Investor Subject: Presentation Department: March 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 March 2017, unless stated otherwise.
I. bank muscat introduction
bank muscat at a Glance Overview #1 Bank in Oman with a significant active customer base in excess of 1.96 million million clients and a workforce of 3,732 employees as of 31st March 2017 Established in 1982, headquartered in Muscat with 154 branches across Oman, 2 branches overseas, and 3 representative offices Fully diversified commercial bank offering corporateand retailbanking services Primarily domestic dominated operations with over 95% of operating income generatedinoman 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 Baa1(stable), S&P BBB (Negative) Listed on the Muscat Securities Market (with a market cap of USD 2,489 million as of 31st March 2017), London Stock Exchange & Bahrain Stock Exchange bank Muscat Growth Footsteps of a Leader Throughout Decades Merger between Bank of Muscat & Bank Al Ahli Al Omani Listed on the MSM in 1993 Establishment of Bank of Muscat Dubai Rep Office Acquisition of the Bahraini operations of ABN AMRO Merger with Commercial Bank of Oman Acquisition of 49% stake in BMI Bank Muscat Capital LLC launched 1 st Branch in Saudi Arabia 1 st Branch in Kuwait Meethaq launched Singapore Rep Office Merger of BMI Bank with Al Salam Bank, Bahrain 1982 1993 1996 2000 2002 2004 2007 2009 2010 2012 2013 2014 IFC becomes a 5% shareholder Ownership Others 42.17% Key Financials PASI 4.85% IFC 5.03% Civil Service Pension Fund 5.47% Royal Court Affairs 23.63% Ministry of Defence Pension Fund 6.48% Dubai Financial Group LLC 12.37% In US$ M illions, unless otherwise stated Mar 17 2016 2015 2014 Total Assets 28,265 28,104 32,581 25,268 Gross Loans 21,631 21,483 19,810 18,298 Deposits 19,722 19,369 17,502 16,481 Opera ting Income 275 1,081 1058 995 Net Income 115 459 455 424 Tier 1 15.00% 14.75% 13.50% 13.00% Total CAR 16.81% 16.90% 16.10% 15.90% Loans to Deposit Ratio 106.69% 106.69% 99.40% 96.90% NPL Ratio 2.93% 2.91% 2.80% 2.80% Cost/Income 41.82% 40.40% 41.90% 41.20% ROA 1.64% 1.64% 1.60% 1.80% ROE 11.38% 12.50% 13.00% 12.90% 4 Source: bank muscat audited financial statements and interim financials
bank muscat Key Highlights Dominant Franchise in Oman Strong Financial Metrics Most profitable bank in Oman Strong and sustainable profitability metrics: Operating profit 2012 2016 CAGR of 6.5% Net profit 2012 2016 CAGR of 6.2% Largest Bank in Oman by total assets of 35.17%, as of 28 th February 2017, 3 times larger than the 2 nd largest Omani Bank Market Capitalisation of USD 2,489 million as at 31st March 2017. Largest branch network with 154 domestic branches The only bank in Oman to be designated a D SIB Highest Government Ownership Highest Government Ownership among Omani Banks Royal Court Affairs: 23.63% Direct and indirect Government ownership of around 35% through various entities Solid Capital Position Strong capitalization levels offering room for substantial growth CAR of 16.81% as of 31st March 2017 Stable Operating Environment Solid macroeconomic conditions Stable banking sector Prudential regulatory environment Stable Asset Quality Conservative lending approach Strong risk architecture and policies Adequate asset quality metrics Management Stable and experienced management with proven track record of successful organic and inorganic growth Good corporate governance 5 Source: bank muscat audited financial statements and interim financials
