International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 3 (2006)

© EuroJournals Publishing, Inc. 2006
http://www.eurojournals.com/finance.htm

A Comparison of Financial Performance in the Banking Sector:

Some Evidence from Omani Commercial Banks

Medhat Tarawneh
Faculty of Business
Sohar University
Soha
Sultanate of Oman

Abstract

The purpose of this study is to classify the commercial banks in Oman in cohesive
categories on the basis of their financial characteristics revealed by the financial ratios. A
total of five Omani commercial banks with more than 260 branches were financially
analyzed, and simple regression was used to estimate the impact of asset management,
operational efficiency, and bank size on the financial performance of these banks. The
study found that the bank with higher total capital, deposits, credits, or total assets does not
always mean that has better profitability performance.

Key words: Commercial bank; operational efficiency; asset management

JEL classification: M12

I. Introduction
The banking sector is considered to be an important source of financing for most businesses. The
common assumption, which underpins much of the financial performance research and discussion, is
that increasing financial performance will lead to improved functions and activities of the
organizations. The subject of financial performance and research into its measurement is well advanced
within finance and management fields. It can be argued that there are three principal factors to improve
financial performance for financial institutions; the institution size, its asset management, and the
operational efficiency. To date, there has been little published studies to explore the impact of these
factors on the financial performance, especially the commercial banks.
This study proposes that there are measurable linkages among bank's size, asset management, the
operational efficiency, and the financial performance. The purpose of this study is to analyze the
financial data of Omani commercial banks for the financial periods 1999-2003. in addition, to examine
the relationships among measures such as bank's size, operational efficiency, asset management, return
on assets ( ROA), interest income, and to discuss their impact on the bank's performance. Financial
analysis is used to quantitatively examine the differences in performance among commercial banks in
Oman, and the banks are ranked based on their financial measures and performance for each bank.
Therefore, the objectives of this study are to classify the commercial banks in Oman on the basis of
their financial characteristics as a guide line for future development, and to assess their financial
performance. In order to evaluate the internal performance of a commercial bank, financial indicators
are constructed from the bank financial statements. Financial ratios like ROA, asset utilization, and
operational efficiency are calculated, Also, measures as assets size, and the interest income size are
used to assess the performance of a commercial bank. However, it is hypothesized for this study that
102 International Research Journal of Finance and Economics - Issue 3 (2006)

there exist positive correlations among return on assets, asset management, operational efficiency, bank
size, and the interest income size. In addition, there exist an impact of asset management, operational
efficiency, and the bank's size on the financial performance of the bank.Thus, this study is organized as
follows: the next section following the introduction discusses the relevant literature. The third section
defines the banking sector in Oman. Methodology of the study is described in fourth section. The fifth
section provides details of the results and analysis of the available data, and the final section presents
the main conclusions.

