www.bankmuscat.com september 2012 investor presentation
TRANSCRIPT
www.bankmuscat.com
September 2012
Investor Presentation
2
Agenda
Introduction
Omani Economy
BankMuscat Overview and Strategy
Financial Performance and Capital
Appendix
Note:
• Financial figures are as at 30 Sep 2012 unless otherwise stated.
• All numbers in this presentation have been translated from the respective local currency into US$ for convenience of the readers. Exchange rate used: 1$ = 0.385 RO. BankMuscat follows IFRS.
3
Introduction
4
BankMuscat Summary
#1 bank in Oman
#1 Omani bank with a 37.80% market share with assets of ($19.8 billion) as at
30 Sep 2012 Established and well-recognised domestic brand
Focused geographic diversification
Financial Strength
Strong shareholder support
Stable and experienced management team
Well-positioned to benefit from growth opportunities in Oman
Significant infrastructure development expected to contribute to banking sector growth Substantial product cross-sell opportunities Sizeable “unbanked market”; over 49% of population less than 25 years old
Expansion in Gulf Co-operation Council (GCC) countries – direct presence in Bahrain, UAE, Saudi Arabia and Kuwait. In direct presence in Qatar.
Presence in India leveraging customer links and market’s growth potential
Return on average equity of 15.31% - Sep 12 Net profit CAGR 2003 – 2011 of 20.1% Investment grade credit ratings
Only Omani bank to have the largest shareholding by Royal Court Affairs (Omani Government)
Financial investment by Dubai Financial Group with 13.21%
Members of existing senior management team in place for over 10 years Proven track record of successful organic growth and acquisitions Re-energized management team with new organisation chart to enhance synergies between
various business functions
5
Omani Economy
6
Sultanate of Oman
Total size: approx. 309,500 square kilometres
Population: 2.77 million*
Political system: Monarchy (Sultanate) advised by Council of Ministers
Constitution: Basic Law of the State issued in 1996
Oman is a member of GCC, UN, IMF, IBRD, Islamic Development Bank and WTO
Well-regulated banking and capital markets through Central Bank of Oman (CBO) and Capital Markets Authority (CMA)
Credit ratings: A (S&P) and A1 (Moody’s)
Source: Ministry of National Economy (MONE). Omani population per 2003 Census 2.3 mn.
* Preliminarily 2010 Census
7
GDP Growth
Increasing Oil ProductionGDP growth driven by Oil price
• Provisional
• ** Preliminary
21,756
24,740 30,883
36,756
41,846
60,653
48,205
59,151
72,585
7.2%13.7%
24.8%
19.0%
13.8%
44.9%
(20.5%)
22.7%
22.7%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2003 2004 2005 2006 2007 2008 2009*2010*2011**
S m
illio
n
GDP in current prices (USD mn) GDP - growth nominal
299285.4 282.6 269
259
277 297 316 323
27.834.4
50.361.7
65.2
101.1
56.7
76.6
103.0
0
20
40
60
80
100
120
0
50
100
150
200
250
300
350
$ / bar
rel
mn ba
rrels
Prodcution Oil Price
8
GDP components under “Vision 2020”GDP components at the end of 2011*
Source: Central Bank of Oman’s Annual Report 2010 .
