Bank Muscat as the Chief Financial Services Giver in Sultanate Oman - Coursework Example

? BANK MUSCAT number Bank Muscat Bank Muscat is the chief financial services giver situated in Sultanate Oman in southwest Asia. The bank provides numerous services through its corporate and retail banking, investment and private banking, treasury, and asset management services. Bank Muscat enjoys the most extensive network in Oman that has over 130 branches and over 380 ATMs. It is also involved in other international operations through their branches across Saudi Arabia, Kuwait, Dubai, Riyadh, and UAE. Bank Muscat owns numerous shares in other financial services provides such as Mangal Keshav group and the independent bank in Bahrain. The bank through its products and services to the customers has maintained a top position in the best banks in the region, for over six years. It has also received other rewards in the last several years to recognize its exemplary products and services (BANK MUSCAT 2012). The biggest achievements of Bank Muscat in the last few years are attributed to their strategic capabilities in the market. In addition, the bank’s exploitation of their market strengths results to well deserved competitive advantage over the other financial service providers (ALLARD 2004). Reports indicate that the bank’s capabilities lie in their ability to implement high levels of accounting standards, corporate governance, mergers and acquisitions, partnership and alliances, revolutionary products, and regulatory compliance. The accounting standards represent the principles that guide accounting practices. The International Accounting Principles (IAP) are accounting standards that are widely accepted as apt to the field of accounting (GROSSMAN & LIVINGSTONE 2009). The Bank Muscat ensures that they maintain high levels of these standards that entail how the bank prepares and presents its business income and expenses, its assets and liabilities (STICKNEY 2010). As a result, the customers are attracted by the transparency provided by the bank regarding their operations. An increase in the number of customers served daily enhances the competitive advantage of the bank. As a result, an increase in the customer base enhances profitability for the bank in the long-run (ALLARD 2004). Corporate governance is the set of systems and principles used to govern an organization such as Bank Muscat. It offers the rules of how the organization can be controlled in order to achieve their objectives (BESLEY & BRIGHAM 2011). Furthermore, Bank Muscat has received several awards in the implementation of corporate governance. This is because corporate governance is done in a manner that adds value of the bank and proves beneficial to the stakeholders in the long-term (STEGER & AMANN 2008). The bank’s stakeholders include the shareholders, customers, management, and other individuals involved in the welfare of the organization. In 2012, Bank Muscat received the prestigious Hawkamah Bank Corporate Governance Award. The award honors the bank’s efforts of improving their corporate governance practices further than the legal and regulatory obligations imposed by their relevant jurisdictions. This entailed the introduction of an exceptional approach to various corporate governance areas and the corporate social responsibility. As a result, the employees work to their full potential thus providing excellent services to their customers. This leads to the creation of customer loyalty thus maintaining the banks competitive advantage over their competitors (EVANS 2002). Mergers and acquisitions, partnerships and alliances, are key Bank Muscat capabilities that have led to improved competitive advantage over competitors (BRUIJN 2002, COYLE 2000). It entails a corporate strategy that brings separate entities together to form larger business organizations (AMERICAN BAR ASSOCIATION 2006). It also involves the assimilation of smaller businesses to a large corporation to minimize competition. Bank Muscat has exercised the mergers and acquisition activity to continue amassing customers and increasing profitability (COYLE 2000). For instance, in November 14, 2012, Bank Muscat and International Finance Corporation (IFC), a member of World Bank Group made an accord that will enable IFC to advice Bank Muscat on new products and services for mid-sized organizations. Additionally, the Bank Muscat acquired several subsidiaries over which the bank management has the power to control their operations. The acquisitions entail partial shareholding of the voting rights. The acquired subsidiaries include the BMI bank, Mangal Keshav Holding, and the Silk Bank of Pakistan. On the other hand, alliances and partnerships entail a business organization’s decision to come