Investor Presentation June 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 30 th 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 services offering Listed on the Muscat Securities Market (with a market cap of USD 3,123 million as of 30 th June 2018), London Stock Exchange & Bahrain Stock Exchange Key Financials Ownership Bank Muscat Footsteps 4
Bank Muscat Key Highlights 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 17.43% as of 30 th June 2018 Dominant Franchise in Oman Largest Bank in Oman by total assets of 35.48%, as of 30 th Apr 2018, 3 times larger than the 2 nd largest Omani Bank Market Capitalisation of USD 3,123 million as at 30 th June 2018 Largest branch network with 167 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
Operating Environment 6
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 4.6mn 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 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 Baa3/BB Budget Surplus\Deficit -3.3 Bn (Nov '17) -3.0 Bn Surplus\Deficit % of total revenue -38.0% Est -31.5% Net Public Debt (% GDP) Est 38% Est 50% 5.0% 4.4% GDP Growth % 4.7% 4.0% 2.8% 3.0% 2.0% 1.8% 2.1% 1.0% 7 0.0% 0.3% 2013 2014 2015 2016 2017 Est. 2018 1.0% Source: National Center for Statistics and Information, figure as of Sep 2017 Source: IMF data as of Apr 2018 7
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 after bank muscat contribute around 36.9% of total sector assets. bank muscat represents 35.48% of total banking sector assets 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 US$ billion Gross Loan: +7.8% Deposits: +5.4% Adequate asset quality capitalization with relatively low impaired assets and sound Implemented Basel 3 regulation with effect from Jan 2014 Oman in the GCC banking sector context (1) Asset Quality (2) Assets as a % of GDP 800 700 600 500 400 745 419 178% 607 759 383 204% 170% 159% 100% 250% 200% 150% 300 200 100 80% 188 231 136 59 37 85 85 100% 50% 0 UAE Saudi Arabia Qatar Kuwait Bahrain Oman Total Assets in $ Bn GDP in $ Bn Assets as a % of GDP 0% (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. 8
Bank Muscat Unrivalled Leading Market Position in Oman US$ million Total Assets Gross Loans Bank Dhofar 10,914 Bank Dhofar 8,685 National Bank of Oman 9,371 National Bank of Oman 7,321 HSBC Bank Oman 6,262 Bank Sohar 5,766 Bank Sohar 7,595 Ahli Bank 4,668 Oman Arab Bank 5,662 HSBC Bank Oman 3,893 Ahli Bank 5,483 Oman Arab Bank 4,670 Bank Muscat 29,364 Bank Muscat 22,800 Deposits Net Profit Bank Dhofar 8,202 National Bank of Oman 33 National Bank of Oman 6,841 Bank Dhofar 35 HSBC Bank Oman 5,122 Bank Sohar 23 Oman Arab Bank 4,605 Ahli Bank 18 Bank Sohar 4,301 Oman Arab Bank 16 Ahli Bank 3,981 HSBC Bank Oman 21 Bank Muscat 19,818 Bank Muscat 116 9
Bank Muscat Dominant Domestic Franchise in the Region Market Share Assets Market Share Deposits Assets as % of Total Sector Assets Asset Quality Deposits as % of Total Sector Deposits Strong Capitalization 84.2% 5.4% 110.0% 1.8% 1.7% 161.4% 110.3% 123.0% 3.1% 3.1% 254.0% 1.4% 51.0% 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. 3.1% 128.4% 6.0% CBQ QNB NCB BM FAB NBK BBK ENBD NPL/GL LLR/NPL 300.0% 250.0% 0.6% 200.0% 15.2% 150.0% 100.0% 50.0% 0.0% 15.8% 21.2% 16.4% 20.3% 17.43% 17.2% 14.5% 18.46% 1.4% 19.8% 1.1% 2.2% 0.6% 15.3% 18.1% 16.9% 2.1% 15.1% 1.5% 13.0% Total Capital Adequacy Ratio 1.1% 17.3% QNB ENBD FAB NCB BM NBK CBQ BBK Tier 1 Tier 2 10
Bank Muscat Business - Overview 11
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 To Serve you better, everyday 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 Corporate Banking Leading Corporate Bank Franchiseofferingthefullarray of corporate banking services ~ 6,500 corporate customers in Oman Strong expertise in project finance US$ 10.9bn 35.7% of total assets US$ 110.3mn 43.6% of total profit Global Institutions, Investment Banking & Treasury Comprise of treasury, corporate finance, and asset management Financial Institutions US$ 6.3bn 20.8% of total assets US$ 51.2mn 20.2% of total profit Personal Banking Leading Retail Bank platform in Oman ~ 2 million retail customers in Oman Largest distribution network US$ 8.4bn 27.8% of total assets US$ 80.9mn 32% of total profit Loans & Advances Meethaq Islamic Banking OMR 65mn (c.us$167mn) capital assigned to this business Officially launched in January 2013. Currently operating through 19 full fledged Islamic branches. US$ 3.4bn 11.2% of total assets US$ 16.1mn 6.4% of total profit International Operations Presence in GCC, Iran and Singapore through overseas branches, rep offices and subsidiary US$ 1.4bn 4.5% of total assets US$ (5.5)mn -2.2% of total profit 13