II. Operating Environment
Sultanate of Oman Overview Overview 2 nd Largest country in the GCC with an area covering approx. 309.5 thousand km 2, 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 4.61mn predominantly represented by Omani Nationals who account for 54% of the total population The economy will continue to grow at high rates driven by several factors, such as: The increase in hydrocarbon production TheGovernment s balancedsupport for theeconomy 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 hydrocarbon sector contribution to GDP GDP Growth (1) Source: Central Bank of Oman website, Rating Reports: Moody s and S&P as of Dec 2016 GDP Composition Saudi Arabia Kuwait Bahrain Qatar UAE Oman Key Indicators (1) 2016 2017 Sovereign Ratings Moody's\S&P Baa1/BBB Baa1/BBB Budget Surplus\Deficit 5.3 Bn 3.0 Bn Surplus\Deficit % of total revenue 61.6% Est 34.4% Net Public Debt (% GDP) 29.0% Est 41.0% US$ Million 100,000 80,000 60,000 40,000 20,000 2014 2015 2016 6.7% 8.9% 2.9% 48,470 3.8% 49,792 50,083 37,532 23,784 23.7% 18,151 2014 2015 2016 Non Oil GDP in Current Prices (US$Mn) Oil GDP in Current Prices (US$Mn) 0.6% 10.0% 0.0% 10.0% 20.0% 30.0% Real Estate Services, 5.20% Wholesale & retail trade, 7.34% Public admin. & Defence, 14.58% Other services, 12.89% Petroleum Activities, 26.86% Agri & Fishing, 1.94% Manufacturing & Mining, 8.83% % Change % Change Financial Int., 5.99% Transport & Comm., 5.48% Const., Elec. & Water supply, 10.89% As of December 31st 20166 As of December 31st 2016 7 Source: National Center for Statistics and Information, 2015 figure as of Q4 2015
Oman Banking Sector Overview Overview Loans and Deposit Growth 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 contribute around 35.89% of total sector assets. bank muscat represents 35.17% of total banking sector assets as of Feb 2017 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 sound capitalization Implementing Basel 3 regulation with effect from Jan 2014 US$ billion Gross Loan: +10.9% Deposits: +10.0% Oman in the GCC banking sector context (1) Asset Quality (2) 800 700 600 500 400 300 200 100 0 Assets as a % of GDP 711 640 602 257% 194% 203% 174% 366 347 94% 171 196 103% 113 82 70 68 32 UAE Saudi Arabia Qatar Kuwait Bahrain Oman Total Assets in $ Bn GDP in $ Bn Assets as a % of GDP 300% 250% 200% 150% 100% 50% 0% Source(1) GDP data is for FY 2016 Source: National Central Banks 2) Central Banks, EIU and Bloomberg data as of Dec 2016 8 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
bank muscat Unrivalled Leading Market Position in Oman Total Assets Gross Loans Deposits Net Profit 9 Source: Banks financial Statements. Based on Mar 2017. Notes: OMR/ US$: 0.385
bank muscat Dominant Domestic Franchise in the Region Market Share Assets Assets as % of Total Sector Assets Market Share Deposits Deposits as % of Total Sector Deposits Asset Quality Adequate Capitalization 15.8% 20.2% 18.3% 19% 16.81% 17.8% 16.1% 18.1% 584.1% 700.0% 85.9% 2.4% 2.3% 122.9% 600.0% 3.6% 2.0% 1.1% 1.81% 2.6% 1.5% 500.0% 13.2% 17.0% 6.3% 400.0% 309.0% 133.5% 114.0% 316.2% 17.8% 16.7% 300.0% 14.7% 15.00% 15.8% 14.6% 5.3% 114.1% 200.0% 1.8% 2.9% 2.6% 100.0% 1.2% 0.6% 0.3% 0.0% QNB ENBD NBAD NCB BM NBK CBQ BBK CBQ QNB NCB BM NBAD NBK BBK ENBD Tier 1 Tier 2 NPL/GL LLR/NPL 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 10 Source: GCC Central Banks. Banks financial Statements. (1) Information for all banks as of Mar 2017, except NCB & BBK as of Dec 2016.