together and work towards a common goal (AMERICAN BAR ASSOCIATION 2006). However, these organizations remain independent of each other. For instance, the Bank Muscat has a partnership with Oracle Corporation with an agreement to adopt the Oracle E-Business Suite to update its financial and human resource functions. Through Mergers and acquisitions partnerships and alliances, the Bank Muscat eliminates direct competition and maintains its competitive advantage both locally and internationally (BRUIJN 2002, DE & LINK 2002). Introduction of several revolutionary products by the Bank Muscat has enabled it to beat most of its business rivals in the market. For example, the introduction of internet banking enabled the bank to offer internet-banking services thus moving its operations to the future. The product is a convenient remote banking activity that offers the customers with easy and secure admittance to their bank accounts from any global location with internet access. The product has a real-time banking option where customers receive feedbacks immediately after any inquiry regarding their individual accounts. The accounts are also accessible 24 hours a day, any day of the week. In order to maintain its excellent online services, Bank Muscat ensures that the latest software technology is employed. Such a revolutionary product has attracted many customers to the bank. Moreover, the excellent services have encouraged customer loyalty. As a result, the bank maintains its competitive advantage over its competitors. The Bank Muscat has the capability of maintaining high levels of regulatory compliance. This represents the usual policies and procedure that financial services providers have in place to guarantee that all the laws and regulations are followed (NIJSEN 2009). Various bodies that control the financial activities in particular jurisdictions implement these regulations (PARKER & NIELSEN 2011). The bank has a history of complying with all the rules and regulations made to level the financial operations based on fairness and transparency especially between the financial institutions (BANK MUSCAT 2012). The compliance also entails other related financial services such as shares and insurance products. Bank Muscat is recognized for its regulatory compliance thus maintaining its high reputation among the existing and potential customers (PARKER & NIELSEN 2011). Consequently, the bank maintains its competitive advantage over its competitors. The Bank Muscat Capital structure represents a mix of its long-term debt, particular short-term debt, common equity, and preferred equity (BAKER & MARTIN 2011). Therefore, it shows how Bank Muscat finances its overall operations and development by utilizing different sources of funds. According to the financial reports in the year 2011, Bank Muscat planned to raise US$170 million from International Finance Corporation, an affiliate of the World Bank (BANK MUSCAT 2012). The investment was meant to strengthen Bank Muscat’s capital position and sustain their long-term dollar funding and asset development. Such funding is dedicated to supporting various initiatives undertaken by the bank. This may include among other activities funding the small and medium sized businesses and housing finance. This type of funding is referred to as subordinated debt. Long-term debt Bank Muscat’s long-term debt is a component of the capital structure that represents a long-term liability with a future benefit to the bank (BIERMAN 2003). These benefits accrue after a year or more. The Bank Muscat uses notes payables that mature beyond the duration of one year. The second quarter of the financial year 2012 for instance, indicates a long-term debt quoted in government bonds, foreign bonds and local bonds. The total fair worth of the long-term liability at this time was $ 240 million (BANK MUSCAT 2012). Short-term debt The short-term debt is a component of the capital structure that represents the current liabilities incurred by the Bank Muscat. In the bank’s accounts, this debt is recorded as an amount incurred and due within one year. Therefore, the bank may be involved in borrowing of short-term borrowing to cater for immediate funding needs. The amount of short-term debt is crucial in determining Bank Muscat’s financial health. According to the 2012 financial year report, the Bank Muscat’s short-term debt was less than the bank’s cash and cash equivalents. Therefore, the bank is financially healthy and has adequate funds to repay the debts in the short future (BANK MUSCAT 2012). Common equity and preferred equity Common equity is a component of the capital structure that represents equity that takes into account the dollar amount that common shareholders have invested in an organization. On