Wholesale Banking- Corporate Banking Amounts in USD mn. 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 Corporate Loans- Peer comparison Asset Growth Operating Income 13.67 US$ billion 4.76 3.72 4.02 2.52 3.09 2.72 9,346 10,134 10,273 10,623 10,846 10,939 226 247 297 319 343 171 BankMuscat Bank Dhofar NBO Bank Sohar HSBC Oman Ahli Bank Oman Arab Bank 2013 2014 2015 2016 2017 June 2018 Total Assets 2013 2014 2015 2016 2017 June 2018 Operating Income 14
Wholesale Banking Global Financial Institutions, Investment Banking & Treasury Amounts in USD mn. 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 Asset Growth Operating Income 15
Personal Banking Amounts in USD mn. 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 Personal Loans- Peer comparison Asset Growth Operating Income 9.29 US$ billion 3.68 3.56 1.68 1.78 1.85 1.30 BankMuscat Bank Dhofar NBO Ahli Bank Oman Arab Bank Bank Sohar HSBC Oman 16
Meethaq Islamic Banking Amounts in USD mn. 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 3,000 2,500 2,000 1,677 2,259 2,566 2,787 80 70 60 50 47 52 66 70 1,500 1,000 500 1,060 40 30 20 10 23 0 2014 2015 2016 2017 June 2018 0 2014 2015 2016 2017 June 2018 17
International Operations Amounts in USD mn. 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 Total Assets Operating Income 61 48 41 47 1,700 1,795 1,996 1,683 1,403 27 2014 2015 2016 2017 June 2018 Total Assets 2014 2015 2016 2017 June 2018 Operating Income 18
Financial Performance 19
Operating performance & Profitability Amounts in USD mn. 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 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Net Interest Margins 4.35% 4.42% 4.03% 4.14% 3.85% 3.89% 2.89% 2.73% 2.63% 2.49% 2.50% 2.57% 1.85% 1.46% 1.30% 1.64% 1.40% 1.22% 2013 2014 2015 2016 2017 Q2 2018 Yield % Cost % Spread % Operating Income & Cost to Income Profitability 80% 70% 64% 64% 66% 65% 67% 60% 50% 40% 30% 20% 10% 0% 41.2% 42.0% 41.8% 42.2% 43.1% 25% 25% 23% 21% 21% 12% 11% 11% 14% 12% 2014 2015 2016 2017 June 2018 Net Interest Income Net Commission & fees Other Income Cost to income ratio 20
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 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Loan Growth 2.91% 2.94% 3.07% 2.75% 2.84% 2014 2015 2016 2017 Jun 18 Gross loans NPL% Gross Loans by Sector Impaired assets & Provisioning Personal and Housing loans 41.1% Others 3.0% Services 11.2% Import trade 4.6% Financial institutions 4.6% Mining and quarrying 5.5% Wholesale and retail trade 2.4% Construction 7.1% Manufacture 5.7% Utilities 5.8% Transport 9.1% 142.1% 129.4% 130.6% 128.9% 108.4% 773 815 851 660 704 764 672 520 624 544 2014 2015 2016 2017 Jun 18 21 LLR NPL 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0%
Funding & 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 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. Liquid Assets Capital Adequacy Ratio 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 14 Cash and bal. with Central Bank 1,536 2,428 2,705 6,265 2,174 Due from banks 2,347 1,538 1,368 2,575 2,698 Loans and Advances 19,429 19,113 18,447 17,391 16,586 Islamic financing receivables 2,757 2,520 2,221 1,649 1,040 Non trading investments 3,072 2,668 2,748 3,944 1,924 Tangible fixed assets 173 187 194 199 187 Other assets (incl. invt in associates) 648 505 422 560 660 Total assets 29,962 28,959 28,104 32,583 25,268 Bank deposits/frns /Bonds 3,608 3,478 3,157 7,924 2,802 Customer deposits (incl. CDs) 17,392 16,778 17,389 17,502 16,481 Islamic Customer's Deposit 2,589 2,493 1,982 1,624 734 Other liabilities 1,271 975 962 1,034 1,056 Subordinated debt 298 315 430 625 625 Convertible bonds 0 84 167 246 162 Total liabilities 25,157 24,236 24,086 28,954 21,860 Share capital and premium 2,146 2,027 1,911 1,803 1,775 Total reserves 1,232 1,266 1,162 1,057 1,004 Retained profits 1,087 1,092 945 769 630 Shareholders' equity 4,465 4,385 4,018 3,628 3,408 Perpetual Tier I Capital 338 338 Total liabilities + shareholders' equity 29,960 28,959 28,105 32,583 25,268 Key ratios Loans 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 14 Net 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 ratios Cost/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% 25