* Preliminary
A New Omani Economy by 2020
Agri. & fishing1%
Financial inst.4%
Transport & communication
5%
Manuf., mining & construction
15%
Trade, tourism and real estate
12%
Petro activities51%
Others12%
Agri. & fishing5%
Financial inst.8%
Transport & communication
8%
Manuf ., mining & construction
17%
Trade, tourism and real estate
26%
Petro activities19%
Others17%
9
BankMuscat Overview and strategy
10
BankMuscat – Oman’s #1 Bank
Market capitalization $2,912 million
Retail customers 1,230,654
Market share by assets 37.80%
Branches 135
Employees 3,182
Total customer deposits $12.9 billion (Customer deposits and CD’s)
Total assets $19.9 billion
Net loans and advances $13.9 billion
Major shareholders Royal Court Affairs (Omani Government) 24.89%Dubai Financial Group 13.21%
Strategic investments 49% in BMI Bank, Bahrain 43% in Mangal Keshav Holdings Limited, India
Other regional locations Dubai RO (UAE), Riyadh Branch (Saudi Arabia), Kuwait
branch, Muscat Security House (subsidiary in Saudi
Arabia) & Singapore RO
Long-term credit ratings A- (S&P – Sep’12), A1 (Moody’s – Sep’12), A- (Fitch – Sep’12), A (capital intelligence Sep 2012)
Note: Market Capitalization as on 30 Sep 2012.
11
Diverse Income and Asset Base ...
International group include associate operations in India and Bahrain, branch in Kuwait and branch and subsidiary in Saudi Arabia
Assets by Group Net Profit by Group
As at 30 Sep 2012
Corporate, 33.4%
Consumer, 41.6%
Intl, -3.5%
Wholesale, 28.5%
Wholesale24.7%
Corporate38.3%
Consumer28.6%Intl.
8.5%
12
Loan and Deposit Portfolio Breakdown
Loans and advances by segment Deposits by segment
As at 30 June 2012.
Construction2.9%
Government0.4%
Import & Export trade
4.2%Manufacture
5.6%
Mining and quarrying
7.6%
Real estate4.3%
Services11.9%
Transport5.4%
Utilities6.0%
Wholesale & retail trade
4.5%
Personal / Housing Loans
40.4%
FI's and Others6.9%
Financial institutions
1%
Individuals and others
36%
Ministries and other
government organisations
35%
Private Commercial
Sector28%
13
BankMuscat Strategy
Consolidate leading position in Oman
Capitalise on growth opportunities in Oman
– Infrastructure development projects and Government focus on economic diversification and developing tourism
– Omanis entering the workforce; over 49% of the population less than 25 years old
Leverage large network of branches and other delivery channels to target the growth potential and cross-sell opportunities
Focus on fee based income by scaling up businesses such as Credit Cards, Investment banking, asset management, private banking and others
Islamic Banking Opportunity - Meethaq (subject to regulatory approval)
Full fledged product and service offerings, standard of excellence, customer centric approach and transparency
Leverage on investments in new technology and state of the art head office building to further increase efficiency, improve customer service and support growth plan
Strengthen regional presence through focused and controlled expansion in GCC countries
Presence in Bahrain, UAE, Saudi Arabia, Kuwait and Qatar
Leverage the regional presence and scale up business growth
14
Corporate Banking
Market leader in corporate banking
Extensive and expanding range of products and services
Project finance of prime importance; BankMuscat plays a prominent role in the financing of nearly all major Omani projects
Technology-led developments 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
1,021 1,417 2,139 2,193 2,325 2,736
40.1
50.7
62.468.0
79.5 81.9
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
-
500
1,000
1,500
2,000
2,500
3,000
2006 2007 2008 2009 2010 2011
RO
mil
lio
n
Total assets Operating income
Overview Strategy Opportunities
Corporate Banking Financial Performance
Leverage the leading position and expertise to benefit from large infrastructure and industrial projects in Oman
Utilize the presence in regional markets
Focus on non-fund business and fee income
Target all segments in value chain
15
Retail Banking
Over 1.1 million customers Customer-focus and service-
oriented approach Largest delivery channel
network in Oman Innovative products have been
successful Substantial low cost retail
deposit base Front-runner in card services
segment, Bancassurance, remittance etc.
Merchant acquiring market share of over 60% by volume in 2011
Total retail credit in 2010 amounts to approx. 18% of GDP of 2011.
