RATIO ANALYSIS

Ratio Analysis

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 10 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.

Ratio Analysis

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 have 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 2005-2010. 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.

Ratio Analysis

Comparisons of the bank's deposits, credits, assets, owner's 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 2010 comparing with year 2006. The growth rate is 80% for Bank Dhofar (BD) with average total deposits of RO 277,988.8. 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 (Avkiran, 1995). 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 2010 comparing with credits in ...