Bank Muscat: Towards Sustainable Banking

Leen Kumar, Chief Risk Officer

Agenda

2

� Who we are

� Oman & Banking in Oman - The evolving environment

� Towards sustainable banking – Four Priority areas for Bank Muscat

1. Enhancing Economic Performance

2. Developing from within

3. Empowering Communities

4. Recognizing our Environmental Impact

� Recognition for Bank Muscat Efforts

� Way Forward

Who We Are: Establishment and Evolution

3

ba n k m u s ca t i s fa r a he a do f i t s co m pe t i to r s i n te r m so f b ra n dv a l ue.ba n k m u s ca t ca me f i r s t i n t he “ To p M a n a ge me n t C ho i ce ” a n d“ Po p u l a r C ho i ce ”o f i n B u s i ne s s To d a y ’ s Be s t B ra n d S u rv e y 2 0 1 2

2001: Acquired Industrial Bank of Oman

� Bank muscat has evolved as the largest bank in terms of assets, customer base, network and market share over the years:

1986: Renamed to ‘Bank of Muscat’

1993: Merger with Al Ahli Al Omani

2000: Mergerd with Commercial Bank of Oman

1989: Acquisition of Oman Banking Corporation

2002: Acquired Al Ahlia Securities and ABN Amro Bahraini Operations to form ‘BankMuscat’

1982: Estd of Oman Overseas Trust Bank

Who We Are: Key Facts and Figures

4

Key Facts

Total Assets RO 7.7bn

Customer Deposits RO 5.0bn

Net Loans and Advances

RO 5.4bn

Customers 1.3mn

Delivery Channels

Employees 3,214

Branches 138

ATMs 409

CDMs 144

POS Terminals 7,129

International Presence

Overseas EntitiesOverseas Entities 77

Overseas Branches (KSA and Kuwait)

2

Subsidiaries (KSA)

1

Representative Offices(UAE and Singapore)

2

Associates(BMI and Mangal Keshav)

2

Credit Rating

LT Credit Rating –Moody’s

A1

LT Credit Rating – S&P A-

LT Credit Rating – Fitch A-

LT Credit Rating –Capital Intelligence

A

Oman – The evolving environment

5

Under the leadership of His Majesty, the government of Oman endeavor to conserve and maintain natural resources:

� Energy Efficiency

Investment in R & D of advanced technologies continues to be central strategy.

� Waste Management

Treated effluent used for a wide range of irrigation purposes eg. parks in al qurum natural park, al sahwa park and Golf courses.

� Eco – Tourism

Tourism carefully planned to avoid exploitation of places of natural beauty which will affect the sustainability of revenue from such resources due to lack of preservation and controlled tourism.

� Focus on Alternate Energies

Focus on alternate energy sources like wind power and solar power.

� Water Conservation

With scarce rain and increasing population HM has emphasis during his meet the people tours the need to conserve water. Traditional falaj system is an example of Oman’s water conservation initiative for generations.

Banking in Oman – The evolving environment

6

� A society well integrated with world developments

� A community that lives in harmony with nature and a high degree of commitment to preserving the environment

� Government diversifying sources of revenue – Tourism being one of the key focus areas

� Key areas of economy – Oil and Gas, Agriculture, Fisheries & Toursim have an impact on and are impacted by the environment

� Highly competitive banking industry, commoditization of products

� Banks competing for customers by differentiating themselves through a commitment to sustainable development

� Corporate Social Responsibility moving away from traditional charities and donations to active engagement through community development programs

� Commitment to sustainability seen as a good business decision both by banks and their customers

Towards Sustainable Banking

7

� Bank muscat considers sustainability a critical component to itsbusiness foundation and puts it into practice through four pillars:

� Sustainability is driven from top to down in bank’s work culture, it is fabricated at all levels in the organization;

� Each of our colleagues play a pivotal role in strengthening the organisation’s commitment to “DO MORE”;

Towards Sustainable Banking

8

Bank muscat considers sustainability a critical component to itsBusiness foundation and puts it into practice through four pillars:

Bank’s vision drives sustainability from the top down

Four pillars designed to drive sustainable best practices into core business servicesAnd support the Bank’s vision of doing more

Sustainability is the foundation of the Bank’s success

Four Pillars of “Sustainability” at bank muscat

9

Support social and humanitarian activities, events and charitable causes to continue serving local communities;

Support

Accountability

Recognition

Development

Support sustainable development through continuous efforts in order to directly and indirectly benefit society, the economy and the environment;

Develop policies to expand positive reach and incorporate sustainability into business practices;

Encourage employees to undertake voluntary activities through systems in place to promote participation in such initiatives, thereby benefitting society, the environment and the economy;

Continue to invest in people and promote a healthy work environment to fulfill the commitment of development of our people and work towards fostering a healthy work culture;

Towards Sustainable Banking

10

� “Meeting the needs of the present without compromising the ability of future generations to meet their own needs”

� Developed a sustainability framework designed to pave its path towards economic, environmental and social development;

� Identified four priority areas for sustainability:

1. Towards Sustainable Banking– Enhancing Economic Performance

Responsible Banking

� Transparency in dealing with all stakeholders

� Commitment to sustainable long term returns over short term gains

� Environmental and social considerations: Equator Principles and SEMS

� ‘Customer First’ principle hardwired into our business process

11

Identification and Measurement of environmental and Social Risks

12

Equator Principles: Guidelines & Reporting

13

� Equator Principles serves as a risk management framework for determining, assessing and managing environment and social risks in project finance transactions;

� Applicable for financing projects exceeding US$ 10million;

� Responsibility of adherence is shared by all the employees working on the potential opportunity, however, the primary responsibility vests with the Project & Structured Finance team;

� Evaluation of the transaction includes:� Collection of all relevant information required for evaluation;� Evaluation to ascertain its compliance with the underlying

Principles; and� Stipulation of covenants in the Facility Agreement for adherence to

the underlying Principles.

