investor presentation dec 2017 - bank muscat · bank muscatat a glance overview ownership bank...
TRANSCRIPT
Subject:
Department:
Investor Presentation
December 2017
Agenda
I. bank muscat introduction 4
II. Operating Environment 7
III. bank muscat Business Overview 12
IV. Financial Performance 20
V. Annexure 25
Note: The financial information is updated as of 31 Dec 2017, unless stated otherwise.
I. bank muscat introduction
bank muscat at a GlanceOverview Ownership
bank Muscat Growth
#1 Bank in Oman with a significant active customer base in excess of 1.94 millionclients and a workforce of 3,712 employees as of 31st Dec 2017
Established in 1982, headquartered in Muscat with 157 branches across Oman, 2branches overseas, and 3 representative offices Fully diversified commercial bank offering corporate and retail banking services Primarily domestic dominated operations with over 95% of operating income
generated in Oman Meethaq – pioneer of Islamic Banking services in Oman, officially launched in January
2013 with full fledged product and services offering Long term Bank Rating: Moody’s Baa2(Negative), S&P BB (Stable) Listed on the Muscat Securities Market (with a market cap of USD 2,758 million as of
31st Dec 2017), London Stock Exchange & Bahrain Stock Exchange
4
Key Financials
Source: bank muscat audited financial statements and interim financials
Merger with Commercial Bank of Oman
Meethaq launched
Merger between Bank of Muscat
& Bank Al AhliAl Omani
Listed on the MSM in 1993
Acquisition of the Bahraini operations of
ABN AMRO
Acquisition of 49% stake in BMI
Bank
1st Branch in Saudi Arabia
1st Branch in Kuwait
Muscat Capital LLC launched
Dubai Rep Office
Singapore Rep Office
Establishment of Bank of Muscat
Merger of BMI Bank with Al Salam Bank,
Bahrain
1982 20131993 2002 2004 2007 2010 20121996 20092000 2014
Footsteps of a Leader Throughout Decades
IFC becomes a 5% shareholder
Royal Court Affairs23.63%
Dubai Financial Group LLC12.37%
Ministry of Defence Pension
Fund6.48%
Civil Service Pension Fund
5.54%
IFC5.03%
PASI4.85%
Others42.09%
In U S$ M il l ions, unless o t herwise st at ed 2017 2016 2015 2014
Tota l Asse ts 28,959 28,104 32,581 25,268Gross Loa ns 22,484 21,483 19,810 18,298De posits 19,268 19,369 17,502 16,481Ope ra ting Inc ome 1,132 1,081 1058 995Ne t Inc ome 460 459 455 424Tie r 1 16.87% 14.75% 13.50% 13.00%Tota l CAR 18.56% 16.90% 16.10% 15.90%Loa ns to De posit Ra tio 112.26% 106.69% 99.40% 96.90%
NPL Ra tio 2.94% 2.91% 2.80% 2.80%Cost/ Inc ome 42.22% 41.83% 41.95% 41.21%ROA 1.61% 1.64% 1.60% 1.80%ROE 11.44% 12.50% 13.00% 12.90%
bank muscat – Key Highlights
Management
Largest Bank in Oman by total assets of 34.58%, as of 31st Oct 2017, 3 times larger than the 2nd largest Omani Bank
Market Capitalisation of USD 2,758 million as at 31st Dec 2017.
