investor presentation june 2018 - bank muscat · 2018-09-10 · bank muscat at a glance overview #1...

Investor PresentationJune 2018

Contents

Bank Muscat Introduction

Operating environment

Bank Muscat business - Overview

Financial Performance

Annexure

Note: The financial information is updated as of 30 June 2018, unless stated otherwise. 2

Bank Muscat Introduction

3

Bank Muscat at a glance

Overview #1 Bank in Oman with a significant active customer base with ~2 million

clients and a workforce of 3,743 employees as of 30th June 2018. Established in 1982, headquartered in Muscat with 167 branches across

Oman, 2 branches 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 servicesoffering

Listed on the Muscat Securities Market (with a market cap of USD 3,123million as of 30th June 2018), London Stock Exchange & Bahrain StockExchange

Ownership

Key Financials Bank Muscat Footsteps

4

Bank Muscat – Key Highlights

Management

Largest Bank in Oman by total assets of 35.48%, as of 30th

Apr 2018, 3 times larger than the 2nd largest Omani Bank

Market Capitalisation of USD 3,123 million as at 30th June 2018

Largest branch network with 167 domestic branches

The only bank in Oman to be designated a “D-SIB”

Strong Financial Metrics

Stable Operating Environment

Highest Government OwnershipDominant Franchise in Oman

Highest Government Ownership among Omani Banks

Royal Court Affairs: 23.63%

Significant direct and indirect Government ownership through various entities.

Most profitable bank in Oman

Solid topline income growth

Stable cost-to-income ratio despite business and infrastructure expansion

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 political system in the Oman with excellent diplomatic relationship in the region

Economic growth in Oman supported by increase in hydrocarbon production, strengthening and growing local demand, and discipline fiscal policy measures

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 17.43% as of 30th June 2018

Stable Asset Quality

Conservative lending approach

Strong risk architecture and policies

Adequate asset quality metrics 5

Operating Environment

6

Sultanate of Oman – Overview

Overview

GDP Growth GDP Composition

(1) Source: Central Bank of Oman website, Rating Reports: Moody’s and S&P as of Dec 2017

Source: National Center for Statistics and Information, figure as of Sep 20177

Oman

SaudiArabia

UAEQatarBahrainKuwait

Source: IMF data as of Apr 2018

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 4.6mn as of July 2018 - predominantly represented by Omani Nationals who

account for 56.2% 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 Govt. initiated a dedicated program called “Tanfeedh” to focus on economic diversification

through focus on key sectors in phase 1 viz. manufacturing, logistics and tourism

Key Indicators (1) 2017 2018Sovereign Ratings Moody's\S&P Baa2/BB Baa3/BBBudget Surplus\Deficit -3.3 Bn (Nov '17) -3.0 BnSurplus\Deficit % of total revenue -38.0% Est -31.5%

Net Public Debt (% GDP) Est 38% Est 50%

4.4%

2.8%

4.7%

1.8%

‐0.3%

2.1%

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2013 2014 2015 2016 2017 Est. 2018

GDP Growth %

7

Oman Banking Sector – Overview

Overview The Omani banking sector comprises of 7 local banks, 2 specialized banks,

9 foreign commercial banks and two full fledged Islamic Banks

The top 3 banks after bank muscat contribute around 36.9% of totalsector assets. bank muscat represents 35.48% of total banking sectorassets as of April 2018

Conservative and Prudent Regulator

A number of regulations and caps in place to support the growth,stability and sustainability of the Omani banking sector

Adequate asset quality with relatively low impaired assets and soundcapitalization

Implemented Basel 3 regulation with effect from Jan 2014

Loans and Deposit Growth Gross Loan: +7.8%Deposits: +5.4%

US$ billion

Oman in the GCC banking sector context(1) Asset Quality(2)

(1) GDP data is estimated for FY 2018 (Source: World Bank, National Central Banks) KSA, Qatar, Kuwait & Bahrain data as of Jun 2018, Oman as of May 2018 & UAE as of Mar 2018.

(2) Source: Central Banks, KSA, Qatar, Kuwait & Bahrain data as of Jun 2018, Oman as of May 2018 & UAE as of Mar 2018.