II. The Literature Review

Generally, the financial performance of banks and other financial institutions has been measured using
a combination of financial ratios analysis, benchmarking, measuring performance against budget or a
mix of these methodologies ( Avkiran, 1995 ). The financial statements of corporations in Oman that
published commonly contain a variety of financial ratios designed to give an indication of the
corporation's performance.
As it known in accounting literature, there are limitations associated with use of some financial
ratios. In this research, however, ROA ratio with interest income size are used to measure the
performance of Omani commercial banks. Asset management, the bank size, and operational efficiency
are used together to investigate the relationships among them and the financial performance.
Simply stated, much of the current bank performance literature describes the objective of financial
organizations as that of earning acceptable returns and minimizing the risks taken to earn this return (
Hempel G. Coleman, 1986 ). There is a generally accepted relationship between risk and return, that is,
the higher the risk the higher the expected return. Therefore, traditional measures of bank performance
have measured both risks and returns.
The increasing competition in the national and international banking markets, the change over
towards monetary unions and the new technological innovations herald major changes in banking
environment, and challenge all banks to make timely preparations in order to enter into new
competitive financial environment. ( Spathis, and Doumpos, 2002 ) investigated the effectiveness of
Greek banks based on their assets size. They used in their study a multi criteria methodology to classify
Greek banks according to the return and operation factors, and to show the differences of the banks
profitability and efficiency between small and large banks.
(Chien Ho, and Song Zhu, 2004 ) showed in their study that most previous studies concerning
company performance evaluation focus merely on operational efficiency and operational effectiveness
which might directly influence the survival of a company. By using an innovative two-stage data
envelopment analysis model in their study, the empirical result of this study is that a company with
better efficiency does not always mean that it has better effectiveness. A paper in the title of efficiency,
customer service and financing performance among Australian financial institutions ( Elizabeth
Duncan, and Elliott, 2004 ) showed that all financial performance measures as interest margin, return
on assets, and capital adequacy are positively correlated with customer service quality scores.
Generally, the concept of efficiency can be regarded as the relationship between outputs of a system
and the corresponding inputs used in their production. Within the financial efficiency literature,
efficiency is treated as a relative measure which reflects the deviations from maximum attainable
output for a given level of input ( English M. and Warng, 1992 ). However, there have been numerous
studies analyzed the efficiency of financial institutions. Among these, ( Rangan N. and Grabowski,
1988 ) use data envelopment analysis to analyze technical efficiency in US banking into pure technical
and scale efficiency. ( Aly H., and Rangan 1990 ) extend this analysis to contain analysis of allocative
efficiency, and ( Field, 1990 ), ( Dark, 1992 ), ( Chu-Meiliu, 2001 ), ( Tser- Yieth Chen, and Tasi Yeh,
1998 ), and ( Leigh D.,and Howcroft, B., 2002 ) have conducted some studies into banking efficiency.
Many researches have been too much focus on asset and liability management in the banking sector,
some of these studies are: ( Richard, B., and Moloney, J., 2003 ), ( Ruth, F., 2001 ), and ( Ian Canddy,
2000 ). However, the literature concerning the asset and liability management for banks strongly
International Research Journal of Finance and Economics - Issue 3 (2006) 103

suggests that risk management issues and its implications must be concentrated by the banking
industry. ( Jon R.Presely, 1992 ) concluded from his study that there is a need for greater risk
management in relation to more effective portfolio management, and this requires a greater emphasis
upon the nature of risk and return in bank asset structure, and greater diversification of assets in order
to spread and reduce the bank's risks.
(Arzu Tektas, and Gunay, 2005 ) discussed the asset and liability management in financial crisis.
They argued that an efficient asset-liability management requires maximizing bank's profit as well as
controlling and lowering various risks, and their study showed how shifts in market perceptions can
create trouble during crisis.
In a study conducted in Kuwait ( Edris, 1997 ) to determine the importance of selection factors used
by Kuwait business consumers in choosing domestic and foreign banks. Findings of this study show
that the highest – ranking determinant factors of selection a bank in Kuwait by business firms were size
of bank assets, personnel efficiency, banking experience, friendliness of staff, reputation, and
availability of branches abroad.
Most developing countries have been taking different plans and strategies to their financial sectors.
The financial sector in Arab countries have started recently as a part of their overall economic plans
and growth. However, there is an increasing attempts to develop money capital markets in Arab world.
Commercial banks are the most dominant financial institutions in any country. Therefore, local
financial institutions and foreign ones have greater opportunity in economic development in the Arab
countries.( Mazhar M. Islam, 2003 ) discussed the development and performance of domestic and
foreign banks in Arab gulf countries, and showed that local and foreign banks in these countries have
performed well over the past several years. Moreover, he added that banks in these economies are well
capitalized and the banking sector is well developed with intense competition among the banks.
Based on the above literature, we can say that there are some studies about banks in Arab gulf
countries, however, no in depth study has ever been done in sultanate of Oman because of probably
lack of sufficient information, and because of their unfamiliarity with the global economy. The main
contribution of this study is to make financial comparison based on return on assets, return on equity,
return on deposits, and other financial banking activities as credits and deposits to determine the
performance and classifications of Omani commercial banks. Like any other study, this study is also
not without its limitations. One of its limitations that it does not include all the commercial banks
working in Oman, because the data were unavailable to the researcher.