the other hand, preferred equity is ownership of a company that has a higher claim on the assets and retained earnings than the common shareholder does (KEOWN 2004). The Bank Muscat’s common equity includes the retained earnings and contributions that exceed the ordinary worth of stock. The bank’s estimation of the common equity permits financial analysts to attain a precise perspective of financial stability of the bank. This viewpoint has an impact on the future prospects of the bank’s sources of finance. This is because external financiers scrutinize the bank’s ability to meet all its financial obligations and repay any kind of funding extended to them. Conversely, the preferred equity possesses a dividend that is paid before the common stockholders (KEOWN 2004). Bank Muscat operates on the finance services sector where it offers many services through its corporate and retail banking, investment and private banking, treasury, and asset management services. In this context, the bank is involved in consumer, corporate and wholesale banking. In addition, it offers Al-Wathbah services. The bank also offers the standard activities that entail payments, current accounts, savings services among others (BANK MUSCAT 2012). The Bank Muscat offers consumer banking services as part of its required activities as a bank. This department offers numerous services to individuals and small groups of people locally. These services include accounts and deposits, loans and mortgages, insurance, priority banking, money transfers, expat and card services, and banking channels (BANK MUSCAT 2012). This is a complete range of retail and personal banking products and services. The success of the products and services offered is attributed to the thorough understanding of its consumers and their needs and preferences. This results to successful growth of the products and development of their flexibility. Consequently, their customers are guaranteed of flexible and custom-made products that meet their precise needs and preferences. According to the management of Bank Muscat, the key objective is adding value to their clients through the provision of resourceful and consistent services in helpful and responsive manner. In addition to consumer banking, Bank Muscat offers corporate banking services to other companies. Through the corporate banking, Bank Muscat, the bank seeks to create strong partnerships with their customers (TRICKER 2012). The bank offers excellent banking expertise to local corporate customers in Oman. Furthermore, this bank is known for its knowledge in corporate banking in the country thus, it is ideally best placed to offer financial services to businesses (BANK MUSCAT 2012). The bank provides financial solutions, project and structured finance, corporate services, public and government sector, and contact corporate banking services. These services are obtainable to a variety of clients that include domestic and international small businesses, medium and large corporations. The bank’s clients utilize the banks services that provide a suitable platform that allow their continuation of business. This directly affects various sectors of the economy in the country. Bank Muscat creates a momentous force in the development of the economy in Oman, through the provision of services to the companies involved in trading, power, telecommunications, oil, and gas and so on (BANK MUSCAT 2012). The banking sector also accommodates the wholesale banking services offered by Bank Muscat. This mode of banking entails the provision of services linking commercial banks and other monetary establishments. Wholesale banking refers to the wide variety of financial services that are offered by financial service providers to several companies and businesses. The services also extend to the government entities. The main difference between wholesale and retail banking is that the former concentrates on corporate entities and transactions of high values while the latter concentrates on extending financial services to individuals. The Bank Muscat’s wholesale banking customers include small businesses, large corporations, and mid-sized corporations. This bank provides its services at discounted rates that e encourages its customer to dedicate all their banking needs to it as a single financial service provider. This helps the bank in dealing with all aspects of their corporate customers with ease. According to the Bank Muscat management, the wholesale banking services are also available for other corporate businesses such as market investors and others that operate selling of property and other small and large investments. The bank also provides the Al-Wathbah banking services to its local customers. This is an all-inclusive set of