Shanfari group files suit in UAE court against Oman bank

The Shanfari group of companies, one of the top business houses in Oman, has filed a lawsuit in a UAE court seeking transparency in a loan deal that also involves National Bank of Oman and some UAE banks.

The group had obtained loans from National Bank of Abu Dhabi (NBAD) and Abu Dhabi Commercial Bank with the help of National Bank of Oman (NBO).

An informed source told Gulf News the loan deal had its origin in NBO when the Shanfari group, like many others, borrowed several million Omani riyals under a loan programme designed by NBO in the mid-'90s. The NBO loan scheme, fashioned in line with margin trading, helped the customers trade in stocks, including that of NBO, on Muscat Securities Market (MSM).

Two years ago NBO slipped into major losses, with provisioning against bad loans mounting to huge sums.

"To minimise the extent of these losses, NBO arranged fresh loans for some of its customers with a few UAE banks, including NBAD and ADCB. The repayment of these loans with interest was guaranteed by NBO. This helped the Omani bank remove millions of riyals of non-performing assets from its books," the source explained.

The very legality of NBO's loan programme is being questioned by aggrieved borrowers. The Shanfari group is now seeking the appointment of a financial committee and a banking expert to delve into NBO's investment and loan practices during the mid- and late-1990s.

In 2004, NBO sued a number of customers for non-payment of these suspect loans. Meanwhile, some of the customers have been actively seeking documentation from the NBO regarding the purpose and intent of those loans. The source said despite orders from Omani courts, the NBO had failed to produce documents.

The lawsuit filed in Dubai seeks the aid of the UAE courts to require NBO to produce the records it provided to the UAE banks when fresh loans were given to its Omani customers.

Aubyn Hill, the former CEO of the NBO and the organiser behind the combined loan and investment scheme, was also named as a defendant in the suit filed in Dubai court.