Largest branch network with 157 domestic branches
The only bank in Oman to be designated a “D‐SIB”
Strong Financial Metrics
Stable Operating Environment
Highest Government Ownership
Dominant Franchise in Oman
Highest Government Ownership among Omani Banks Royal Court Affairs: 23.63%
Direct and indirect Government ownership of around 35% through various entities
Most profitable bank in Oman
Strong and sustainable profitability metrics: Operating profit 2013‐2017 CAGR
of 6.4%
Net profit 2013‐2017 CAGR of 3.8%
Stable banking sector Prudential regulatory environment
Stable and experienced management with proven track record of successful organic and inorganic growth
Good corporate governance
Solid Capital Position
Strong capitalization levels offering room for substantial growth
CAR of 18.56% as of 31st Dec 2017
Stable Asset Quality
Conservative lending approach
Strong risk architecture and policies
Adequate asset quality metrics
5 Source: bank muscat audited financial statements and interim financials
II. Operating Environment
Sultanate of Oman – OverviewOverview
GDP Growth GDP CompositionUS$ Million
(1) Source: Central Bank of Oman website, Rating Reports: Moody’s and S&P as of Dec 2017
2nd Largest country in the GCC with an area covering approx. 309.5 thousand km2,strategically located, sharing borders with Saudi Arabia and UAE
Stable Political System, excellent diplomatic relations in the region Oman explicitly aims to create a neo‐liberal free market economy, where the
private sector is the driver of the economy as opposed to the state Population of 4.57mn ‐ predominantly represented by Omani Nationals who
account for 55% of the total population The economy will continue to grow at high rates driven by several factors, such as: The increase in hydrocarbon production The Government’s balanced support for the economy with disciplined fiscal policy
measures Strengthening and growing local demand; increasing services and activities
contribution to GDP “Vision 2020” – focuses on diversification, industrialization and privatization, with
the objective of reducing economic reliance on oil revenues and the hydrocarbonsector contribution to GDP
As of Sep 30th 2017
Source: National Center for Statistics and Information, figure as of Sep 20177
Oman
SaudiArabia
UAEQatarBahrain
Kuwait
As of Sep30th 20176
Petroleum Activities, 27.44%
Agri & Fishing, 1.71%
Manufacturing & Mining, 17.54%
Const., Elec. & Water supply,
8.81%
Transport & Comm., 5.22%
Financial Int., 5.28%
Public admin. & Defence, 11.37%
Wholesale & retail trade,
6.85%
Real Estate Services, 4.53%
Other services, 11.24%
37,532 23,784 18,151 16,229
48,470
49,792 50,083
38,182 ‐3.8% ‐2.9%
‐23.7%
23.9%
8.9%6.7%
0.6%
4.9%
‐30.0%
‐20.0%
‐10.0%
0.0%
10.0%
20.0%
30.0%
‐ 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000
100,000
2014 2015 2016 2017
Oil GDP in Current Prices (US$Mn) Non Oil GDP in Current Prices (US$Mn)
% Change % Change
Key Indicators (1) 2017 2018
Sovereign Ratings Moody's\S&P Baa2/BB Baa2/BBBudget Surplus\Defici t ‐3.5 Bn (Oct '17) ‐3.0 BnSurplus\Defici t % of tota l revenue ‐38.0% Est ‐31.5%
Oman Banking Sector – OverviewOverview
The Omani banking sector comprises of 7 local banks, 2 specialized banks, 9foreign commercial banks and two full fledged Islamic Banks
The top 3 banks after Bank Muscat contribute around 37.5% of totalsector assets. bank muscat represents 34.58% of total banking sectorassets as of Oct 2017
Conservative and Prudent Regulator
A number of regulations and caps in place to support the growth, stabilityand sustainability of the Omani banking sector
Adequate asset quality with relatively low impaired assets and soundcapitalization
Implementing Basel 3 regulation with effect from Jan 2014
Loans and Deposit Growth
Gross Loan: +8.5%Deposits: +6.1%
US$ billion
Oman in the GCC banking sector context(1) Asset Quality(2)
Notes: (1) Central Bank websites based on the latest available figures for the GCC banking sectors. US$/ AED: 3.67, US$/ SAR: 3.75, US$/ QAR: 3.64, KD/ US$: 0.304, US$/ BD: 0.37 and OMR/ US$: 0.385
8
Source(1) GDP data is estimated for FY 2017 (Source: World Bank) Source: National Central Banks 2) Central Banks, EIU and Bloomberg data as of Nov 2017 for Oman, Bahrain, & UAE. Oct 2017 for Kuwait, & KSA & Qatar as of Dec 2017.