programme loaning solutions for the small and intermediate level sector in the economy. This service boosts the existence of small and medium sized businesses in Oman. As a result, the bank plays a pivotal role in maintaining the growth of the economy through the support of the SME’s. This is because the businesses contribute to the national economy and an increase in GDP. This program offers programme lending, SME finances and services, events and feedback and contacts as their main products. These products are tailor-made to for all the SME’s in the country thus providing the needed services to ensure that all their needs and preferences are met (BANK MUSCAT 2012). The share price performance indicates the potency of an industry in the marketplace. Share performance shows the returns on shares in a given period. Bank Muscat chooses the period over which the shares/stocks returns are measured (DROMS & WRIGHT 2010). However, the banks portfolio manager normally measure daily, weekly, monthly, and yearly performances of their stocks. The concept of the bank’s total return on stock performance entails two separate elements namely the capital gains or losses and the dividends. There are several key shareholders of the Bank Muscat namely Dubai financial LLC, HSBC A/C the bank of New York, HSBC A/C Ministry of Defense Pension Fund and the Muscat Overseas Company L.L.C. there are several other smaller shareholders of the bank with lesser percentages of ownership (BANK MUSCAT 2012). All the bank’s shares carry equal rights, which are intrinsic in the ownership. The rights include receiving dividends declared and approved at the annual general meetings, preferential right of subscription for new shares, the distribution of the Bank’s assets upon liquidation, and right to transfer shares (MEGGINSON & SMART 2009). In addition, the shareholders are entitled to the rights of inspecting the bank’s financial statements, the statement of comprehensive income among other rights. The share price performance may depend on the allocation of new shares. Such an action is undertaken after approval by shareholders at an extraordinary meeting after the Board of Directors approval. These rights also protect the minority shareholders. The share price performance over the last four years indicates numerous changes in the prices of the Bank Muscat’s shares. This is because of the economic changes in the country. According to the records, the current price is $5.95 per share. Since 2008, the price of a share shows different values in both the high and the low quotations. In addition, the lowest value of the share in the four years hit the $4.49 in august this year. An all time high for the value of the share was in 2010 on December with a value of 12.41. Share price performance in 2008 and the first quarter of 2009, the financial year were generally low amid the global financial crisis. However, the prices of the shares picked to an average of $8.00 in the third quarter of 2009. The prices averaged at this monthly value for the better part of the year 2009 and 2010 (SHARESPRICE.COM). In the first quarter of the year, 2010 high share prices were registered because of the increased banking activities in the market. In the year 2011, the share price gradually decreased in the first four months until April. During the next few months, the price was unstable with registered alternating increases and decreases. The last quarter of the financial year closed with an increased value of the share at $8.00. The trend continued in the first quarter of 2012. On April of this financial year, the price of the share went as high as $9.00. However, the next four months registered a drastic fall of the prices to $5.65 on September. The second quarter of 2012 financial year registered an averaged amount of each share of $5.48. The current price of the Bank Muscat bank shares is $5.95 (SHARESPRICE.COM). In November 2012, the share price was registered at an opening value of $5.65 with a closing value of $5.85. This is a slight improvement of the previous month’s value of $5.65. According to the current trend and the country’s economic status, the share price value is expected to remain relatively low amount ranging between $5.00 and $6.00 (SHARESPRICE.COM). This trend indicates that the price of the share is not likely to outperform the sector and market over the next 12 months. The price of the share is not expected to rise or drop with a big margin because of the comparatively stable market and the bank’s operations. In addition, the daily activities of the bank will not result to any changes in the prices. Therefore, the share should be in a hold position. This is because a purchasing or selling the shares on the stated prices is likely to fetch remarkably