Favourable demographics; over 49% population less than 25 years old
Housing finance
Overview Strategy Opportunities
Retail Banking Financial Performance
Leveraging the large customer base and achieving cross sell
Technology-led product development and service offerings
Enhance process efficiency Focus on development and
utilization of e-delivery channels
930 1,187 1,872 1,907 1,997 2,347
66.9
84.8 116.6 115.5 114.7
137.4
-
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
-
500
1,000
1,500
2,000
2,500
2006 2007 2008 2009 2010 2011
RO
mil
lio
n
Total assets Operating income
16
Wholesale Banking Group
Treasury: Manage funding and asset and liability management requirements and offer structured solutions (e.g. derivatives, commodity) to corporate clients
Brokerage: Leadership position on Muscat Securities. Strong client base.
Corporate Finance: Leader in corporate advisory with a series of successful transactions. Able to build track record outside Oman.
Asset Management: Largest Omani mutual fund manager with potential for growth. Expanding fund management outside Oman.
Private Banking: Banking and investment solutions for high net worth individuals
Significant cross-sell opportunities 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
Overview Strategy Opportunities
Wholesale Banking Financial Performance
Strengthen the leading position in specialised areas
Utilize the presence in regional markets to expand business
Leverage specialised product expertise in other markets
Focus on fee income Inorganic growth
971 1,457 1,616 1,453 1,281 1,783
23.6
36.4
52.7
42.6
65.9 66.3
0
10
20
30
40
50
60
70
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2006 2007 2008 2009 2010 2011
RO
mill
ion
Total assets Operating income
17
Islamic Banking – Meethaq (subject to regulatory approval)
Experience in Islamic Banking through overseas operations
Leverage service excellence and infrastructure
Assigned a capital of up to RO 150 million
Dedicated branches with Meethaq branding
Established the Sharia Board
New business opportunity with unexplored market potential
Large net worth size to leverage business
Potential to target existing customer base of over 1 million
Leverage on strong BM brand
Overview Strategy Opportunities
Full fledged product and service offerings
Customer Centric approach and transparency
Plan to have 7 branches in the first year and expand
18
International Group contd...
Footprint in all GCC countries, Southeast Asia and the Indian Subcontinent region.
Overseas branches in Riyadh, KSA and Kuwait
Representative Offices in UAE (Dubai) and Singapore
49% owned commercial bank in Bahrain (BMI Bank).
97% owned subsidiary in Riyadh, KSA (Muscat Capital LLC)
43% owned securities company in India (Mangal Keshav Securities Ltd)
Increasing interdependence and trade between GCC countries
Large banking markets in Saudi Arabia and Kuwait
Efficiency; rationalization of back-office costs
Leveraging presence in all GCC countries
Overview Strategy Opportunities
Focus on existing GCC operations and improve profitability
Drive synergies within the group Scale up business volumes to
attain desired return Capture trade/business flows
between GCC and Asian region through Representative Office in Singapore
19
Operational since 2007
Focused on mid-market for corporate and treasury businesses
Credit losses in 2009 and 2010, and a marginal loss in 2011. However, posted net profit for the first half of 2012.
As on 30 June 2012, Net Loans & Advances of USD 477 mn and Customer Deposits of USD 999 mn; Net profit of USD 269k during the period YTD June.
Enhance scale through continued focus on corporate and treasury
Performance as at 30 June 2012
Overview Short-term Strategy Medium-term Strategy
Focus on corporate and treasury businesses
Prudent credit growth with improvement in credit quality and monitoring
Focus on bulk deposits from large corporate and HNI clientele
Cost containment and increase shared resources with HO
Riyadh Branch, KSA
• Operational since 2010• Focused on corporate, trade and treasury
businesses• Healthy pipeline built, however credit
utilisation is low due to delays in project implementation
• Operating profit of USD 374k (before provisions) for the first half of 2012; break even at net profit level
• As of 30 June 2012, Net loans and advances of USD 51 mn and customer deposits of USD 124 mn; Non-funded exposures of USD 141mn.