III. The Banking Industry in Oman

Services Organizations in general and financial services in particular are considered to be the key
factor for growth and success of projects in both industrial and developing countries. However, the
commercial banks take pride in offering customers a full range of superior international banking
services inside and outside of Oman. The major objective for Omani commercial banks is to
concentrate on trade services and cash management. In fact, Oman has always had a nation-wide
development policy that was careful to achieve a wider geographic distribution of investment to ensure
that all the different regions in Oman could share the benefits and any gap in the standard of living
could be narrowed. Regional development was also highlighted as one of the goals within the Oman
vision 2020 which aiming at the diversification of Oman's economy, calls for a greater involvement of
the private sector especially the commercial banks. According to Oil and industry ministries, 90% of
the oil and gas projects in Oman were financed through debt from international and local financing
sources ( Al Markazi, 2005 ).
( Mazhar M. Islam, 2003 ) mentioned in his paper that Oman is a free market economy, with low
taxation levels, fairly liberal investment laws and no control on capital movements and is a member of
the Arab Gulf Co-operation Council ( GCC ). The economy is managed through a series of plans
emphasizing agriculture and industrial development. However, Oman remains heavily dependant on its
oil revenues. Oil revenues also drive economic activity in the non-oil sectors. The government
104 International Research Journal of Finance and Economics - Issue 3 (2006)

recognizes the need to diversify the economy away from oil as rapidly as possible and its vision 2020
plan aims to reduce the oil sector's contribution to less than 20% over the next two decades.
On banking sector, substantial improvements have taken place in banking activities in general. Total
credit granted by Omani commercial banks operating in Sultanate of Oman to the different economic
sectors and individuals increased by 11.3% in 2003 comparing with 1999 ( see table )on the other
hand, total deposits of commercial banks increased by 9.7% in 2003 comparing with 1999 ( see table
). The net profit after deducting various provisions and taxes reached to RO. 10,272 millions in 2003 (
Shareholder Guide, 2004 ). Currently, there are five private local banks operating as commercial banks
in Oman: Alliance Housing Bank ( 1997 ), Bank Dhofar 1990, Bank Muscat ( 1981 ), National Bank
Of Oman ( 1973 ); and Oman International Bank (1975). In addition, there are nine foreign owned
commercial banks working in Oman ( CBO, Annual Report, 2004 ), and three specialized development
banks serve as mechanisms to promote Omani government policies of economic diversification,
private sector development, and indigenization of the work force.The central bank of Oman (CBO)
provides considerable information on the economy and the financial sector. The CBO monetary policy
aims to maintain price stability, keep confidence in the local currency at high level and ensure adequate
credit flows to the private and public sectors. The CBO encourages local banks to open branches in the
country, the commercial banks working in Oman have branch networks in all Omani regions ( see the
Appendix ). However, the Omani banking market is the smallest in the Gulf countries, and the local
banks operating in an increasingly competitive market.

IV. Study Methodology

To accomplish the aforementioned research objectives, the data for this study was gathered from the
bank's financial statements as published in the Omani Shareholder Guide ( 2004 ). The annual data for
all Omani commercial banks during (1999-2003) are used for calculating key financial ratios in order
to assess the performance of the banks. In addition, another source of data was through reference to the
library and the review of different articles, papers, and relevant previous studies. This study uses a
descriptive financial analysis to describe, measure, compare, and classify the financial situations of
Omani commercial banks. The sample of this study contains all of the five Omani commercial banks,
which it accounts for 35.7% of the population ( number of commercial banks working in Oman was 14
banks in 2003, see the Appendix ). The number of the selected banks should not be considered as a
shortcoming of the study since its title focused on just Omani commercial banks.
Financial performance is the dependent variable, and measured by return on assets ( ROA ) and the
interest income size. The independent variables of this study are the following:
• The Bank Size measured by the total assets of the bank.
• Asset Management measured by asset utilization ratio ( operational income divided by total
assets )
• Operational Efficiency measured by the operating efficiency ratio ( total operating expenses
divided by net interest income )

In order to classify the Omani commercial banks, this study uses the major banking activities and is
comprised of total deposits, total credits, total assets, total shareholder equity, return on equity, and
return on deposits. Also, this study tries to explore any kind of variance according to its different
variables. Therefore, correlations, ratio analysis, and simple regression were applied to examine and
compare the impact of independent variables on the dependent variable. Analysis of variance (
ANOVA ) was used in testing the hypotheses and to measure the differences and similarities between
the sample banks according to their different characteristics. Pearson correlation coefficient also used
to investigate the correlation between the paper variables at 5% level of confidence according to the
SPSS software package.
International Research Journal of Finance and Economics - Issue 3 (2006) 105