745

607

383

231

59 85

419

759

188136

3785

178%

80%

204%

170%159%

100%

0%

50%

100%

150%

200%

250%

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

8

Bank Muscat – Unrivalled Leading Market Position in Oman

Total Assets Gross Loans

Deposits Net Profit

US$ million

29,364

5,483

5,662

7,595

6,262

9,371

10,914

Bank Muscat

Ahli Bank

Oman Arab Bank

Bank Sohar

HSBC Bank Oman

National Bank of Oman

Bank Dhofar

22,800

4,670

3,893

4,668

5,766

7,321

8,685

Bank Muscat

Oman Arab Bank

HSBC Bank Oman

Ahli Bank

Bank Sohar


Bank Dhofar

19,818

3,981

4,301

4,605

5,122

6,841

8,202

Bank Muscat

Ahli Bank

Bank Sohar

Oman Arab Bank

HSBC Bank Oman


Bank Dhofar

116

21

16

18

23

35

33

Bank Muscat

HSBC Bank Oman

Oman Arab Bank

Ahli Bank

Bank Sohar

Bank Dhofar


9

Bank Muscat – Dominant Domestic Franchise in the Region

Market Share ‐ Assets Market Share – Deposits

Asset Quality Strong CapitalizationAssets as % of Total Sector Assets Deposits as % of Total Sector Deposits

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.

Total Capital Adequacy Ratio

15.8% 21.2% 16.4% 20.3% 17.43% 17.2% 14.5% 18.46%

5.4%

1.8% 1.7%3.1% 3.1%

1.4%3.1%

6.0%

84.2%

110.0%

161.4% 110.3%123.0%

254.0%

51.0%

128.4%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

300.0%

CBQ QNB NCB BM FAB NBK BBK ENBDNPL/GL LLR/NPL

15.2%

19.8%15.3%

18.1% 16.9% 15.1% 13.0%

17.3%

0.6%

1.4%1.1% 2.2% 0.6%

2.1%1.5%

1.1%

QNB ENBD FAB NCB BM NBK CBQ BBKTier 1 Tier 2

10

Bank Muscat Business - Overview

11

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 “To Serve you better, everyday” 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

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

12

Bank Muscat – Business Lines

Key Highlights Asset Contribution

Profit Contribution

WholesaleBanking

Corporate Banking

Leading Corporate BankFranchise offering the full arrayof corporate banking services

~ 6,500 corporate customers inOman

Strong expertise in projectfinance

US$ 10.9bn

35.7% of total assets

US$ 110.3mn

43.6% of total profit

GlobalInstitutions,InvestmentBanking & Treasury

Comprise of treasury, corporatefinance, and asset management

Financial Institutions

US$ 6.3bn


US$ 51.2mn


PersonalBanking

Leading Retail Bank platform inOman

~ 2 million retail customers inOman

Largest distribution network

US$ 8.4bn


US$ 80.9mn

32% of total profit

Meethaq – Islamic Banking

OMR 65mn (c.US$167mn)capital assigned to this business

Officially launched in January2013. Currently operatingthrough 19 full fledged Islamicbranches.

US$ 3.4bn


US$ 16.1mn


International Operations

Presence in GCC, Iran andSingapore through overseasbranches, rep offices andsubsidiary

US$ 1.4bn


US$ (5.5)mn

-2.2% of total profit

Deposits

Loans & Advances

13

Wholesale Banking- Corporate Banking

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

Amounts in USD mn.

Corporate Loans- Peer comparison Asset Growth Operating Income

9,346

10,134 10,27310,623 10,846 10,939

2013 2014 2015 2016 2017 June 2018

Total Assets

226 247297 319 343

171

2013 2014 2015 2016 2017 June 2018

Operating Income

US$ billion

13.67

4.763.72 4.02

2.52 3.09 2.72

BankMuscat

Bank

Dho

far

NBO

Bank

Soh

ar

HSBC Oman

Ahli Ba

nk

Oman

Arab

Bank

14

Wholesale Banking – Global Financial Institutions, Investment Banking & Treasury

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

Amounts in USD mn.

Securities Portfolio Asset Growth Operating Income

15

Personal Banking

Overview Opportunities Strategy Leading Personal Banking Franchise

in Oman Over 1.90 million customers Front-runner across retail banking

segments including cards, bancassurance and remittances

Largest delivery channel network in Oman (167 branches, 436 ATMs, 253 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 Mar 2018 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

Amounts in USD mn.

Personal Loans- Peer comparison Asset Growth Operating Income

US$ billion

9.29

3.68 3.56

1.68 1.78 1.851.30

BankMuscat

Bank

Dho

far

NBO

Ahli Bank

Oman

Arab

Bank

Bank

Soh

ar

HSBC Oman

16

Meethaq – Islamic Banking

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

Amounts in USD mn.

Financing Portfolio Operating Income

1,060

1,677

2,2592,566

2,787

0

500

1,000

1,500

2,000

2,500

3,000

2014 2015 2016 2017 June 2018

4752

66 70

23

01020304050607080

2014 2015 2016 2017 June 201817

International Operations

Overview Opportunities Strategy Presence in GCC and Singapore

Branches in Saudi Arabia and Kuwait

Rep offices in UAE, Iran and Singapore

100% 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

Amounts in USD mn.

Total Assets Operating Income

1,700 1,795 1,9961,683

1,403

2014 2015 2016 2017 June 2018

Total Assets

61

48 41

47

27

2014 2015 2016 2017 June 2018

Operating Income 18

Financial Performance

19

Operating performance & 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

Amounts in USD mn.

