investor presentation dec 2016 revised - bankmuscat uae central bank; national central banks and...
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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 December 2016, unless stated otherwise.
bank muscat at a GlanceOverview Ownership
bank Muscat Growth
#1 Bank in Oman with a significant active customer base in excess of 1.70 millionmillion clients and a workforce of 3,747 employees as of 31st December 2016
Established in 1982, headquartered in Muscat with 154 branches across Oman, 2branches overseas, and 2 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 Long term Bank Rating: Moody’s Baa1(stable), S&P BBB‐ (Negative) Listed on the Muscat Securities Market (with a market cap of USD 3,047 million as of
31st December 2016), London Stock Exchange & Bahrain Stock Exchange
4
Key Financials
Source: bank muscat audited financial statements and interim financials
Merger with Commercial Bank of Oman
Meethaq launched
Merger between Bank of Muscat
& Bank Al AhliAl Omani
Listed on the MSM in 1993
Acquisition of the Bahraini operations of
ABN AMRO
Acquisition of 49% stake in BMI
Bank
1st Branch in Saudi Arabia
1st Branch in Kuwait
Muscat Capital LLC launched
Dubai Rep Office
Singapore Rep Office
Establishment of Bank of Muscat
Merger of BMI Bank with Al Salam Bank,
Bahrain
1982 20131993 2002 2004 2007 2010 20121996 20092000 2014
Footsteps of a Leader Throughout Decades
IFC becomes a 5% shareholder
Royal Court Affairs23.63%
Dubai Financial Group LLC12.37%
Ministry of Defence Pension
Fund6.48%Civil Service
Pension Fund4.92%
Muscat Overseas Group4.03%
IFC 3.01%
Others45.57%
bank muscat – Key Highlights
Management
Largest Bank in Oman by total assets of 35.61%, as of 30thNovember 2016, 3 times larger than the 2nd largest Omani Bank
Market Capitalisation of USD 3,047 million as at 31st December 2016.
Largest branch network with 154 domestic branches
The only bank in Oman to be designated a “D‐SIB”
Strong Financial Metrics
Stable Operating Environment
Highest Government Ownership
Dominant Franchise in Oman
Highest Government Ownership among Omani Banks Royal Court Affairs: 23.63%
Direct and indirect Government ownership of around 35% through various entities
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%
Solid macroeconomic conditions
Stable banking sector Prudential regulatory environment
Stable and experienced management with proven track record of successful organic and inorganic growth
Good corporate governance
Solid Capital Position
Strong capitalization levels offering room for substantial growth
CAR of 16.90% as of 31st December 2016
Stable Asset Quality
Conservative lending approach
Strong risk architecture and policies
Adequate asset quality metrics
5 Source: bank muscat audited financial statements and interim financials
Sultanate of Oman – OverviewOverview
GDP Growth GDP CompositionUS$ Million
(1) Source: Central Bank of Oman website, Rating Reports: Moody’s and S&P as of Dec 2016
2nd Largest country in the GCC with an area covering approx. 309.5 thousand km2,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 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 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 “Vision 2020” – focuses on diversification, industrialization and privatization, with
the objective of reducing economic reliance on oil revenues and the hydrocarbonsector contribution to GDP
As of September 30th 2016
Source: National Center for Statistics and Information, 2015 figure as of Q4 20157
Oman
SaudiArabia
UAEQatarBahrain
Kuwait
Key Indicators (1) 2015 2016
Sovereign Ratings Moody's\S&P A1/A Baa1/BBB‐Budget Surplus\Defici t ‐4.6 Bn ‐5.3 BnSurplus\Defici t % of tota l revenue
‐15.4% ‐72.0%
Net Publ ic Debt (% GDP) 9.2% 29.0%
37,532 23,784
12,060
48,470 49,792
34,881
‐3.8%‐2.9%
‐35.1%
8.9%6.7%
‐0.2%
2014 2015 2016
‐40.0%
‐30.0%
‐20.0%
‐10.0%
0.0%
10.0%
‐
20,000
40,000
60,000
80,000
100,000
2014 2015 2016
Non Oil GDP in Current Prices (US$Mn)
Oil GDP in Current Prices (US$Mn)
% Change
% Change
As of September 30th 20166
Petroleum Activi ties, 25.69%
Agri & Fishing, 2.06%
Manufacturing & Mining, 9.02%
Const., Elec. & Water supply,
11.57%Transport & Comm., 6.16%
Financial Int., 6.47%
Publ ic admin. & Defence, 12.49%
Wholesale & reta il trade,
7.78%
Real Estate Services, 5.26%
Other services, 13.49%
Oman Banking Sector – OverviewOverview
The Omani banking sector comprises of 7 local banks, 2 specialized banks, 9foreign commercial banks and two full fledged Islamic Banks
The top 3 banks contribute around 35.89% of total sector assets. bankmuscat represents 35.61% of total banking sector assets as of Nov 2016
Conservative and Prudent Regulator
A number of regulations and caps in place to support the growth, stabilityand sustainability of the Omani banking sector