low amounts of profitability. Conclusion Bank Muscat is the chief financial services giver situated in Sultanate Oman in southwest Asia. The bank offers many services through its corporate and retail banking, investment and private banking, treasury, and asset management services. It is also involved in other international operations through their branches across Saudi Arabia, Kuwait, Dubai, Riyadh, and UAE. Bank Muscat stakeholders comprise of the shareholders, customers, management, and other individuals involved in the welfare of the organization. The bank has several revolutionary products that enabled it to beat most of its business rivals in the market. The Bank Muscat Capital structure characterizes a mix of its long-term debt, particular short-term debt, common equity, and preferred equity. As a result, it shows how Bank Muscat finances its overall operations and expansion by utilizing different sources of funds. Bank Muscat operates on the finance services sector where it offers many services through its corporate and retail banking, investment and private banking, treasury, and asset management services. In this context, the bank is involved in consumer, corporate and wholesale banking. The share price performance shows the strength of an industry in the market. Share performance portrays the returns on shares in a given period. Bank Muscat decides on the period over which the shares/stocks returns are measured. The Bank Muscat’s share price in the market portrays a constant trend that has minimal changes. Therefore, the price is likely to remain relatively the same for the next financial year. References ALLARD, C. K. (2004). Battling for competitive advantage. Hoboken, N.J., Wiley. AMERICAN BAR ASSOCIATION. (2006). Bank mergers and acquisitions handbook. Chicago, IL, Section of Antitrust Law, ABA. BAKER, H. K., & MARTIN, G. S. (2011). Capital structure & corporate financing decisions theory, evidence, and practice. Hoboken, N.J., John Wiley & Sons. BANK MUSCAT. (2012). .Al-Wathbah. http://www.bankmuscat.com/en-us/Al- Wathbah/Pages/default.aspx BANK MUSCAT. (2012). http://www.bankmuscat.com/en-us/Pages/default.aspx BANK MUSCAT. (2012). About Us. http://www.bankmuscat.com/en-us/AboutUs/Pages/Default.aspx BANK MUSCAT. (2012). Consumer Banking. http://www.bankmuscat.com/en- us/ConsumerBanking/Pages/Default.aspx BANK MUSCAT. (2012). Corporate Banking. http://www.bankmuscat.com/en- us/CorporateBanking/Pages/default.aspx BANK MUSCAT. (2012). Internet banking. http://www.bankmuscat.com/en- us/ConsumerBanking/bankingchannels/internetbanking/Pages/default.aspx BANK MUSCAT. (2012). Wholesale Banking. http://www.bankmuscat.com/en- us/WholesaleBanking/Pages/default.aspx BESLEY, S., & BRIGHAM, E. F. (2011). Principles of finance. Mason, Ohio, South-Western. BIERMAN, H. (2003). The capital structure decision. Boston, Mass, Kluwer Academic Publ. BRUIJN, T. J. N. M. D. (2002). Partnership and leadership: building alliances for a sustainable future. Dordrecht, Kluwer Academic. COYLE, B. (2000). Mergers and acquisitions. Chicago, Glenlake Pub. Co. DE LA MOTHE, J., & LINK, A. N. (2002). Networks, alliances, and partnerships in the innovation process. Boston, Kluwer Academic. DROMS, W. G., & WRIGHT, J. O. (2010). Finance and Accounting for Nonfinancial Managers All the Basics You Need to Know. New York, Perseus Books Group. EVANS, N. D. (2002). Business agility strategies for gaining competitive advantage through mobile business solutions. Upper saddle River, NJ, Financial Times. GROSSMAN, THEODORE, & LIVINGSTONE, JOHN LESLIE. (2009). The Portable MBA in Finance and Accounting Epub Edition. New York, John Wiley & Sons Inc. MEGGINSON, W. L., & SMART, S. B. (2009). Introduction to corporate finance. Mason, Ohio, South-Western Cengage Learning. NIJSEN, A. (2009). Business regulation and public policy: the costs and benefits of compliance. New York, Springer. PARKER, C., & NIELSEN, V. L. (2011). Explaining compliance: business responses to regulation. Cheltenham, Edward Elgar. SHARESPRICE.COM. (2012). Bank Muscat (S.A.O.G) GDR (Reg S) Share Price (BKM) - Buy BKM Shares. http://shareprices.com/detail?tidm=BKM&chart_time_period=2_day&movingaveragetype=&chart_comparison_tickers=&startday=06&startmonth=03&startyear=20008&endday=06&endmonth=12&endyear=2013&frequency=monthly#history STEGER, U., & AMANN, W. (2008). Corporate Governance How to Add Value. Chichester, John Wiley & Sons. STICKNEY, C. P. (2010). Financial accounting: an introduction to concepts, methods, and uses. Mason, OH, South-Western/Cengage Learning. TRICKER, R. I. (2012). Corporate governance: principles, policies and practices. Oxford, Oxford University Press. KEOWN, A. J. (2004). Foundations of finance. Beijing, Qinghua University Press. Read More