V. Results and analysis

Comparisons of the banks deposits, credits, assets, owners equity, ROE, ROD, and ROA
Table (1) shows total deposits for all the domestic commercial banks through 1999-2003, and provides
the growth rate of deposits based on 1999 as base year. The average of total deposits for Alliance
Housing Bank (AHB) is 13,297.6 Rial Omani (RO) with very high growth rate 3000% in year 2003
comparing with year 1999. The growth rate is 80% for Bank Dhofar (BD) with average total deposits
of RO 277,988.8

Table 1: Total Deposits of The Omani Commercial Banks

( Value in RO” 000.)
year 1999 2000 2001 2002 2003 Growth
Bank Rate Average
AHB 1,192 2,420 9,159 16,768 36,949 3000% 13,297.6
BD 213,820 223,589 283,408 284,155 384,972 80 277,988.8
BM 1,058,802 1,125,504 1,115,512 1,288,339 1,263,783 19.3 1,170,388
NBO 652,157 641,259 800,801 771,533 682,976 4.7 709,745.2
OIB 722,279 625,864 569,717 525,087 535,396 - 25.9 595,668.6
Total 2,648,250 2,618,636 2,777,993 2,885,882 2,904,076 9.7
Source: Compiled from the Omani Shareholder Guide, 2004

Furthermore, table (1) indicates that growth rates of Bank Muscat (BM), National Bank of Oman
(NBO), and Oman International Bank (OIB) are 19.3%, 4.7%, and –25.9% respectively. To rank the
banks based on their average total deposits, BM bank is considered to be number one, NBO bank is
number two, and OIB, BD, and AHB are three, four, and five respectively as shown in table (1).
Table (2) reports total credits, growth rate of credits, and the average of total credits during 1999-
2003 for each bank. As shown in this table, OIB bank is the lowest credits growth rate in 2003
comparing with credits in 1999.
106 International Research Journal of Finance and Economics - Issue 3 (2006)

Table 2: Total Credits Of The Omani Commercial Banks

( Value in RO” 000.)
year 1999 2000 2001 2002 2003 Growth
Bank Rate Average
AHB 14,699 20,724 30,586 64,004 71,813 388.6% 36,765.2
BD 197,304 226,788 271,438 278,589 387,456 96.4 272,315
BM 967,790 996,650 1,098,067 1,225,830 1,243,810 28.5 1,106,429
NBO 614,820 642,410 719,491 682,949 528,362 14.1 637,606.4
OIB 558,159 511,751 456,620 403,958 388,024 30.5 463,702.2
Total 2,352,772 2,398,323 2,576,202 2,637,330 2,619,465 11.3
Source: Compiled from the Omani Shareholder Guide, 2004

It is clear from table (2) that BM bank is the highest average of total credits, and AHB bank is the
lowest one. However, the bank with highest growth rate of total credits during the period does not
always mean having high average of total credits. Based on the average total credits of the listed banks
in table (2), rank of the banks will be as: BM is the first, NBO is the second, and OIB, BD, and AHB
get positions of the third, the fourth, and the fifth respectively.
From table (1) and (2), customer deposits growth in 2003 for all Omani commercial banks has
lagged behind the expansion of the loan portfolio. The combined deposits of these banks increased by
9.7% in 2003, while net credits rose by 11.3%.
Table (3) illustrates for the listed banks, the total assets for each bank in the period 1999-2003, and
shows also the growth rate in assets and the average of total assets. Its clear from table (3) that OIB
bank got negative growth rate in its total assets ( -22.1% ). On the other hand, AHB bank realized the
highest growth rate in its assets ( 253.7% ), which means that its total assets ( RO 25,065 ) increased by
253.7% in year 2003 to become equal to RO 88,661.

Table 3: Total Assets Of The Omani Commercial Banks

( Value in RO” 000.)
year 1999 2000 2001 2002 2003 Growth
Bank Rate Average
AHB 25,065 27,170 39,269 58,175 88,661 253.7% 47,668
BD 261,589 272,530 333,054 344,003 474,085 81.2 337,052.2
BM 1,254,447 1,336,965 1,346,456 1,542,435 1,554,778 24.0 1,407,016
NBO 831,906 815,363 950,384 892,619 816,159 - 1.9 861,286.2
OIB 835,258 738,468 672,409 642,937 650,397 - 22.1 707,893.8
Total 3,208,265 3,190,496 3,341,572 3,480,169 3,584,080 11.7
Source: Compiled from the Omani Shareholder Guide, 2004

