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DE RUEHMS #0039/01 0201332
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O R 201332Z JAN 10
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC IMMEDIATE 1154
INFO GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

C O N F I D E N T I A L MUSCAT 000039 
 
SIPDIS 
 
E.O. 12958: DECL: 2020/01/20 
TAGS: EFIN ECON PGOV ELAB MU
SUBJECT: SNAPSHOT OF OMAN'S BANKING CLIMATE AND ECONOMY 
 
REF: MUSCAT 34 
 
CLASSIFIED BY: Richard J Schmierer, Ambassador, State, Exec; REASON: 
1.4(D) 
 
¶1. (C) Summary: In an introductory call on the head of HSBC bank 
for Oman, the Ambassador received a candid view of Oman's banking 
circumstances.  HSBC is well-placed in Oman, being the first bank 
in the country - and even served as the de facto central bank 
before the official one was established.  HSBC is the principal 
lender to the government - a service currently unused as Oman has 
substantial reserves on hand.  HSBC judges Oman's financial 
situation to be good due to sound management, infrastructure, and 
leadership.  On the other hand, Oman faces many of the challenges 
of its Gulf neighbors: a demographic youth "bulge" and a high level 
of personal debt.  The Central Bank exacerbates the latter by 
capping the interest rates so low that bad risks and good risks pay 
virtually the same rates.  The imminent start of Oman's first 
credit rating and reporting system may give banks a better ability 
to evaluate potential customers.  End Summary. 
 
 
 
¶2. (C) The Ambassador paid an introductory call on Ewan Stirling, 
CEO of the Oman office of HSBC bank and a well-positioned and 
candid interlocutor on Omani financial trends, on January 18.  The 
Ambassador opened the discussion by complimenting HSBC for its 
sponsorship of socially worthwhile projects and events, most 
recently an exhibition of four prominent Arab artists at Oman's 
oldest private art gallery.  Stirling replied that HSBC is keen to 
support such projects; its prime targets in this respect are the 
environment and education, but also highly values support of the 
arts. 
 
 
 
¶3. (C) Stirling noted that HSBC was the first bank in Oman, in its 
earlier iteration as the Imperial Bank of Persia.  After Sultan 
Qaboos acceded to the throne in 1970, the bank even served for a 
period of years as the central bank of Oman.  It remains the 
principal lender to the government, and the government's conduit 
for international financing.  That said, as the government is 
currently "sitting on a big pot of cash" it is not utilizing this 
service at the moment.  [Note:  The Ministry of Finance has been 
interested in finding the benchmark for Oman's international credit 
rating by floating an international bond, but has concluded that at 
present the cost, at two and a half percent, would not be worth the 
gain.  End note]. 
 
 
 
¶4. (C) HSBC is bullish on Oman, according to Stirling.  He noted 
three important factors in Oman's favor:  sound financial 
management; a government that keeps its word; and the fact that 
Oman "is a real country," i.e., it is cohesive and has developed 
the infrastructure and institutions of a modern state.  He agreed 
with the Ambassador that Oman's conservative approach to financial 
management has paid off by enabling Oman to weather the global 
economic crisis in relatively good shape.  Stirling noted that 
Oman's current growth rate is double what had been expected 
(reftel). 
 
 
 
¶5. (C) Turning to challenges, Stirling noted that the biggest one 
for Oman (as elsewhere in the region) is demographics.  Oman needs 
to sustain its growth and continue to provide education, followed 
by employment for its youth.  Oman also faces the reality that its 
oil and gas reserves are limited, so time is of the essence. 
Stirling said that, in his experience, Omanization works against 
the work ethic, as employees [Note: particularly in banking, which 
has a high Omanization quota of 95 percent.  End Note.] know they 
have fairly strong job security, and, if need be, could find 
equivalent alternative employment with little effort.  Another 
issue affecting Omanization is that Omanis seem to shy away from 
some professions; Stirling noted, for example, that there is only 
one Omani actuary, and only ten Omani accountants, available in the 
entire country. 
 
 
 
¶6. (C) The relatively small scale of Omani personal wealth, and the 
Omani market, is also an issue.  Calling this phenomenon the "scale 
of wealth," Stirling commented that if his headquarters were to ask 
him to list his twenty biggest customers, along with their wealth, 
and his counterpart in Riyadh to do the same, it would take only 
the top two customers in Riyadh to equal the wealth of the top 
twenty in Oman. 
 
¶7. (C) Another problem he sees (one not confined to Oman) is the 
high level of personal debt.  Many Omanis are living beyond their 
means, a phenomenon which has developed over the past decade or so 
and which seems to have been fed by aspects of the Omani financial 
market.  One factor that exacerbates reckless borrowing and 
spending is a Central Bank directive capping the total amount of 
fees and interest banks can charge to eight percent.  This means 
that all customers, regardless of their creditworthiness, pay about 
the same interest rate and this, coupled with a Central Bank policy 
of encouraging banks to make funds readily available to the Omani 
public (while cautioning banks to, nonetheless, lend prudently), 
fuels a trend towards indebtedness.  This has the effect of 
extending debt repayment into the future indefinitely.  One 
initiative on the horizon that should help address the somewhat 
"easy credit" environment will be Oman's first credit rating and 
reporting system, scheduled to begin operating in March (a target 
date which, Stirling noted, is likely to slip). 
Schmierer