III. bank muscat Business Overview
bank muscat Strategy Key Pillars Consolidate Leading Position in Oman Financial strength Leverage on technology and infrastructure investments Regional Expansion Focus on Islamic Banking Developments 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) 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 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 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 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
bank muscat Business Lines Key Highlights Asset Contribution Profit Contribution Deposits Wholesale Banking (1) Corporate Banking Leading Corporate Bank Franchise offering the full array of corporate banking services c. 3,550 corporate customers in Oman Strong expertise in project finance US$ 10.3bn 35.3% of total assets US$51.4mn 33.9% of total profit Individual & Others 44% Ministries & Other Gov Orginisations 27% Global Institutions, Investment Banking & Treasury Personal Banking Comprise of treasury, corporate finance, and asset management Financial Institutions Leading Retail Bank platform in Oman Over 1.80 million retail customers in Oman Largest distribution network US$ 6.2bn 21.7% of total assets US$ 7.5bn 25.9% of total assets US$ 36.1mn 23.8% of total profit US$55.5mn 36.7% of total profit Financial Institutions 3% Loans & Advances Private Commercial 25% Meethaq Islamic Banking OMR 50mn (c.us$130mn) capital assigned to this business Officially launched in January 2013. Currently operating through 17 full fledged Islamic branches. US$ 2.9bn 10.0% of total assets US$ 6.5mn 4.3% of total profit Personal and Housing loans 40% Services 9% Mining and quarrying 5% Manufacture 6% Real estate 4% Wholesale and retail trade 2% Import trade 5% International Operations Presence in GCC, Iran and Singapore through overseas branches, rep offices and subsidiary US$ 2.0bn 7.1% of total assets US$ 1.6mn 1.3% of total profit Government 0% Others 1% Export trade 0% Agriculture and Construction 5% allied activities 0% Financial institutions 6% Utilities 6% Transport 9% (1) Definition of Wholesale Banking has changed since 1 st January 2016 13 Source: bank muscat unaudited financial statements as of June 2016
Wholesale 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 Corporate Banking 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 Corporate Loans Peer Comparison Asset Growth Operating Income 10.57 US$ billion 4.26 4.04 3.48 2.23 2.40 2.33 BankMuscat Bank Dhofar NBO Bank Sohar HSBC Oman Ahli Bank Oman Arab Bank 14 Source: bank muscat audited financial statements and interim financials as of Mar 2017.
Wholesale Banking Global 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 Securities portfolio (1) Asset Growth Operating Income Securities Portfolio 0.74% 5.04% 6.67% Aaa to Aa3 A1 to A3 Ba1+ to Ba3 Others 87.55% (1)Securities portfolio represents Bonds & T Bills. (2) Others include Baa1 to Baa3 securities and unrated Banks. Data as of Dec 2016. 15 Source: bank muscat audited financial statements and interim financials
Personal Banking 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 (154 branches, 424 ATMs, 216 CDMs and the best online platform in Oman) Substantial low cost retail deposit base Merchant acquiring market share of over 80% by volume in 2015 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 Personal Loans Peer Comparison Asset Growth Operating Income 7.34 US$ billion 3.76 3.49 1.66 1.73 1.60 1.25 BankMuscat Bank Dhofar NBO Ahli Bank Oman Arab Bank Bank Sohar HSBC Oman 16 Source: bank muscat audited financial statements and interim financials as of Mar 2017.
Meethaq Islamic Banking Overview Opportunities Strategy One of the most successful Islamic banking operation in Oman since 2013 17 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 Financing Portfolio Meethaq Product and Portfolio Development 2017 2,500 2,000 1,500 1,000 500 0 Loans (USD) 2,221 2,026 1,727 1,060 739 2013 2014 2015 2016 Mar 2017 Consumer Corporate Investment & Treasury Asset Management Child saving accounts, employee saving funds, Ijara products Government checking accounts with profit distribution Sukuk issue and advisory, FX hedging products Real estate and Equity Funds 17 Source: bank muscat audited financial statements and interim financials
International Operations 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 14.7% stake in Al Salam Bank Bahrain 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 Assets Operating Income (1) Includes US$25 million being gain on acquisition of BMI bank by Al Salaam Bank, Bahrain 18 Source: bank muscat audited financial statements and interim financials
IV. Financial Performance
