Investor Subject: Presentation Department: 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 Glance Overview Ownership #1 Bank in Oman with a significant active customer base with ~2 million clients and a workforce of 3,712 employees as of 31st Dec 2017 Established in 1982, headquartered in Muscat with 166 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 Baa2(Negative), S&P BB (Stable), Fitch BBB (Negative) 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 bank muscat Growth Others, 41.10 PASI, 5.22 Key Financials IFC, 5.03 Civil Service Pension Fund, 6.17 Royal Court Affairs, 23.63 Dubai Financial Group LLC, 12.37 Ministry of Defence Pension Fund, 6.48 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 In US$ Millions, unless otherwise stated 2017 2016 2015 2014 Total Assets 28,959 28,104 32,583 25,268 Gross Loans 22,484 21,484 19,813 18,298 Deposits 19,268 19,369 17,502 16,481 Operating Income 1,132 1,081 1,059 995 Net Income 459 459 456 424 Tier 1 16.87% 14.75% 13.5% 13.0% Total CAR 18.45% 16.90% 16.1% 15.9% Loans to Deposit Ratio 112.26% 106.70% 99.55% 103.10% NPL Ratio 2.94% 2.91% 2.8% 2.8% Cost/Income 42.22% 41.83% 41.95% 41.2% ROA 1.61% 1.64% 1.72% 1.79% ROE 11.44% 12.50% 13.68% 13.89% 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 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% Solid Capital Position Strong capitalization levels offering room for substantial growth CAR of 18.45% as of 31st Dec 2017 Largest Bank in Oman by total assets of 34.99%, as of 31st Dec 2017, 3 times larger than the 2 nd largest Omani Bank Market Capitalisation of USD 2,758 million as at 31st Dec 2017 Largest branch network with 166 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% Significant direct and indirect Government ownership through various entities. Stable Operating Environment 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 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 4.57mn 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 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 GDP Growth (1) Source: Central Bank of Oman website, Rating Reports: Moody s and S&P as of Dec 2017 GDP Composition Saudi Arabia Kuwait Bahrain Qatar UAE Oman Key Indicators (1) 2017 2018 Sovereign Ratings (Moody s/s&p) (Baa2/BB) (Baa2/BB) Budget Surplus/Deficit US$ 3.5bn (Oct 17) US$ 3.0bn Surplus/Deficit % of Total Revenue 38.0% 31.5% (Est) 150 130 110 90 70 50 30 10 10 US$ Million 8.9% 2.7% 0.6% 10.6% 3.7% 2.9% 23.4% 48 23.7% 50 50 38 38 24 18 16 2014 2015 2016 2017 Oil GDP in Current Prices Non Oil GDP in Current Prices YoY Growth of Oil GDP YoY Growth of Non Oil GDP As of Sep30th 20176 20.0% 10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% Real estate Services, 5.1% Transport, Storage & Communication, 5.9% Financial Intermediation, 6.0% Construction, 7.0% Wholesale & Retail Trade, 8.0% Others, 14.1% As of Sep 30th 2017 Total Petroleum Activities, 31.0% Public Administration & Defence, 13.0% Minning, Quarrying & Manufacturing, 9.9% 7 Source: National Center for Statistics and Information, figure as of Sep 2017
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 37.5% of total sector assets. bank muscat represents 34.99% of total banking sector assets as of Dec 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 capitalization with relatively low impaired assets and sound Implemented Basel 3 regulation with effect from Jan 2014 70 60 50 40 30 20 10 0 Loans and Deposit Growth US$ billion 44.2 44.2 43.7 45.0 52.9 Gross Loan: +8.5% Deposits: +6.1% 51.0 50.8 47.2 61.1 2013 2014 2015 2016 2017 Gross Loan Deposits 56.0 Oman in the GCC banking sector context (1) Asset Quality (2) 1000 900 800 195% 95% 211% 178% 116% 572% 500.0% 1000 900 800 6.3% 7.1% 8.0% 6.0% 700 600 500 732 615 650 0.0% 500.0% 700 600 500 732 1.5% 1.3% 1.8% 3.5% 4.0% 2.0% 400 400 300 200 100 0 375 374 177 UAE KSA Qatar Kuwait Oman Bahrain Total Assets GDP Assets as % of GDP 206 116 81 70 189 33 1000.0% 1500.0% 300 200 100 0 374 615 206 189 81 UAE KSA Qatar Kuwait Bahrain Oman Total Assets NPL/GLs 0.0% 2.0% 4.0% (1) GDP data is estimated for FY 2017 (Source: World Bank, National Central Banks) (2) Source: Central Banks, EIU and Bloomberg data as of Nov 2017 for Oman, Bahrain, & UAE. Oct 2017 for Kuwait, & KSA & Qatar as of Dec 2017 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 Dec 2017, except for OAB as of Sep 2017. Notes: OMR/ US$: 0.385
