A Comparison of Financial Performance in the Banking Sector: Some Evidence from Omani Commercial Banks

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.

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
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.