% of all
performing retail loans. This requirement had to be met by December 2006, however
the bank has satisfied the requirement in FY05. On the other hand recoveries increased
significantly to reach RO0.5mn compared to RO0.17mn in FY05.
NPL to gross loans ratio increased to 0.94% from 0.87% in FY05. In absolute terms,
NPLs increased from RO1.2mn in FY05 to RO1.4mn in FY06. NPL coverage ratio
stood at 140% compared to 165% in FY05.
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2003 2004 2005 2006
NIM Spread
2,500,000
2,000,000
1,500,000
1,000,000
500,000
-
200%
150%
100%
50%
0%
2003 2004 2005 2006
Non Performing Loans Loan Loss Reserve NPL Coverage
R
O
Intense competition has affected the banks profitability in 2006. Return on average
equity declined from 14.5% in 2005 to 12.3% in 2006. Correspondingly, return on
average assets declined from 3.2% in 2005 to 2.4% in 2006.
The bank has proposed a cash dividend of 12 Baisas per share for FY06, totaling
RO2.52mn with a payout ratio of 64.4% as opposed to a payout ratio of 95% for
FY05 on account of a one-time special dividend that was distributed for the year
2005.
Alliance Housing Bank reported a net profit of RO1.02mn for the first quarter ended
March 31, 2007, declining by 17% compared to RO1.24mn recorded in the same
period in 2006.
Net interest income decreased by 25% to reach RO1.39mn during the first quarter
Total assets grew by 3% to reach RO169.0mn at the end of the first quarter of 2007
as opposed to RO163.6mn in the same period in 2006.
Gross loans and advances increased by 15% to reach RO157.9mn at the end of the
first quarter of 2007 as opposed to the same period in 2006, while customer deposits
grew by 13% to reach RO66.4mn.
16.0%
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
2003 2004 2005 2006
ROAE ROAA
Net interest income 1.39 1.86 -25.3%
Other income 0.39 0.03 1115.6%
Provision for loan loss (0.01) (0.03) 46.2%
Net profit 1.03 1.24 -17.1%

Outlook
The recent regulatory change which has allowed other commercial banks to extend 5% of
their total loan portfolio as housing loans has encouraged many commercial banks to join
the mortgage finance market and take advantage of the booming real estate market which
resulted in less growth potential for AHB. Responding to that development, AHB has
decided to increase the scope of its activities and examine the possibility of converting
into a full fledged commercial bank.
Accordingly, the bank will have to increase it capital base to comply with the CBO
minimum capital requirement for commercial banks either through rights issue or seeking
a new partner. We believe that the commercial license can make the bank an attractive
takeover candidate for a regional partner who wants to enter Oman since the bank might
seek a strategic partner as a mean to increase its capital base.
According to management, if the bank decides to convert into a commercial bank,
housing finance would remain the main focus of AHB activities during the early phases
of transition. However, full transition would take a few years. According to management,
AHB expects to be giving a grace period from the CBO in order to comply with the
regulation concerning the allocation of loan portfolio. As per CBO regulations, not more
than 40% of a commercial banks loan portfolio should be allocated to personal loans,
while the cap for housing loans is 5%, and the remaining 55% is for corporate loans.
Going forward, the focus of AHBs business model would be to provide full service
retail banking operations. According to management, AHB has been recognized for
its customer focused approach which would be the main edge of the bank over its
competitors. Over the years, initiatives undertaken by AHB such as direct sales team,
mobile branch, call center, service centers, and the fast processing of loan applications
have reinforced that position.
Accordingly, operating expenses are expected to increase in line with the banks strategy
of providing high quality customer service. Staff expenses are also expected to increase,
as the bank is expected to increase its salaries to retain its employees in view of rising
competition from new players joining the banking scene and providing higher packages
to attract experienced employees. On the other hand, fee based income is expected to
increase as the bank will start charging service fees.
Valuation
earnings and 1.93x book value. The estimated fair value for AHB works out to RO0.301
based on the DDM and peer group valuation methods, which is 7.6% above the market
price on April 30, 2007. Hence we reiterate our earlier rating on the stock and recommend
a HOLD.
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~ +a||a :ectc| kec|t M+, !