732
615
374
206 189
81
375
650
177116
3370
195%
95%
211%
178%
579%
116%
0%
100%
200%
300%
400%
500%
600%
700%
0
100
200
300
400
500
600
700
800
UAE Saudi Arabia Qatar Kuwait Bahrain Oman
Assets as a % of GDP
Total Assets in $ Bn GDP in $ Bn Assets as a % of GDP
bank muscat – Unrivalled Leading Market Position in Oman
Total Assets Gross Loans
Deposits Net Profit
US$ million US$ million
US$ millionUS$ million
Source: Banks’ financial Statements. Based on Dec 2017, except for OAB as of Sep 2017.9Notes: OMR/ US$: 0.385
bank muscat – Dominant Domestic Franchise in the Region
Market Share ‐ Assets Market Share – Deposits
Asset Quality Adequate Capitalization
Assets as % of Total Sector Assets Deposits as % of Total Sector Deposits
16.5% 21.2% 17.8% 18.5% 18.56% 17.8% 16.1%
Source: GCC Central Banks. Banks’ financial Statements. (1) Information for all banks as of Dec 2017, except for NCB as of Sep 2017 & BBK as of June 2017. 10
Total Capital Adequacy Ratio
Key: Qatar National Bank “QNB”, bank muscat “BM”, National Bank of Kuwait “NBK”, National Commercial Bank “NCB”, Emirates NBD “ENBD”, National Bank of Abu Dhabi “NBAD”, Bank of Bahrain and Kuwait “BBK”
18.1%
5.7%
1.8% 1.8%2.9% 3.1%
1.4% 1.3%
6.2%
81.0%
112.0%142.0%
128.9% 120.1%
287.5%
51.0%
124.5%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
350.0%
CBQ QNB NCB BM FAB NBK BBK ENBDNPL/GL LLR/NPL
16.5%
18.8% 16.7% 16.4% 16.87% 15.8% 14.3%
17.0%
0.0%
2.4%1.1% 2.1% 1.69% 2.0%
1.8%1.1%
QNB ENBD FAB NCB BM NBK CBQ BBKTier 1 Tier 2
III. bank muscatBusiness Overview
bank muscat Strategy – Key Pillars
Consolidate Leading Position in Oman
Capitalize on growth opportunities in Oman Infrastructure development projects and Government focus on economic diversification and developing tourism Omanis entering the workforce; over 45% of the population is less than 19 years old
Leverage large network of branches and other delivery channels Platform to focus on the growth potential Cross sell opportunities among business lines and customer segments Continue to focus on customer acquisitions and retention
Focus on fee based income Scale up fee driven businesses both in the wholesale banking (transaction banking, investment banking, treasury)
and personal banking (credit card, bancassurance, private banking)
Leverage on technology and infrastructure investments
Pioneering investments in technology supporting growth plans Multiple digital banking channels for sales and services Technology driven banking to enhance customer experience and improve internal efficiency
Customer Convenience and Service Quality Innovative products and services offering Customer centric approach through “We Can Do More” philosophy
Regional Expansion Strengthen regional presence through focused and controlled expansion in GCC Leverage existing regional presence to scale up business growth Focus on opportunities for controlled expansion in GCC and the region
Focus on Islamic Banking Developments in Oman
Meethaq – Islamic banking platform Be the market leader in Islamic Banking Business Endeavor to offer full fledged products and services Expansion of branch and channel network
12
Financial strength
Further enhance financial strength Strong capitalization and stable returns Further enhance the diversified funding mix and large CASA deposit base. Efficient management of operating costs
bank muscat – Business LinesKey Highlights Asset Contribution Profit Contribution
WholesaleBanking(1)
Corporate Banking
Leading Corporate Bank Franchiseoffering the full array of corporatebanking services
c. 3,550 corporate customers inOman
Strong expertise in project finance
US$ 10.7bn
36.3% of total assets
US$208.6mn
43.5% of total profit
Global Institutions,Investment
Banking & Treasury
Comprise of treasury, corporatefinance, and asset management
Financial Institutions
US$ 5.9bn
20.2% of total assets
US$ 117.3mn
24.5% of total profit
PersonalBanking
Leading Retail Bank platform inOman
Over 1.80 million retail customersin Oman
Largest distribution network
US$ 8.0bn
27.4% of total assets
US$172mn
35.9% of total profit
Meethaq – Islamic Banking
OMR 50mn (c.US$130mn) capitalassigned to this business
Officially launched in January2013. Currently operating through17 full fledged Islamic branches.