Ranking of the banks based on their average total assets is showed that BM bank to be number one,
and AHB bank is the last one in the total assets ranking. Its clear also from table (3) that OIB bank is
ranked in the third position in spite of the negative growth rate in its assets as mentioned before.
International Research Journal of Finance and Economics - Issue 3 (2006) 107
Table 4: Total Shareholders Equity Of The Omani Commercial Banks
( Value in RO” 000.)
year 1999 2000 2001 2002 2003 Growth
Bank Rate Average
AHB 23,395 24,227 24,307 25,234 26,923 15.1% 24,817.2
BD 39,190 39,834 42,651 47,408 63,127 61.1 47,442
BM 144,933 108,674 127,132 153,353 173,112 14.4 141,440.8
NBO 110,031 118,822 96,075 95,812 97,237 - 11.6 103,595.4
OIB 845,000 94,104 87,965 103,349 103,457 22.4 94,675
Total 402,049 385,661 378,130 425,156 463,856 15.4
Source: Compiled from the Omani Shareholder Guide, 2004

According to table (4), BD bank shows the highest growth rate in its total shareholders equity (
61.1% ) in year 2003 comparing with its owners equity in year 1999. A negative growth rate ( - 11.6 %
) for NBO bank indicates that its shareholders equity in year 2003 was less than its equity in year 1999
by this rate. Further, NBO bank is ranked in the second position among the listed banks in table ( 4 )
based on their average of total shareholders equity. As mentioned in table (4) BM bank is ranked to be
number one even it has low growth rate in its equity comparing with other banks.
The return on equity (ROE) is considered to be one of the profitability performance ratios. It shows
a higher value for BD bank when compared with other listed banks in table (5).

Table 5: Return On Equity Ratio At The Omani Commercial Banks

( ROE )
Year 1999 2000 2001 2002 2003
Bank Average
AHB 3.54% 3.44% 4.65% 7.00% 9.78% 5.68%
BD 13.94 13.88 14.38 17.5 16.09 15.16
BM 12.42 14.97 6.1 14.94 15.64 12.81
NBO 9.01 6.96 - 7.77 -0.27 -53.25 -9.06
OIB 11.28 10.57 2.24 17.91 12.78 10.96
Source: Calculated from financial statements of the banks ( 1999-2003 )

The average ROE ratio is 12.81% for BM bank while NBO bank got negative average ROE (-
9.06% ) during the period ( 1999-2003 ). The ROE is net profit after taxes divided by total owners
equity. It reflects the bank management's ability to generate net profits from using the owners equity as
one of the financial sources.
Table (6) shows that the majority if return on deposits (ROD) ratios of the listed banks are positive
and strong too. It is clearly shown that overall (ROD) ratios were fluctuated through the period for all
banks. To most financial analysts, (ROD) is one of the best measures of bank profitability
performance. It is calculated through dividing net profits by total deposits. This ratio reflects the bank
management ability to utilize the customers deposits in order to generate profits. The average of (ROD)
for bank AHB is 14.25% during the period 1999-2003 as shown in table (6). Comparing it with other
banks, AHB bank will be the first, and NBO bank is the last one with average of ( - 0.86% )
108 International Research Journal of Finance and Economics - Issue 3 (2006)
Table 6: Return On Deposits Ratio At The Omani Commercial Banks
( ROD )
Year 1999 2000 2001 2002 2003 Average
Bank
AHB 6.95% 34.42% 12.3% 10.5% 7.10% 14.25%
BD 2.59 2.74 1.95 2.16 2.15 2.32
BM 1.7 1.45 0.69 1.79 2.14 1.55
NBO 1.64 1.29 -0.93 -0.03 -6.27 -0.86
OIB 1.47 1.59 0.35 3.53 2.47 1.88
Source: Calculated from financial statements of the banks ( 1999-2003 )

The return on assets (ROA) is financial ratio used to measure the relationship of profits or earnings
and total assets. (ROA) measure assesses the profitability performance of total assets, and could be
treated as measure of financial performance in this study. As it is known, this measure contains two
elements, efficiency ( total assets turnover ), and effectiveness (profit margin). As mentioned earlier,
ROA reflects the bank management ability to generate profits by using the available financial and real
assets.