Equator Principles: 2012 Transactions Processed by bank muscat

Category1 Oman GCC (excl Oman) Asia Total

A 0 0 0 0

B 6 1 1 8

C 7 1 1 9

Adherence to such principles allows bank to assess, mitigate, document and monitor the credit risk and reputation risk associated with financing projects;

1Category A: Projects with potentially significant adverse social and environmental impacts that are diverse, irreversible or unprecedented;

Category B: Projects with potentially limited adverse social and environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; Category C: Projects with minimal or no social or environmental impacts;

Social and Environmental Management System (SEMS): Policy and Guidelines

14

� Clients to provide an undertaking that they have all licenses covering social and environmental issues;

� A site visit and checklist is completed for the Client before sanctioning the loan to ensure compliance with SEMS policy requirements

� Government and municipality conduct a site visit and interview with the borrower once a year

SEMS Policy

� Ensuring that all activities undertaken by the Bank are consistent with the Applicable Requirements;

� Ensuring that all projects are operated in compliance with the Applicable Requirements on an ongoing basis, during the currency of the Bank’s financing;

� Ensuring transparency in its activities;

� Ensuring that the management and the shareholders of the client companies understand the policy commitments made by the Bank in this area;

Compliance Guidelines

2. Towards Sustainable Banking- Developing from Within

15

� A proven woman empowerment strategy;� 43% of our staff are women including senior positions;

� Attracting and Nurturing talent;� Low turnover rate of 5%� Increased number of trainees from local universities;

� Employee engagement programs;� 70+ events were organized during 2012 as part of “Body, Soul,

Mind and Heart” Campaign;

� First middle east bank to meet the Investor in People (IiP) standard of improving business performance by committing itself to the development of staff.

� Training and development;� During 2012, 141 training days were utilized by staff members

throughout all levels of management;

� Qualified for Level III of People Capability Maturity Model – First bank in the world to be certied for the whole organization

� Staff encouraged to take ‘Sustainability training and e-learning program’ conducted by IFC.

� Health and safety initiatives;� First Aid training to staff;� Safety audit of Office premises;

16

2. Towards Sustainable Banking- Developing from Within

17

� To ensure effectiveness, CSR is driven by the members of top management of the bank;

� Encouraging local entrepreneurship;

� Educating our customers and communities on financial planning & management;

� Investing in local supplies;

� Simplifying access;� We ensure reaching out to all possible segments of society for

their banking needs;

� Specialized products;� Zeinah – Product range tailored for Women;� Shababi – Product range tailored for the Youth;

� Green Guardian Special Commendation, CSR (2010)

3. Towards Sustainable Banking- Empowering Communities

4. Towards Sustainable Banking– Recognizing our environmental Impact

18

� Reduction of paper use – e briefcase, Corporate workflow, i-share, I pad for management team� E learning, Video conferencing and reduction of travel� Waste management – Segregated dust bins

� Water Savings – Recycled water utilized wherever possible

� Energy Saving – HO fitted with sensor for lights

� Car Pooling - Employees use car pooling as a means of

transportation to bank

� Communication and Education - Circulation of internal documents in

electronic format;

� CSR part of employee KRIs – 5 hours of community service each

employee per year

Bank muscat’s Go Green Initiatives (1/2)

19

� The recently-built headquarters of bank muscat is equipped with the following features to reduce carbon footprint

� Building orientation maximizes natural light, reducing lighting requirements during the day;

� Pilkington “E” glass and film on the Oriel windows insulate the building from the heat;

� Water bodies in the lobby reduces the temperature and reduce cooling demands. Furthermore, this water is recycled and reused to minimize waste;

� Occupancy sensors ensure that interior lights remain switched off at times of zero occupancy;

� Air-conditioning units are strategically placed to enhance the natural flow of cool air;

� Taps and flushes are fitted with automated sensors to save water;

� Green Habitat Award 2011 (Head Office project);� Quality Award for Projects, 2010 (Head Office project);

Bank muscat’s Go Green Initiatives (2/2)

20

� Health and Safety Department drive responsible working practices across the organization;

� Few steps taken by the Bank towards conserving environment include:

� Electronic newsletters;

� Circulation of internal documents in electronic format;

� Paperless loan approval mechanism through initiatives such as proposal automation and e-briefcase. This initiative saves printing around 60 pages per proposal evaluation.

� Digital banners and kiosks;

Affiliations and accolades

21

� Recognized as the first bank in the Middle East to adopt “Equator Principles” – a globally recognized voluntary guidelines established to assess and manage environmental and social risks in project financing;

� First bank in Middle East to have joined United Nations Environment Programme Finance Initiative (UNEP FI);

� Bank has an established “Social and Environmental Management System”;

� Emea Finance award 2010 - Best power deal in the Middle East: Barka III/Sohar II IPPs;

� Widely acclaimed “Borrow Wisely” campaign during 2012;

� Periodic workshops and dedicated office facilities for SME customers;

Way Forward: We Can Do More

22

� The Bank plans to extend the SEMS policy to all divisions of thebank. This will allow the Bank to manage the environmental and social risk associated with lending at all levels;

� The Bank plans to roll-out the Sustainability Training and E-learning Program (STEP) training, which is a course developed bythe IFC for training on sustainability related risks associated with projects, for all its lending officers;

� The Bank is also planning to organize a specific training program tailored towards Equator Principles for its employees;

Thank You

23