Bank Sohar closes OMR35m subordinated debt issue

Muscat: Bank Sohar on Wednesday said that the bank has closed a OMR35 million subordinated debt issue, which will boost its tier 2 or supplementary capital.
The debt was bought by pension funds, large Omani corporates and individual investors, the bank said in a disclosure statement posted on MSM website. “The raise will significantly improve the bank’s capital position, allowing it to support the local economy more strongly through greater ability to provide finance for deserving projects,” the bank statement said.
The liquidity situation in the financial market is tightening recently and the loan-deposit ratio in the Sultanate is one of the highest in recent years, said Joice Mathew, head of research at the United Securities.
The Central Bank of Oman has asked banks to raise their capital adequacy ratio (tier one and two capital) in a phased manner in 2014 in line with Basel III norms. Accordingly, Omani banks will have to maintain a minimum of 13.25 per cent capital adequacy ratio this year, against 12.5 per cent last year. This will eventually be raised to 14.5 per cent (which include a 2.5 per cent additional capital buffer) by 2018.
Subordinated bonds, which are normally in long-term nature, will help banks to meet its additional capital requirements for enhancing lending.
Meanwhile, Bank Sohar’s net loans and advances grew by 12.64 per cent - from OMR1.58 billion by end-June 2015 to OMR1.78 billion by the end of June 2016, according to the second quarter financial result posted on MSM website. However, the customer deposits declined by 4.83 per cent to reach OMR1.49 billion by end-June, 2016, as compared to OMR1.57 billion for the same period of 2015.
Bank Sohar earlier raised stable overseas syndicated medium term bank borrowings of $250 million to diversify the funding source and to replace high cost time deposits.
The bank’s operating profit increased by 50.46 per cent from OMR6.20 million in the first quarter of 2016 to OMR9.33 million in the second quarter of 2016. Similarly, the operating income increased by 21.96 per cent from OMR14.55 million in first quarter of 2016 to OMR17.74 million.