Scale up business volumes with a focus on quality lending
Overview Short-term Strategy Medium-term Strategy
Short term, working capital lending and trade finance to corporates as well as contract financing for Govt./ Oil & Gas sector
High net worth clients for liabilities Launch internet banking Leverage off low operating cost base
Kuwait Branch
International Group contd...
20
A subsidiary of BankMuscat with 97% stake
Operational since 2009 Focused on brokerage, asset &
wealth management and corporate finance/advisory
As of 30 June 2012, net loss of USD 1.4 mn for the year to date
Scale up business volumes
Leverage BankMuscat presence in other markets
Performance as at 30 June 2012
Overview Short-term Strategy Medium-term Strategy
Aim to leverage institutional relationships in brokerage in Oman
Leverage expertise built in Oman on Corporate Finance/Advisory
Focus on retail and institutional brokerage business
Low cost of operations sharing back office activities of Oman
Muscat Capital, KSA
Acquired 43% stake in this securities house in India in 2007
Network of 150 branches/ franchises across India
Focused mainly on brokerage business
As of 30 June 2012, Net profit of USD 890k (3-m)
Scale up business through organic and inorganic growth
Overview Short-term Strategy Medium-term Strategy
Diversify from mainly brokerage business to commodities brokerage, insurance and mutual fund distribution
Focus on institutional and NRI brokerage business
Leverage BankMuscat GCC network for NRI business
Mangal Keshav, India
International Group contd...
21
International Group
BankMuscat holds 49% stake in BMI Bank
Operational as independent bank since 2005
Full-service bank across corporate, retail, private banking and treasury businesses
Network of 10 branches and 30 ATMs, resulting in a strong retail presence in Bahrain
Holds strategic stake of 21.3% in Gulf African Bank, a green field first Islamic Bank in Kenya
Holds a strategic stake of 50% in an offshore bank in Seychelles and an office in QFC, Qatar
As on 30 June 2012, Net Loans & Advances of USD 1,265 mn, Customer deposits of USD 1,273 mn and Shareholders Equity of USD 221mn
Net profit of USD 766k for the first half of 2012
Establish franchise in Bahrain
Inorganic growth in markets where already present and with strategic advantage such as East Africa, Indian Ocean region.
Performance as at 30 June 2012
Overview Short-term Strategy Medium-term Strategy
Focus on Bahrain business to build scale and market share
Strengthen existing presence in international markets
Improve operational efficiency and reduce cost to income ratio
Leverage on investments in technology and infrastructure to scale up business volumes
BMI Bank, Bahrain
22
Financial Performance and Capital
23
Financial Highlights – 9M-2012
Achieved a Net Profit of US$ 270.6 mn as against US$ 226.3 mn , an increase of US$ 44.3 mn or 20% over 2011
Annualized Basic EPS of US$0.176 for every US$ 0.260 share of Bank
Annualized ROAE of 16.3%; Annualized ROAA of 1.9%
Capital Adequacy Ratio of 15.77% (as per Basel II)