US$ 3.1bn
10.5% of total assets
US$ 21.4mn
4.5% of total profit
International Operations
Presence in GCC, Iran andSingapore through overseasbranches, rep offices andsubsidiary
US$ 1.6bn
5.6% of total assets
US$ (39.8)mn
‐8.4% of total profit
Deposits
Loans & Advances
(1) Definition of Wholesale Banking has changed since 1st January 2016
13 Source: bank muscat unaudited financial statements as of Dec 2017
Ministries & Other Gov Orginisations
22%
Private Commercial 33%
Financial Institutions 3%
Individual & Others 43%
Services 10%Mining and quarrying 5%
Manufacture 6%
Real estate 4%
Wholesale and retail trade 2%
Import trade 5%
Financial institutions 5%
Utilities 6%
Transport 9%Construction 4%
Government 0%
Agriculture and allied activities
0%
Export trade 0%Others 1%
Personal and Housing loans
41%
Wholesale Banking
Source: bank muscat audited financial statements as of Dec 2017, except for OAB as of Sep2017.
Corporate Loans –Peer Comparison Asset Growth Operating Income
Overview Opportunities Strategy Leading Corporate Banking Franchise
Extensive and expanding range of products and services
Strong project finance capabilities
Large corporate client portfolio with c.6,200 customers and lead bank for top tier Omani corporate entities
High level of sophistication differentiated through technology led investments
Commitment to maintain strong control over asset quality
Large number of infrastructure/ Industrial projects in the pipeline
Privatisation and diversification drive by Government
Increasing business flows between Oman and regional countries
Leverage on leading position and expertise
Reinforce presence in Oman across all segments in the value chain
Benefit from large infrastructure and industrial projects in Oman
Focus fee income generating business
Transaction banking business to enhance fee income
Explore cross sell opportunities among business lines
Utilize presence in regional markets
Grow GCC trade flows share
US$ billion US$ million US$ million
14
Corporate Banking
13.22
4.943.66 3.85
2.54 2.65 2.58
BankMuscat
Bank
Dho
far
NBO
Bank
Soh
ar
HSBC Oman
Ahli Bank
Oman
Arab
Bank
Source: bank muscat audited financial statements as of Dec 2017.
Securities portfolio (1) Asset Growth Operating Income
Overview Opportunities Strategy Treasury: funding, asset and liability
management requirements, offer structured solutions to corporate clients
Corporate Finance: Leader in corporate advisory: series of successful transactions and track record outside Oman
Financial Institutions: trade, DCM and correspondent banking services
Asset Management: Largest Omani mutual fund manager with potential for growth and expanding outside Oman. Investment solutions for high net worth individuals
Significant cross‐sell opportunities to other wholesale banking clients
Leverage transaction experience in attracting new corporate finance mandates
Leverage regional expansion to introduce new products
Strong growth potential in the high net worth market segment
Strengthen Bank Muscat’s leading position in specialised areas
Utilize the presence in regional markets to expand business
Leverage specialised product expertise in other markets
Leverage on expertise built to further grow the market share and increase the market potential
US$ million US$ million
(1)Securities portfolio represents Bonds & T‐Bills. (2) Others include Baa1 to Baa3 securities and unrated Banks. Data as of Dec 2017.
15
Wholesale BankingGlobal Institutions, Investment Banking & Treasury
Personal Banking
Source: bank muscat audited financial statements as of Dec 2017, except OAB as of Sep 2017.
Personal Loans –Peer Comparison Asset Growth Operating Income
Overview Opportunities Strategy Leading Personal Banking Franchise in Oman Over 1.80 million customers Front‐runner across retail banking segments
including cards, bancassurance and remittances
Largest delivery channel network in Oman (157 branches, 434 ATMs, 233 CDMs and the best online platform in Oman)
Substantial low cost retail deposit base Merchant acquiring market share of over 80%
by volume as of Sep 2017 and leading ecommerce business in Oman
Government spending resulting in job creation
Increase in salaries through various government initiatives
Favorable demographics
Over 45% of the population less than 19 years old
Housing finance
Leveraging on leading presence in the retail segment
Increase penetration and cross sell
Explore new business and product lines
Technology‐led product development and service offerings
Enhance process efficiency and customer convenience
Focus on development and utilization of e‐delivery channels
US$ million US$ millionUS$ billion
16
9.26
3.85 3.53
1.66 1.97 1.73 1.27
BankMuscat
Bank
Dho
far
NBO
Ahli Ba
nk
Oman
Arab
Bank
Bank
Soh
ar
HSBC
Oman
Meethaq – Islamic Banking
Source: bank muscat audited financial statements as of Dec 2017.
