'The full extent of the losses remains unclear, as he [Al-Lawati] still has some assets and he has declared himself to still be in business and willing to pay off his creditors over the next seven to 10 years,' says a senior local banker. 'But the smart banks will try to cover the full exposures. There is no point in the banks having this hanging over them like a sword.'

ARTG has total exposures of about RO 70 million ($182 million), but it is understood that about RO 20 million ($52 million) is secured. Of the remaining RO 50 million ($130 million), about RO 31 million ($80 million) is owed to local banks.

Details of the extent of individual banks' exposures to Al-Lawati have not been made public, but it is understood that National Bank of Omanand BankMuscathave the largest local exposures, at about RO 10 million ($26 million) each. Oman International Bank, Majan International Bankand Bank Dhofar al-Omani al-Fransieach have ARTG exposures of less than RO 5 million ($13 million) each.

Outside Oman, it is understood that HSBCand two UAE banks, MashreqBankand Union National Bank, are also involved.

The Central Bank of Oman has issued instructions that all local banks affected must provision for the loan losses before they will be permitted to pay dividends to their shareholders. The central bank has told the banks that they will be allowed to phase the full provisioning over a three-year period, but it is expected that some will move to cover their full exposures this year. It is estimated that there is another RO 200 million ($519 million) of declared bad debt on the balance sheets of local banks, and analysts will be watching full-year provisioning levels closely.

'This is going to hurt some of the banks and, in the context of a depressed stock market and a generally difficult operating environment, we can expect weaker profits from a number of banks for this year,' says the banker.