Net Interest Income (NII) at US$ 437 mn, higher by US$ 21.7 or 5.23% over 2011
Revenue mix of 71% : 29% (NII : Other income)
Cost to Income ratio of 42%
Growth of US$ 2,136 mn (18.13%) in Net Loans over Sep 2011
Growth of US$ 563 mn (5%) in customer deposits and CD’s over Sep 2011. (Includes increase of US$ 1,058 mn (25%) from demand deposits, US$ 477 mn (18%) from savings, decrease of US$ 358 mn from term deposit and certificate of deposits (-17%)
24
Revenue and Cost Control
Revenue growth Cost-income ratio
40.8% 40.7%
36.7%
34.6%
38.8%
41.1%42.0%
30.0%
32.0%
34.0%
36.0%
38.0%
40.0%
42.0%
44.0%
46.0%
48.0%
2006 2007 2008 2009 2010 2011 Sep-120
100
200
300
400
500
600
700
800
900
2006 2007 2008 2009 2010 2011 Sep-12Other income Investment Banking income
FX income Commission income
Net interest income
24%
28%
32%
340
449
615
690
40%29%
756764
28%
423
30%
25
Loan Growth and Asset Quality
Gross Loans and advances growth Coverage ratios
5,073
7,261
10,009 10,525 10,894
12,977
14,442
4.8%2.7% 2.3%
5.0% 4.2%
3.0% 3.0%0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2006 2007 2008 2009 2010 2011 Sep-12
NP
L / G
ross
Loa
ns %
US
$ m
illio
n
Gross loans and advances NPL/Loans
308 282
326
555
484 458
522
243
193
235
524
457
387
481
126.8%
145.9%
138.8%
106.0% 105.9%
118.5%
108.6%
0%
20%
40%
60%
80%
100%
120%
140%
160%
-
100
200
300
400
500
600
2006 2007 2008 2009 2010 2011 Sept-12
US
$ m
illio
n
Provisions NPLs Prov/NPLs
26
Strong Capital Growth with Stable Returns
Robust capitalisation Capital growth with stable returns
CBO requirement of CAR of minimum of 10 % (12% by Dec 2010) is stricter than BIS requirement of minimum 8%
10.04%12.58%
10.75% 11.57% 11.85% 11.37% 11.79%
1.93%
2.56%
2.27%
3.63% 2.93% 4.56% 3.98%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
2006 2007 2008 2009 2010 2011 Sept'12
Tier 2 and 3 ratio
Tier 1 ratio
831
1,630
1,856 1,848 2,068
2,262
2675
22.0
25.8
14.8
10.9
14.6 15.4 15.3
8.0
12.0
16.0
20.0
24.0
28.0
-
500
1,000
1,500
2,000
2,500
3,000
2006 2007 2008 2009 2010 2011 2012
US$
mn
Shareholders equity Return on equity
13.02%
15.14%
11.97%
15.2% 14.78%
15.93 % 15.77%
27
Thank You
28
Appendix
29
Balance SheetBalance sheet
$ (million) 30-Sep-12 31-Dec-11 31-Dec-10 31-Dec-09Cash and bank (incl. placements) 3,605 4,403 3,315 4,218 Loans and Advances 13,920 12,518 10,410 9,969 Non trading investments 1,484 891 694 375 Tangible fixed assets 179 186 194 68 Other assets (incl. invt in associates) 705 777 584 566 Total assets 19,893 18,774 15,198 15,197
Bank deposits / FRNs 2,316 1,914 2,014 3,665 Customer deposits (incl. Bonds & CDs) 13,014 12,741 9,705 8,474 Other liabilities 1,138 989 934 720 Subordinated debt 749 869 477 490 Total liabilities 17,216 16,513 13,129 13,349
Share capital and premium 1,538 1,185 1,133 1,063 Convertible bonds 42 84 84 84 Total reserves 583 591 493 373 Cumulative changes in fair value 8 3 24 13 Retained profits 507 397 335 315 Shareholders' equity 2,677 2,261 2,069 1,848 Total liabilities + shareholders's equity 19,893 18,774 15,198 15,197