Operating Income & Cost to Income Profitability

64% 64% 66% 65% 67%

25% 25% 23% 21% 21%

12% 11% 11% 14% 12%

41.2% 42.0% 41.8% 42.2% 43.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2014 2015 2016 2017 June 2018

Net Interest Income Net Commission & fees

Other Income Cost to income ratio

4.35%4.03%

3.85% 3.89%4.14%

4.42%

1.46%1.30% 1.22%

1.40%1.64%

1.85%

2.89%2.73% 2.63% 2.49% 2.50% 2.57%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2013 2014 2015 2016 2017 Q2 2018

Yield % Cost % Spread %

20

Asset Quality

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

Gross Loans by Sector Impaired assets & Provisioning

672773 815 851 764

520 544 624

660 704

129.4%142.1%

130.6% 128.9%

108.4%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

2014 2015 2016 2017 Jun‐18

LLR NPL

Import trade4.6%

Wholesale and retail trade 2.4%

Mining and quarrying 5.5%

Construction7.1%

Manufacture5.7%

Utilities 5.8%

Transport 9.1%

Financial institutions

4.6%Services 11.2%

Personal and Housing loans

41.1%

Others 3.0%

21

2.84%2.75%

2.91% 2.94% 3.07%

‐

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

2014 2015 2016 2017 Jun‐18

Gross loans NPL%

Funding & Liquidity

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 17.43% and

Tier 1 at 16.85%, above the 13.575% and 11.575% ratio required by the CBO as of 1st April 2018.

22

Annexures

23

Balance Sheet Amounts in USD mn.

Amounts in USD 30‐Jun‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15 31‐Dec‐14Cash and bal. with Central Bank 1,536 2,428 2,705 6,265 2,174Due from banks 2,347 1,538 1,368 2,575 2,698Loans and Advances 19,429 19,113 18,447 17,391 16,586Islamic financing receivables 2,757 2,520 2,221 1,649 1,040Non trading investments 3,072 2,668 2,748 3,944 1,924Tangible fixed assets 173 187 194 199 187Other assets (incl. invt in associates) 648 505 422 560 660Total assets 29,962 28,959 28,104 32,583 25,268

Bank deposits/FRNs /Bonds 3,608 3,478 3,157 7,924 2,802Customer deposits (incl. CDs) 17,392 16,778 17,389 17,502 16,481Islamic Customer's Deposit 2,589 2,493 1,982 1,624 734Other liabilities 1,271 975 962 1,034 1,056Subordinated debt 298 315 430 625 625Convertible bonds 0 84 167 246 162Total liabilities 25,157 24,236 24,086 28,954 21,860

Share capital and premium 2,146 2,027 1,911 1,803 1,775Total reserves 1,232 1,266 1,162 1,057 1,004Retained profits 1,087 1,092 945 769 630Shareholders' equity 4,465 4,385 4,018 3,628 3,408Perpetual Tier I Capital 338 338Total liabilities + shareholders' equity 29,960 28,959 28,105 32,583 25,268

Key ratiosLoans and advances/customer deposits 111.0% 112.3% 106.7% 99.4% 102.4%Shareholders' equity/total assets 14.90% 15.14% 14.30% 11.14% 13.49%Subordinated debt/(debt + equity) 5.85% 6.71% 9.66% 14.68% 15.49%BIS total capital ratio 17.43% 18.45% 16.90% 16.10% 15.92% 24

Profit & Loss Statement Amounts in USD mn.

Amounts in USD 30‐Jun‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15 31‐Dec‐14Net interest income 340 667 651 628 589 Net income from Islamic financing 36 64 61 48 43 Other operating income 187 402 369 382 362 Operating income 563 1,132 1,081 1,058 995 Operating costs (243) (478) (452) (444) (410)

321 654 629 614 585 Recoveries from impairments 53 107 94 93 67 Credit loss impairments (94) (164) (183) (187) (168)Other impairments (2) (55) (12) (13) (4)Gain/(loss) from associates ‐ 6 4 5 4 Profit before Tax 279 548 532 512 484 Taxation (44) (89) (72) (57) (60)Net Profit 234 459 460 455 424

Key ratiosCost/income ratio 43.1% 42.2% 41.8% 42.0% 41.2%Return on average assets 1.6% 1.6% 1.6% 1.7% 1.8%Return on average equity 10.8% 11.4% 12.5% 13.7% 13.9%Basic EPS (US$) 3.9% 17.0% 18.4% 17.5% 19.0%Share price (US$) 106.0% 102.0% 123.0% 123.0% 151.0%

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investor presentation june 2018 - bank muscat · 2018-09-10 · bank muscat at a glance overview #1...

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