bank muscat Dominant Domestic Franchise in the Region Market Share Assets Market Share Deposits Assets as % of Total Sector Assets Deposits as % of Total Sector Deposits Asset Quality Strong Capitalization 7.0% 400.0% 6.0% 288% 300.0% 16.5% 21.2% 17.8% 18.5% 18.45% 17.8% 16.1% 18.1% 5.0% 4.0% 3.0% 2.0% 1.0% 81% 5.7% 112% 142% 129% 120% 2.9% 3.1% 1.8% 1.8% 51% 1.4% 1.3% 125% 6.2% 200.0% 100.0% 0.0% -100.0% 0.0% 16.5% 2.4% 18.8% 1.1% 2.1% 1.6% 2.0% 1.8% 16.7% 16.4% 16.9% 15.8% 14.3% 1.1% 17.0% 0.0% CBQ QNB NCB BM FAB NBK BBK ENBD NPL/GL LLR/NPL -200.0% QNB ENBD FAB NCB BM NBK CBQ BBK Tier 1 Tier 2 Total Capital Adequacy Ratio Key: Qatar National Bank QNB, bank muscat BM, National Bank of Kuwait NBK, National Commercial Bank NCB, Emirates NBD ENBD, First Abu Dhabi Bank FAB, Bank of Bahrain and Kuwait BBK 10 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.
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 Business Lines Breakdown Deposits Wholesale Banking (1) Corporate Banking Key Highlights Asset Contribution Profit Contribution Leading Corporate Bank Franchise offering the full array of corporate banking services ~ 6,000 corporate customers in Oman Strong expertise in project finance US$ 10.9bn 37.6% of total assets US$ 206.5mn 44.9% of total profit Priva te, 24.7% Financial Institutions, 0.5% Individual & Others, 43.3% Global Institutions, Investment Banking & Treasury Personal Banking Comprise of treasury, corporate finance, and asset management Financial Institutions Leading Retail Bank platform in Oman ~ 2 million retail customers in Oman Largest distribution network US$ 5.2bn 17.8% of total assets US$ 8.1bn 28.1% of total assets US$ 96.2mn 20.9% of total profit US$ 170.7mn 37.2% of total profit Ministries & Other Gov Orginisations, 31.5% Loans & Advances Meethaq Islamic Banking International Operations OMR 65mn (c.us$130mn) capital assigned to this business Officially launched in January 2013. Currently operating through 19 full fledged Islamic branches. Presence in GCC, Iran and Singapore through overseas branches, rep offices and subsidiary US$ 3.1bn 10.7% of total assets US$ 1.7 bn 5.8% of total assets US$ 21.4mn 4.7% of total profit US$ (35.5)mn 7.7% of total profit Construction, 4% Personal & Housing Loans, 41% Others, 3% Services, 10% Mining quarrying, 5% Manufacture, 6% Real estate, 4% Wholesale & Retail Trade, 2% Import Trade, 5% FIs, 5% Utilities & Transport, 15% (1) Definition of Wholesale Banking has changed since 1 st January 2016 13 Source: bank muscat unaudited financial statements as of Dec 2017
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 ~ 6,000 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 US$ billion 13.22 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 Corporate Banking 4.94 3.66 3.85 2.54 2.65 2.58 bank muscat Bank Dhofar NBO Bank Sohar HSBC Oman Ahli Bank Oman Arab Bank 14 Source: bank muscat audited financial statements as of Dec 2017, except for OAB as of Sep2017.
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 Aaa to Aa3, 16.70% A1 to A3, 3.90% Others (2), 79.40% 15 (1)Securities portfolio represents Bonds & T Bills. (2) Others include Baa1 to Baa3 securities and unrated Banks. Data as of Dec 2017. Source: bank muscat audited financial statements as of Dec 2017.
Personal Banking Overview Opportunities Strategy Leading Personal Banking Franchise in Oman ~ 2 million customers Front runner across retail banking segments including cards, bancassurance and remittances Largest delivery channel network in Oman (157 branches, 434 ATMs, 243 CDMs/MFMs and the best online platform in Oman) Substantial low cost retail deposit base Merchant acquiring market share of over 77% by volume as of Dec 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 Personal Loans Peer Comparison Asset Growth Operating Income US$ billion 9.26 3.85 3.53 1.66 1.97 1.73 1.27 bank muscat Bank Dhofar NBO Ahli Bank Oman Arab Bank Bank Sohar HSBC Oman 16 Source: bank muscat audited financial statements as of Dec 2017, except OAB as of Sep 2017.
