Omani bank's results disappoint analysts

What's Down: Oman's Bank Dhofar, the country's second biggest lender, said net profit declined 58 per cent last year amid a one off transaction related to a legal suit with one if its rivals.

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Oman's second-biggest bank disappointed analysts yesterday after it reported a 58 per cent drop in full-year profit amid higher expenses.

BankDhofar's net profit dropped to 13.98 million Omani rials for 2011, compared with 33.28m rials in the year earlier. A consensus of analysts polled by Bloomberg News expected the Omani lender to report a profit of 26.75m riyals.

Operating expenses rose 15 per cent to 33.4m rials as a result of the bank's ongoing legal battle with one of its main rivals, Oman International Bank (OIB). Bank Dhofar has put funding aside to comply with a court decision.

The suit relates to a complex dispute between OIB and Ali Redha Trading Group.

In late 2001, Ali Redha, a commodity trading company based in Oman, announced a default on a debt of 70m rials owed to local and international banks. Majan International Bank was one of the affected lenders and was forced to merge with BankDhofar. Majan's chairman was among the shareholders of Ali Redha.

Oman International claimed in its lawsuit it was owed the equivalent of 1.93 million BankDhofar shares as a result of losses incurred in the transaction.

The legal case is continuing.

"Although we have booked this loss in compliance with the relevant accounting standards, the bank challenges the premise of this legal case and is exercising all legal actions to reclaim the amount," the bank said in a statement to the Muscat bourse.

It is a "one off impact", said Suresh Kumar, a research analyst at Al Maha Financial Services in Muscat.

BankDhofar lost 16.9 per cent of its value last year, but the stock still trades at a very high premium despite the legal uncertainty surrounding the case, Mr Kumar said. The lender trades at 12 times earnings, compared to an average 10.87 for Oman's other banks.

Oman's economy, meanwhile, is expected to grow at 5 per cent, with the inflation rate at 4 per cent over the current five-year plan, said Darwish Al Balushi, the minister of financial affairs. The country expects investments in infrastructure, energy and tourism to be about 30 billion rials over the same period.