Operating Performance and Profitability Overview Resilient operating performance through the financial turmoil Solid top line income growth 5 year CAGR of 6.5% Stable cost to income ratio in spite of business and infrastructure expansion Solid profitability Stable Return on assets Strong core revenue generation with net interest income and commission and fees contributing to over 80% of total operating income Increasing focus on top line commission and fee income generation Operating Income & Cost to Income CAGR: + 6.5% 42.2% 41.2% 41.9% 41.8% 41.8% Operating Income Cost to Income Operating Income Composition Profitability (1) Other income: FX Income, Profit on sale of non trading investments, Dividend income and other income 20 Source: bank muscat audited financial statements and interim financials
Asset Quality Overview Stable loan book growth Conservative lending approach Focus on high quality assets with access to top tier borrowers Strong project finance capabilities Diversified loan portfolio across sectors Adequate provisioning of impaired asset Conservative approach provisioning in line with the higher of either IFRS or CBO requirements Non specific loan loss provisions of 2% on retail portfolio and 1% on corporate portfolio 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Loan Growth 2.75% 2.88% 3.20% 2.84% 2.65% 8,328 7,627 7,593 7,045 6,360 16,521 18,298 19,810 21,631 19,722 2013 2014 2015 2016 Mar 2017 Gross Loans US$ Gross Loans OMR NPL/GLs Gross Loans Sector Breakup Impaired Assets and Provisioning Services 9% Mining and quarrying 5% Personal and Housing loans 40% Government 0% Others 1% Export trade 0% Agriculture and Construction 5% allied activities 0% Manufacture 6% Real estate 4% Wholesale and retail trade 2% Import trade 5% Financial institutions 6% Utilities 6% Transport 9% 21 Source: bank muscat audited financial statements and interim financials
Funding and Liquidity 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 31% 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 16.81% and Tier 1 at 15.0%, above the 12.625% and 9% ratio required by the CBO 22,043 25,268 31,545 27,141 Total Assets 27,346 Liquid Assets Capital Adequacy Ratio 16.50% 15.92% 16.10% 16.90% 16.81% Total Capital Adequacy Ratio 22 Source: bank muscat audited financial statements and interim financials
شكرا لكم Subject: Thank You Department:
VII. Annexure
Balance Sheet Amounts in USD 31 Mar 17 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13 Cash and bal. with Central Bank 2,070 2,705 6,265 2,589 1,512 Due from banks 1,240 1,368 2,577 2,283 2,252 Loans and Advances 18,447 18,447 17,391 16,586 15,230 Islamic financing receivables 2,343 2,221 1,649 1,040 725 Non trading investments 3,392 2,748 3,943 1,924 1,460 Tangible fixed assets 187 194 197 187 173 Other assets (incl. invt in associates) 586 422 560 660 690 Total assets 28,264 28,104 32,581 25,268 22,043 Bank deposits/frns /Bonds 3,147 3,157 7,926 2,802 2,303 Customer deposits (incl. CDs) 17,696 17,389 17,502 16,481 14,545 Islamic Customer's Deposit 2,027 1,982 1,624 734 241 Other liabilities 917 962 1,030 1,056 1,042 Subordinated debt 349 430 625 625 641 Convertible bonds 84 167 247 162 121 Total liabilities 24,220 24,086 28,954 21,860 18,894 Share capital and premium 2,027 1,911 1,802 1,775 1,733 Total reserves 1,153 1,162 1,057 1,004 889 Retained profits 866 945 769 630 527 Shareholders' equity 4,045 4,018 3,627 3,408 3,149 Total liabilities + shareholders' equity 28,104 28,104 32,581 25,268 22,043 Key ratios Loans and advances/customer deposits 105.41% 106.69% 99.36% 104.71% 103.10% Shareholders' equity/total assets 14.31% 14.30% 11.13% 14.28% 13.35% Subordinated debt/(debt + equity) 7.95% 9.66% 14.69% 16.92% 19.74% BIS total capital ratio 16.81% 16.90% 16.10% 16.50% 15.10% 25 Source: bank muscat audited financial statements and interim financials
Profit and Loss 31 Mar 17 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13 Net interest income 164 651 628 589 578 Net income from Islamic financing 16 61 48 43 33 Other operating income 96 369 382 362 272 Operating income 276.5 1,081.0 1,058 995 884 Operating costs (115.6) (452.1) (444) (410) (373) 161 629 614 585 510 Recoveries from impairments 23 94 93 67 84 Credit loss impairments (48) (183) (187) (168) (131) Other impairments (2) (12) (13) (4) (12) Gain/(loss) from associates 1 4 5 4 3 Profit before Tax 135 532 512 484 455 Taxation (21) (72) (57) (60) (59) Net Profit 115 460 455 424 395 Key ratios Cost/income ratio 41.82% 41.83% 41.95% 41.21% 42.24% Return on average assets 1.64% 1.64% 1.72% 1.79% 1.86% Return on average equity 11.38% 12.50% 13.68% 13.89% 14.49% Basic EPS (US$) 0.046 0.184 0.200 0.184 0.187 Share price (US$) 1.00 1.22 1.22 1.51 1.65 26 Source: bank muscat audited financial statements and interim financials