Fact Sheet
2004 2005 2006 2007(F) 2008(F) 2009(F) 2010(F)
Profitability
- Fee Income/ Total Op. Income 7.0% 6.2% 6.7% 7.7% 8.2% 9.0% 9.6%
- Dividend Payout ratio 47.2% 95.1% 64.4% 80.0% 87.5% 92.5% 95.0%
Margins
- Operating profit / revenues 48.7% 45.9% 35.4% 33.9% 32.9% 32.2% 33.2%
- Interest Expense to Interest Income 27.4% 34.9% 47.7% 48.4% 48.2% 48.8% 48.8%
- Interest Income to Interest Earning Assets 7.76% 7.86% 7.65% 7.28% 7.49% 7.59% 7.78%
- Interest Expense to Interest Bearing Liabilities 2.95% 3.60% 4.61% 4.32% 4.36% 4.41% 4.47%
- Net Spread 4.81% 4.25% 3.04% 2.97% 3.13% 3.18% 3.31%
Efficiency
-Cost to Total Op Income 33% 24% 38% 43% 45% 47% 48%
- Staff Expense to Total Op Income 18% 15% 16% 17% 17% 17% 17%
Liquidity
- Loans to Total Deposits 111.0% 111.8% 108.6% 108.1% 106.9% 105.7% 105.1%
Credit Quality
- Non Performing Loans (RO) 954,053 1,159,440 1,407,647 1,590,641 1,749,705 1,924,676 2,117,143
- Loan Loss Reserve (RO) 957,867 1,911,954 1,968,409 2,066,111 2,272,722 2,604,161 2,979,160
- NPLs to Gross Mortgages 0.9% 0.87% 0.94% 0.9% 0.9% 0.9% 0.9%
- Loan Loss Reserve to Gross Mortgages 0.9% 1.4% 1.3% 1.2% 1.2% 1.3% 1.3%
- NPL Coverage (incl. Interest in suspense) 100.4% 165% 140% 129.9% 129.9% 135.3% 140.7%
Capital Adequacy
- Interest Income to Total Op Income 90.2% 90.6% 87.2% 84.4% 82.3% 79.3% 76.3%
- Fees Income to Total Op. Income 7.0% 6.2% 6.7% 7.7% 8.2% 9.0% 9.6%
- Change in Interest Income 40.9% 19.5% -8.3% 4.7% 14.1% 9.9% 12.3%
- Change in Fee Income 32.6% 6.1% 1.8% 25.0% 25.0% 25.0% 25.0%
- Change in Investment Income -82.0% -100.0% 0.0% 0.0% 0.0% 0.0% 100.0%
- Change in Other Income 4.2% 39.5% 82.5% 40.0% 40.0% 40.0% 40.0%
- Shares in Issue (000) 21,000 21,001 210,000 210,000 210,000 210,000 210,000
- EPS (Baisas) 170 210 18.6 18.97 21.0 22.8 26.4
- P/E 16.81 14.64 15.02 14.76 13.34 12.28 10.61
- P/BV 2.18 2.34 2.02 1.96 1.93 1.91 1.89
This m a teria l wa s prod u ced by Globa l In vestm en t Hou se KSCC ( Globa l) ,a firm regu la ted by the Cen tra l Ba n k of
Ku wa it. This d ocu m en t is n ot to be u sed or con sid ered a s a n offer to sell or a solicita tion of a n offer to bu y a n y
secu ri ti es. Globa l m a y, from ti m e to ti m e,to the ex ten t perm i tted by la w, pa rti ci pa te or i n vest i n other fi n a n ci n g
tra n sa ction s with the issu ers of the secu rities ( secu rities) , perform services for or solicit bu sin ess from su ch issu er,
a n d/or ha ve a position or effect tra n sa ction s in the secu rities or option s thereof. Globa l m a y, to the exten t perm itted
by a pplica ble Ku wa iti la w or other a pplica ble la ws or regu la tion s, effect tra n sa ction s in the secu rities before this
m a teria l is pu blished to recipien ts.