Key ratiosLoans and advances / customer deposits 107.0% 98.2% 107.3% 117.6%Shareholders' equity / total assets 13.5% 12.0% 13.6% 12.2%Subordinated debt / (debt + equity) 21.9% 27.8% 18.7% 20.9%BIS total capital ratio 15.10% 15.93% 14.78% 15.20%
30
Profit and Loss AccountProfit and loss account$ (million) 30-Sep-12 30-Jun-12 31-Dec-11 31-Dec-10 31-Dec-09
Net interest income 437.1 282.8 551.0 486.2 452.9 Other operating income 175.1 118.9 213.3 203.4 303.1 Operating income 612.2 401.7 764.3 689.6 756.0 Operating costs (257.0) (172.2) (314.0) (267.3) (213.3)
355.3 229.4 450.3 422.3 542.6 Recoveries from impairments 69.9 41.2 67.3 44.6 28.6 Credit loss impairments (106.2) (65.1) (145.9) (121.0) (255.2) Other impairments (1.6) (1.2) (8.8) (7.2) (60.4) Gain/(loss) from associates (3.9) 0.8 (9.2) (32.8) (27.2) Profit before Tax 313.5 205.2 353.8 306.0 228.5 Taxation (42.8) (27.6) (48.5) (42.1) (37.0) Net Profit 270.6 177.6 305.3 263.9 191.5
Key ratiosCost/income ratio 42.0% 42.9% 41.1% 38.8% 28.2%Return on average assets 1.80% 1.80% 1.80% 1.74% 1.24%Return on average equity 16.30% 16.30% 15.37% 14.64% 10.90%Basic EPS (US$) 0.197 0.197 0.197 0.171 0.178Share price (US$) 1.519 1.519 1.990 2.514 2.140
31
Omani Banking Sector
1. BankMuscat (BM) 133 1982
2. HSBC Oman** 90 1979
3. Nat. Bank of Oman (NBO) 69 1973
4. Bank Dhofar (BD) 59 1990
5. Oman Arab Bank (OAB) 51 1973
6. Bank Sohar 25 2007
7. Ahli Bank 12 1998
439
Local and specialised banks Foreign banks
1. Habib Bank Limited 81972
2. Bank of Baroda 31976
3. Standard Chartered 11968
4. Bank Saderat Iran 11976
5. National Bank of Abu Dhabi 71976
6. Bank Melli Iran 11974
7. State Bank of India 1 2004
8. Bank of Beirut 22006
9. Qatar National Bank 12007
25
1. Oman Development Bank 13 1977
2. Oman Housing Bank 9 1977
22
Branches(in Oman)
Est.Branches(in Oman)
Est.
**HSBC Bank Middle East Limited (Oman branches) merged with and into Oman International Bank (OIB) and the combined listed entity was renamed as HSBC Bank Oman S.A.O.G
32
Relative Loan and Deposit Volumes
Total customer deposits & FRNsNet loans
Source: CBO and Annual report of Banks.
BM market share
43% 40% 36% 36% 33%40% 38% 33%38% 34%
7.0
9.7 10.0 10.4
12.5
14.4
2.4 3.6 3.5 3.5
4.35.1
1.5 1.6 1.6 1.6 1.83.4
1.8 2.6 3.2 3.2 3.9 4.5
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2007 2008 2009 2010 2011 Sep-12
($ billion)
BM NBO HSBC Oman BD
6.5
8.8 8.5
9.6
12.8 13.0
2.4
3.5 3.3 3.44.2
5.0
2.1 1.9 1.9 2.12.6
4.9
1.8
2.5 2.9
3.23.9 4.2
-
2.0
4.0
6.0
8.0
10.0
12.0
14.0
2007 2008 2009 2010 2011 Sep-12
($ billion)
BM NBO HSBC Oman BD
33
Relative Asset and Equity Bases
Source: CBO, Annual report of Banks.
Total assets Shareholders’ equity
BM market share
41% 42% 41% 38%39%
1.63 1.86 1.85
2.072.26
2.68
0.60 0.64 0.65 0.69 0.73 0.76
0.42 0.45 0.44 0.44 0.45
0.77
0.29 0.49 0.53 0.59 0.60 0.65
-
0.50
1.00
1.50
2.00
2.50
3.00
2007 2008 2009 2010 2011 Sep-12
($ billion)
BM NBO HSBC Oman BD
11.0
15.7 15.2 15.2
18.819.9
3.8 5.2 4.7 4.7
5.8 6.5
2.8 2.6 2.7 3.0 3.2
6.0
2.5 3.4 3.9 4.3
5.1 5.5
-
5.0
10.0
15.0
20.0
25.0
2007 2008 2009 2010 2011 Sep-12
($ billion)
BM NBO HSBC Oman BD
34
BankMuscat Organisational Structure