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 Financing Portfolio Operating Income 17 Source: bank muscat audited financial statements as of Dec 2017.
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 Assets Operating Income CAGR: 1.5% 1,996 1,786 1,700 1,795 1,684 2013 2014 2015 2016 2017 Total Assets 18 Source: bank muscat audited financial statements as of Dec 2017.
IV. Financial Performance
Operating Performance and Profitability Overview 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 Operating Income & Cost to Income Net Interest Margins 4.35% 4.03% 4.14% 3.85% 3.89% 2.89% 2.73% 2.63% 2.49% 2.50% 1.64% 1.46% 1.30% 1.40% 1.22% 2013 2014 2015 2016 2017 Yield (%) Cost (%) Spread (%) Profitability 69% 64% 64% 66% 65% 42.2% 41.2% 42.0% 41.8% 42.2% 14.0% 12.0% 14.5% 13.9% 13.7% 12.5% 11.4% 250 200 10.0% 8.0% 395 424 456 459 459 150 24% 25% 25% 23% 21% 7% 12% 11% 11% 14% 6.0% 4.0% 1.9% 1.8% 1.7% 1.6% 1.6% 100 50 2013 2014 2015 2016 2017 2.0% Net Interest Income Other Income Net Commission & Fees Cost-to-Income Ratio 0.0% 2013 2014 2015 2016 2017 Net Profit RoAE RoAA 0 (1) Other income: FX Income, Profit on sale of non trading investments, Dividend income and other income 20 Source: bank muscat audited financial statements as of Dec 2017.
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 Loan Growth 2.94% 2.91% 2.75% 2.84% 2.65% 21,484 22,484 19,813 18,298 16,521 2013 2014 2015 2016 2017 Gross loans NPL% Gross Loans Sector Breakup Impaired Assets and Provisioning Others, 3% Construction, 4% Services, 10% Mining quarrying, 5% Manufacture, 6% Real estate, 4% Personal & Housing Loans, 41% Wholesale & Retail Trade, 2% Import Trade, 5% FIs, 5% Utilities & Transport, 15% 21 Source: bank muscat audited financial statements as of Dec 2017.
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 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 18.45% and Tier 1 at 16.87%, above the 13.65% and 10.65% ratio required by the CBO Liquid Assets Capital Adequacy Ratio RO million 16.42% 15.92% 16.10% 16.90% 18.45% 22 Source: bank muscat audited financial statements as of Dec 2017. Certain items of Liquid assets adjusted for one off balances in 2015 Total Capital Adequacy Ratio
شكرا لكم Subject: Thank You Department:
VII. Annexure
Balance Sheet Amounts in USD 31 Dec 17 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13 Cash and bal. with Central Bank 2,428 2,705 6,265 2,174 1,512 Due from banks 1,538 1,368 2,575 2,698 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 3,944 1,924 1,460 Tangible fixed assets 187 194 199 187 173 Other assets (incl. invt in associates) 505 422 560 660 690 Total assets 28,959 28,105 32,583 25,268 22,043 Bank deposits/frns /Bonds 3,478 3,157 7,924 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 1,034 1,056 1,042 Subordinated debt 315 430 625 625 641 Convertible bonds 84 167 246 162 121 Total liabilities 24,236 24,087 28,954 21,860 18,894 Share capital and premium 2,027 1,911 1,803 1,775 1,733 Total reserves 1,266 1,162 1,057 1,004 889 Retained profits 1,092 945 769 630 527 Shareholders' equity 4,385 4,018 3,628 3,408 3,149 Perpetual Tier I Capital 338 Total liabilities + shareholders' equity 28,959 28,105 32,583 25,268 22,043 Key ratios Loans and advances/customer deposits 112.3% 106.7% 99.6% 103.1% 108.8% Shareholders' equity/total assets 15.14% 14.30% 11.14% 13.49% 14.29% Subordinated debt/(debt + equity) 6.26% 9.67% 14.68% 15.49% 16.92% BIS total capital ratio 18.45% 16.90% 16.10% 15.92% 16.42% 25 Source: bank muscat audited financial statements as of Dec 2017
Profit and Loss Amounts in USD 31 Dec 17 31 Dec 16 31 Dec 15 31 Dec 14 31 Dec 13 Net interest income 667 651 628 589 578 Net income from Islamic financing 64 61 48 43 33 Other operating income 402 369 382 362 272 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 107 94 93 67 84 Credit loss impairments (164) (183) (187) (168) (131) Other impairments (55) (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 ratios Cost/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$) 0.166 0.166 0.175 0.190 0.187 Share price (US$) 1.02 1.23 1.23 1.51 1.65 26 Source: bank muscat audited financial statements as of Dec 2017