Table 7: Return On Assets Ratio At The Omani Commercial Banks

( ROA )
Year 1999 2000 2001 2002 2003 Average
Bank
AHB 3.31% 3.07% 2.88% 3.04% 2.97% 3.05%
BD 2.09 2.03 1.82 2.41 2.14 2.09
BM 1.44 1.22 0.58 1.49 1.74 1.29
NBO 1.29 1.01 -0.79 -0.03 -6.34 -0.97
OIB 1.27 1.35 0.29 2.88 2.03 1.56
Source: Calculated from financial statements of the banks ( 1999-2003 )

As shown in table (7), the summary of (ROA) ratios during the period of 1999-2003 for each Omani
bank is presented. In order to rank the banks based on this ratio, AHB bank is the first one, it has an
average of ROA 3.05%. The second position is for BD bank with ROA equals to 2.09%, and the last
position is belonged to NBO bank.
In order to summarize the classification of the banks based on rank of their activities and
profitability ratios, table (8) contains ranks of the positions for these banks. As it is shown in this table,
rank of bank Muscat (BM) is the first position in total deposits, total credits, total assets, and total
shareholders equity. Further, it is in the fourth position among other banks in its profitability
performance (ROA). Contrary to BM bank, Alliance Housing Bank (AHB) got the last position in total
deposits, total credits, total assets, and total shareholders equity. Also, this bank is ranked to be in the
first position in the profitability performance (ROA), and (ROD) because this bank in fact is working
as commercial and specialized bank at the same time in Oman. The profitability position of NBO bank
is the last rank based on its (ROE), (ROD), and (ROA) despite of its second rank in deposits, credits,
assets, and shareholders equity as shown in table (8).
International Research Journal of Finance and Economics - Issue 3 (2006) 109

Table 8: Ranks Of Omani Commercial Banks based on financial indicators

Banks
AHB BD BM NBO OIB
Indicators
Deposits 5 4 1 2 3
Credits 5 4 1 2 3
Assets 5 4 1 2 3
Shareholders Equity 5 4 1 2 3
ROE 4 1 2 5 3
ROD 1 2 3 5 4
ROA 1 2 4 5 3

Hypotheses Testing
As mentioned in this study, there were two alternative hypotheses: the first one stated that there is
positive correlation relationships among the financial performance measured by ROA, and interest
income size, and the independent variables ( operational efficiency, asset management, bank size ). The
second hypothesis was stated as “ there exist an impact of operational efficiency, asset management,
and bank size on financial performance of the commercial banks in Oman. Correlations and analysis of
variance were used to test the hypotheses of the study.
Based on analyzing the average data for all variables of the study during the period 1999-2003 as
shown in table (9), correlations and analysis of variance were calculated to examine the impact of
independents variables on the dependent variable.

Table (9): Omani Commercial Banks: Key Average Data ( 1999-2003 )

Banks
Variables AHB BD BM NBO OIB

Variable 1 *
ROA 3.05% 2.09% 1.29% -0.97% 1.56%
Variable 2 *
Interest income 3,492 25,082 107,456 63,094 51,525
Variable 3 **
Operational efficiency 52% 68.7% 81.32% 158.16% 68.44%
Variable 4 **
Assets utilization 7.49% 4.58% 4.87% 5.08% 2.49%
Variable 5 **
Assets size 47,668 337,052 1,407,016 861,286 707,894
* Dependent V.
** Independent V.

The result of correlations analysis between independent variables and dependent variable showed
that existence of strong positive correlation between financial performance and the operational
efficiency ( + 97% ). A moderate positive correlation relationship ( + 58% ) exists between ROA and
bank size ( assets size ). Moreover, there is significant positive correlations between financial
performance ( interest income size ) and the independent variables with correlation coefficients of +
40%, + 41%, and +99% respectively. Based on these correlations, then the first hypothesis was
accepted. Thus, there is a positive relationships among return on assets, interest income, asset
management, operational efficiency, and the bank's size.
The summery results of the analysis of variance (ANOVA) is shown in table (10) for testing the
second hypothesis. The testing rule is to accept alternate hypothesis (H1) if the calculated F.Sig less
than 0.05. therefore, there is a positive impact of independent variables of financial performance
110 International Research Journal of Finance and Economics - Issue 3 (2006)

measured by ROA and interest income size. It is clear from table (10) that values of F.Sig .036 and
.016 are less 0.05 level. Therefore, the second hypothesis was accepted which means that there is an
impact of operational efficiency, asset management, and bank size on the financial performance of the
Omani commercial banks.

