BankMuscat pioneers development of Industry Benchmarks in Oman

BankMuscat (SAOG), the country's leading commercial bank, announced at a Risk Management Seminar, that having completed the risk rating of its corporate customers, it was moving forward to set up Industry benchmarking to help its decision-making process. The management of risk, credit risk in particular, has confronted the banking sector in the country, as in the rest of the world, with increasing challenges. An objective evaluation and measurement of credit risk is the first and critical step to meeting this challenge. BankMuscat has implemented Moody's Financial Analyst (MFA) and RiskCalc system with will enable the Bank to differentiate corporate borrowers, based on risk. Financial information is analyzed by MFA and through RiskCalc, a 1 - year and 5 - year Probability of Default (PD) is generated. This is used by the Bank's Risk Management and approving authorities, together with other relevant information, in the decision-making process.

"Risk Rating per se is useful information", said Yaseen Abdul Latif, AGM - Risk Management, BankMuscat. "However, the quality of the decision making process can be vastly enhanced if a corporate borrower's financial position, performance and ratings can be compared to that of its peer group within the industry. Take a company in the construction sector for example. Its financial position is a result of both its performance and the operating environment - economic situation, contracts awarded, level of competition etc. Evolving industry benchmarking helps the decision-makers to analyze the characteristics of the industry and the performance of a company within an industry with greater clarity and objectivity".

Banks in the western world have access to industry data and industry benchmark (like RMA in USA) to help assess risk meaningfully. Such industry data or benchmark is currently not available in Oman or in the Middle East for that matter. BankMuscat's effort is thus a pioneering effort to build Industry benchmarking using the Moody's Benchmark software. The benchmark can be further narrowed down by segregating an industry based on total assets, networth, sales etc.

Benchmarks for corporate borrowers in the leasing and construction industry were available and other significant industries will be made available in the following months.

Ahmed Al Abri, General Manager - Banking said, "Our valued customers are seeking recognition of their financial standing and high performance through preferential rates. BankMuscat appreciates this and by benchmarking it can move forward, linking the pricing of credit facilities to risk rating, as is done by major international banks today. In a competitive environment, BankMuscat intends to become a partner to its corporate customers, aiding their own competitiveness through lower costs in line with their superior risk profile. Such a step is also intended to encourage other companies in the industry to strengthen their relative performance", he added.

Additionally, the Bank will use benchmarking of credit risk ratings to undertake a portfolio risk analysis. Portfolio analysis of corporate customers will help pool borrowers into risk categories and will ensure prompt identification of any deterioration in their credit risk and enable them to implement timely corrective action.

"BankMuscat plans to develop risk management into a core competence of the Bank" said Sunder George, Deputy Chief Executive. "An effective risk management needs a strong risk management culture that seeks high quality and relevant, current information on various risks to be made available to all personnel involved in the decision-making process at the Bank. This will ensure the objectivity of the decisions. Account Relationship Managers re the originators and managers of credit risk on a day-to-day basis and they will be equipped with the knowledge of the rating process, industry benchmarking strategies and their intended usage in decision-making, thereby reinforcing the risk management culture within the Bank", he said.

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