Financing Portfolio Meethaq – Products Launched in 2017
2017
Consumer Personal goods finance Travel finance
Investment & Treasury Sukuk issue and advisory
Overview Opportunities Strategy
One of the most successful Islamic banking operation in Oman since 2013
19 dedicated branches become operative throughout the Sultanate
Innovation in product offering and services to create niche
Established Sharia Board comprising of experienced and reputable Sharia scholars
Growth momentum continued in the second year of launch indicating potential in the market
Shari’a governance structure ensures transparent banking
Large network at disposal to leverage business
Awareness drives on Shari’a compliant banking to increase customer base
To be the market leader by far
Full fledged product and service offerings
Increase Meethaq exclusive branch network to an optimum level
Customer Centric approach and transparency
Technology driven customer service delivery within the Shari’a compliance ambit
17
7391,060
1,7272,221
2,566
0500
1,0001,5002,0002,5003,000
2013 2014 2015 2016 2017
Loans (USD)
International Operations
Source: bank muscat audited financial statements as of Dec 2017.
Assets Operating Income
Overview Opportunities Strategy Presence in GCC and Singapore
Branches in Saudi Arabia and Kuwait
Rep offices in UAE, Iran and Singapore
99.99% stake in Muscat Capital LLC – Saudi based, CMA licensed entity
Large banking markets in Saudi Arabia and Kuwait
Pan GCC network offering opportunities for business and trade synergies
Increasing trade/business opportunities between GCC and Asia
Efficiency: rationalization of back‐office costs –sharing of operational costs
Received all regulatory approvals to proceed with representative office (non‐transactional) in Iran
Focus on existing GCC operations
Solidify position and increase profitability
Drive synergies within the group
Scale up business volumes to attain desired return
Capture trade / business flows between GCC and Asia
US$ millionUS$ million
18
IV. Financial Performance
Operating Performance and Profitability
Operating Income & Cost to Income Profitability
Overview Net Interest Margins Resilient operating performance Solid top line income growth – 5 year CAGR of 6.4%
Stable cost to income ratio in spite of business and infrastructure expansion Solid profitability Stable Return on assets
Strong core revenue generation with net interest income and commission and fees contributing to over 86% of total operating income Increasing focus on top line commission and fee income
generation
(1) Other income: FX Income, Profit on sale of non‐trading investments, Dividend income and other income
Source: bank muscat audited financial statements as of Dec 2017. 20
2013 2014 2015 2016 2017Yield % 4.35% 4.03% 3.85% 3.89% 4.14%Cost % 1.46% 1.30% 1.22% 1.40% 1.64%Spread % 2.89% 2.73% 2.63% 2.49% 2.50%
2.89% 2.73% 2.63% 2.49% 2.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
Yield % Cost % Spread %
69%64% 64% 66% 65%
24% 25% 25% 23% 21%
7%12% 11% 11% 14%
42.2% 41.2% 42.0% 41.8% 42.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2013 2014 2015 2016 2017
Net Interest Income Net Commission & fees
Other Income Cost to income ratio
Asset Quality
Gross Loans – Sector Breakup Impaired Assets and Provisioning
Overview Loan Growth Stable loan book growth Conservative lending approach Focus on high quality assets with access to top tier borrowers
Strong project finance capabilities Diversified loan portfolio across sectors Adequate provisioning of impaired asset Conservative approach – provisioning in line with the higher of
either IFRS or CBO requirements Non specific loan loss provisions of 2% on retail portfolio and 1%
on corporate portfolio
Source: bank muscat audited financial statements as of Dec 2017. 21
2.65%2.84%
2.75%2.91% 2.94%
‐ 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
10,000
2013 2014 2015 2016 2017
Gross loans NPL%
Personal and Housing loans 41.2%
Services 10.1%Transport 9.4%
Manufacture 5.9%
Financial institutions5.7%
Utilities 5.4%
Mining and quarrying5.3%
Import trade 5.1%
Real estate 4.4%
Construction 3.4%
Wholesale/Retail trade 2.3%
Others 0.9%
Government 0.4%Agri./allied activities0.3% Export trade 0.2%
Funding and Liquidity
Source: bank muscat audited financial statements as of Dec 2017.