In form a ti on a n d opi n i on s con ta i n ed herei n ha ve been com pi led or a rri ved by Globa l from sou rces beli eved to
be relia ble, bu t Globa l ha s n ot in depen den tly verified the con ten ts of this docu m en t. Accordin gly, n o represen ta tion
or w a r r a n ty, ex pr ess or i m pli ed , i s m a d e a s to a n d n o r eli a n ce shou ld be pla ced on the fa i r n ess, a ccu r a cy,
com pleten ess or correctn ess of the in form a tion a n d opin ion s con ta in ed in this docu m en t. Globa l a ccepts n o lia bility
for a n y loss a ri si n g from the u se of thi s d ocu m en t or i ts con ten ts or otherwi se a ri si n g i n con n ecti on therewi th.
This d ocu m en t is n ot to be relied u pon or u sed in su bstitu tion for the ex ercise of in d epen d en t ju d gem en t. Globa l
sha ll ha ve n o respon si bi li ty or li a bi li ty w ha tsoever i n respect of a n y i n a c cu ra cy i n or om m i ssi on from thi s or
a n y other d ocu m en t pr epa r ed by Globa l for , or sen t by Globa l to a n y per son a n d a n y su ch per son sha ll be
respon sible for con d u ctin g his own in vestiga tion a n d a n a lysis of the in form a tion con ta in ed or referred to in this
d ocu m en t a n d of eva lu a ti n g the m eri ts a n d ri sk s i n volved i n the secu ri ti es form i n g the su bject m a tter of thi s or
other su ch d ocu m en t.
Opin ion s a n d estim a tes con stitu te ou r ju d gm en t a n d a re su bject to cha n ge withou t prior n otice.Pa st perform a n ce
i s n ot i n d i ca ti v e of fu tu re resu lts. Thi s d ocu m en t d oes n ot con sti tu te a n offer or i n v i ta ti on to su bscri be for or
pu rcha se a n y secu ri ti es, a n d n ei ther thi s d ocu m en t n or a n ythi n g con ta i n ed herei n sha ll form the ba si s of a n y
con tra ct or com m i tm en t wha t so ever. It i s bei n g fu rn i shed to you solely for you r i n form a ti on a n d m a y n ot be
reprod u ced or red istribu ted to a n y other person .
Neither this report n or a n y copy hereof m a y be distribu ted in a n y ju risdiction ou tside Ku wa it where its distribu tion
m a y be restri cted by la w. Person s who recei ve thi s report shou ld m a k e them selves a wa re of a n d a d here to a n y
su ch restriction s. By a cceptin g this report you a gree to be bou n d by the foregoin g lim ita tion s.
Company
Bank Muscat SAOG
Oman International Bank
Bank Dhofar SAOG
Alliance Housing Bank SAOG
Recommendation
Buy
Buy
Buy
Buy
Hold
Ticker
BMAO.OM
NBO.OM
OIB.OM
BDOF.OM
AHBK.OM
Price
RO1.164
RO5.396
RO2.435
RO0.403
RO0.280
Disclosure
1,10
1,10
1,10
1,10
1,10
Disclosure Checklist
1. Global Investment House did not receive and will not receive any compensation from the company
or anyone else for the preparation of this report.
2. The company being researched holds more than 5% stake in Global Investment House.
3. Global Investment House makes a market in securities issued by this company.
4. Global Investment House acts as a corporate broker or sponsor to this company.
5. The author of or an individual who assisted in the preparation of this report (or a member of his/her
household) has a direct ownership position in securities issued by this company.
6. An employee of Global Investment House serves on the board of directors of this company.
7. Within the past year , Global Investment House has managed or co-managed a public offering for
this company, for which it received fees.
8. Global Investment House has received compensation from this company for the provision of
investment banking or financial advisory services within the past year.
9. Global Investment House expects to receive or intends to seek compensation for investment banking
services from this company in the next three months.
10. Please see special footnote below for other relevant disclosures.
The following is a comprehensive list of disclosures which may or may not apply to all our researches.
Only the relevant disclosures which apply to this particular research has been mentioned in the table
below under the heading of disclosure.
Global Research: Equity Ratings Definitions
Global Rarting Definition
Buy Fair value of the stock is >10% from the current market price
Hold Fair value of the stock is between +10% and -10% from the current market price
Reduce Fair value of the stock is between -10% and -20% from the current market price
Sell Fair value of the stock is < -20% from the current market price
Global Invest ment House
Tel: ( 965) 2400551, ext 132 - Fax: ( 965) 2400661
research @ global.com.kw
www.globalinv.net
Gl o b a l Research

Oman BankingSector 052007

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