Table (10): (ANOVA) Independent variables impact on financial performance measured by ROA and
interest income size
Model df F.Sig* Results Inference
Regression 3 .036 Sig. Diff ACC H1
Residual 1
Total 4
Predictors ( V3, V4, V5 )
Dependent V1 : ROA
Regression 3 0.16 Sig. Diff ACC H1
Residual 1
Total 4
Predictors ( V3, V4, V5 )
Dependent V2 :interest income size
* Indicate significance at or below = 0.05 level

VI. Conclusion
The importance of this study may be viewed from its contribution to fill an important gap in literature.
That is, findings of this study can add to the existing body of the literature, and can serve as a staring
point on which future studies can be done. On the practical dimension, this study may help bank
decision makers to focus on the major banking activities that may increase the bank ranking and
financial performance positions comparing with other banks. Such information should help the
management of commercial banks in creating appropriate financial strategies for attaining the required
planned financial performance.
Data analysis of this study revealed that the ranking of Omani commercial banks based on their
total deposits, total credits, total assets, and total shareholders equity is ranked as: Bank Muscat (BM)
is considered to be the first one, National Bank of Oman (NBO) is in the second rank, Omani
International Bank (OIB) is the third, Bank Dhofar (BD) is the fourth, and the last rank is for Alliance
Housing Bank (AHB).
Based on the bank return on assets, the higher rank is Bank Dhofar, Bank Muscat is the second,
Oman International Bank is the third, Alliance Housing Bank is the fourth, and the lowest one is
National Bank Of Oman. Findings also indicate that the ranking of the banks based on their return on
equity is classified Bank Dhofar to be the first, Bank Muscat is the second, Oman International Bank is
the third, Alliance is the fourth, and the lowest rank is the National bank Of Oman. Based on the
reported ranking, it is concluded that the bank with higher predictors of total assets, credits, deposits, or
shareholder equity does not always mean that it has better profitability performance.
This study examined these predictors impact on the financial performance of Omani commercial
banks. The regression analysis results showed that financial performance of the banks was strongly and
positively influenced by the operational efficiency, and asset management, in addition to the bank size.
This was agreed with the correlation analysis among the variables of the study which indicated the
existence of positive relationships.
Finally, the study provides bank managers with understanding of activities that would enhance their
banks financial performances. The results of this study imply that it might be necessary for a bank
management to take all the required decisions to enhance the financial positions of the bank.
International Research Journal of Finance and Economics - Issue 3 (2006) 111

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Appendix

Name of the Banks Date of establishment Operating Offices

Local Banks
Alliance Housing bank* 1997 7
National Bank of Oman 1973 37
Oman International Bank 1975 82
Bank Muscat 1981 90
Bank Dhofar 1990 48
Foreign Banks
HSBC Bank Middle East 1948 5
Standard Chartered Bank 1968 1
Habib Bank Ltd. 1972 9
Bank Melli Iran 1974 1
National Bank Of AbuDubi 1976 1
Bank Saderat Iran 1976 1
Bank of baroda 1976 3
Banque Banorabe 1989 1
State bank of India 2004 1
Specialized Banks
Oman Housing bank 1977 9
Oman Arab Bank 1973 37
Oman Development Bank 1977 10
Source : Central Bank Of Oman, Annual Report 2004
Working as Commercial bank and Specialized Bank

Correlations
V1 V2 V3 V4 V5
V1: Pearson
Correlation 1 .557 .557 .306 .970
Sig.(2-tailed) .330 .338 .616 .006
N 5 5 5 5 5
V2: : Pearson
Correlation .557 1 .999 .411 .402
Sig.(2-tailed) .330 .000 .492 .502
N 5 5 5 5 5
V3: : Pearson
Correlation .577 .999 1 .429 .421
Sig.(2-tailed) .308 .000 .471 .480
N 5 5 5 5 5
V4: : Pearson
Correlation .306 .411 .429 1 .091
Sig.(2-tailed) .616 .492 .471 .884
N 5 5 5 5 5
V5: : Pearson
Correlation .970 .402 .421 .091 1
Sig.(2-tailed) .006 .502 .480 .884
N 5 5 5 5 5