Liquid Assets Capital Adequacy Ratio
Overview Funding Mix Stable funding structure with a diversified funding base Largest deposit base in Oman with significant granularity Retail deposits comprise 40% of total deposits
Top 20 depositors represent 27% of total deposits and comprise of top tier Omani institutions
Strong capitalization levels Highest CAR among Omani peers and one of strongest among
GCC peers Adequately capitalised, with total capital ratio at 18.56% and Tier 1
at 16.87%, above the 13.65% and 10.65% ratio required by the CBO
RO million 16.90%16.10%15.92%16.42%
22
18.56%
Subject:
Department:
شـكــراً لـكـمThank You
VII. Annexure
Balance Sheet
Source: bank muscat audited financial statements as of Dec 201725
Amounts in USD 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15 31‐Dec‐14 31‐Dec‐13Cash and bal. with Central Bank 2,428 2,705 6,265 2,589 1,512 Due from banks 1,538 1,368 2,577 2,283 2,252 Loans and Advances 19,113 18,447 17,391 16,586 15,230 Islamic financing receivables 2,520 2,221 1,649 1,040 725 Non trading investments 2,668 2,748 3,943 1,924 1,460 Tangible fixed assets 187 194 197 187 173 Other assets (incl. invt in associates) 505 422 560 660 690 Total assets 28,959 28,104 32,581 25,268 22,043
Bank deposits/FRNs /Bonds 3,478 3,157 7,926 2,802 2,303 Customer deposits (incl. CDs) 16,778 17,389 17,502 16,481 14,545 Islamic Customer's Deposit 2,493 1,982 1,624 734 241 Other liabilities 1,087 962 1,030 1,056 1,042 Subordinated debt 315 430 625 625 641 Convertible bonds 84 167 247 162 121 Total liabilities 24,236 24,086 28,954 21,860 18,894
Share capital and premium 2,027 1,911 1,802 1,775 1,733Total reserves 1,266 1,162 1,057 1,004 889Retained profits 1,092 945 769 630 527Shareholders' equity 4,385 4,018 3,627 3,408 3,149Perpetual Tier I Capital 338Total liabilities + shareholders' equity 28,959 28,104 32,581 25,268 22,043
Key ratiosLoans and advances/customer deposits 112.26% 106.69% 99.36% 104.71% 103.10%Shareholders' equity/total assets 15.14% 14.30% 11.13% 14.28% 13.35%Subordinated debt/(debt + equity) 6.71% 9.66% 14.69% 16.92% 19.74%BIS total capital ratio 18.56% 16.90% 16.10% 16.50% 15.10%
Profit and Loss
Source: bank muscat audited financial statements as of Dec 201726
Amounts in USD 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15 31‐Dec‐14 31‐Dec‐13Net interest income 667 651 628 589 578 Net income from Islamic financing 64 61 48 43 33 Other operating income 160 369 382 362 272 Operating income 1,132.4 1,081.0 1,058 995 884 Operating costs (478.1) (452.1) (444) (410) (373)
654 629 614 585 510 Recoveries from impairments 116 94 93 67 84 Credit loss impairments (164) (183) (187) (168) (131)Other impairments (65) (12) (13) (4) (12)Gain/(loss) from associates 6 4 5 4 3 Profit before Tax 548 532 512 484 455 Taxation (89) (72) (57) (60) (59)Net Profit 459 460 455 424 395
Key ratiosCost/income ratio 42.22% 41.83% 41.95% 41.21% 42.24%Return on average assets 1.61% 1.64% 1.72% 1.79% 1.86%Return on average equity 11.44% 12.50% 13.68% 13.89% 14.49%Basic EPS (US$) 0.440 0.184 0.200 0.184 0.187Share price (US$) 1.02 1.22 1.22 1.51 1.65