Adequate asset quality with relatively low impaired assets and soundcapitalization
Implementing Basel 3 regulation with effect from Jan 2014
Loans and Deposit Growth
Gross Loan: +10.9%Deposits: +10.0%
US$ billion
Oman in the GCC banking sector context(1) Asset Quality(2)
177% 84% 142% 159% 99% 152%
0%
50%
100%
150%
200%
UAE Saudi Qatar Kuwait Oman Bahrain
Assets as % of GDP
Notes: (1) Central Bank websites based on the latest available figures for the GCC banking sectors. US$/ AED: 3.67, US$/ SAR: 3.753, US$/ QAR: 3.64, KD/ US$: 0.303, and OMR/ US$: 0.385
8
Source(1) GDP data is for FY 2015 forecasted.; UAE, Saudi, Kuwait, Oman as at Dec 2015; Qatar as at Nov 2015; Bahrain as at Jun 2015Source: UAE Central Bank; National Central Banks and forecasts 2) Central Banks, EIU and Bloomberg data as of Dec 2015
bank muscat – Unrivalled Leading Market Position in Oman
Total Assets Gross Loans
Deposits Net Profit
US$ million US$ million
US$ millionUS$ million
Source: Banks’ financial Statements. Based on Dec 2016, except Oman Arab Bank as of Sep 20169Notes: OMR/ US$: 0.385
bank muscat – Dominant Domestic Franchise in the Region
Market Share ‐ Assets Market Share – Deposits
Asset Quality Adequate Capitalization
Assets as % of Total Sector Assets Deposits as % of Total Sector Deposits
16.0% 21.2% 18.1% 19% 16.90% 17.7% 15.2%
Source: GCC Central Banks. Banks’ financial Statements. (1) Information for all banks as of Dec 2016, except CBQ & BBK as of Sep 2016.USD/BHD = 0.3770510
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”
15.6%
15.9%
18.7% 16.9% 16.7% 14.75% 15.7%13.1%
12.6%
0.1%2.5%
1.2%2.3%
2.15%2.0%
2.2% 3.1%
QNB ENBD NBAD NCB BM NBK CBQ BBKTier 1 Tier 2
5.6%
1.8%0.6%
2.9% 3.2%
1.3%
4.9%
5.6%
78.8%
113.9%
309.0%
130.8% 112.1%
83.2%
117.7%132.6%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
350.0%
CBQ QNB NCB BM NBAD NBK BBK ENBDNPL/GL LLR/NPL
bank muscat Strategy – Key Pillars
Consolidate Leading Position 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)
Leverage on technology and infrastructure investments
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
Regional Expansion 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
Focus on Islamic Banking Developments in Oman
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
Financial strength
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
bank muscat – Business LinesKey Highlights Asset Contribution Profit Contribution
WholesaleBanking(1)
Corporate Banking
Leading Corporate Bank Franchiseoffering the full array of corporatebanking services
c. 3,550 corporate customers inOman
Strong expertise in project finance
US$ 10.5bn
36.4% of total assets
US$189.3mn
33.7% of total profit
Global Institutions,Investment
Banking & Treasury
Comprise of treasury, corporatefinance, and asset management
Financial Institutions
US$ 6.2bn
21.5% of total assets
US$ 152.5mn
27.1% of total profit
PersonalBanking
Leading Retail Bank platform inOman
Over 1.80 million retail customersin Oman
Largest distribution network
US$ 7.4bn
25.9% of total assets
US$190.4mn
33.9% of total profit
Meethaq – Islamic Banking
OMR 50mn (c.US$130mn) capitalassigned to this business
Officially launched in January2013. Currently operating through16 full fledged Islamic brancheswith a plan to expand the networkto 25 branches by the end of2016 and expand thereafter
US$ 2.7bn
9.3% of total assets
US$ 23.2mn
4.1% of total profit
International Operations Presence in GCC and Singapore
through overseas branches, repoffices and subsidiary
US$ 1.9bn
6.9% of total assets
US$ 6.9mn
1.2% of total profit
Deposits
Loans & Advances
(1) Definition of Wholesale Banking has changed since 1st January 2016
13 Source: bank muscat unaudited financial statements as of June 2016
Ministries & Other Gov Orginisations
29%
Private Commercial 24%Financial
Institutions 3%
Individual & Others 44%
Services 10%Mining and quarrying 5%
Manufacture 6%
Real estate 5%
Wholesale and retail trade 2%
Import trade 5%
Financial institutions 5%Utilities 6%
Transport 10%Construction 4%
Government 0%
Agriculture and allied activities
0%
Export trade 0%Others 1%
Personal and Housing loans
40%
Wholesale Banking
Source: bank muscat audited financial statements and interim financials as of Dec 2016, except Oman Arab Bank as of Sep 2016
Corporate Loans –Peer Comparison Asset Growth Operating Income
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
US$ billion US$ million US$ million
14
Corporate Banking
10.57
4.14 4.253.51
2.64 2.34 2.41
BankMuscat
Bank
Dho
far
NBO
Bank
Soh
ar
HSBC
Oman
Ahli Bank
Oman
Arab
Bank
Source: bank muscat audited financial statements and interim financials
Securities portfolio (1) Asset Growth Operating Income
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
US$ million US$ million
(1)Securities portfolio represents Bonds & T‐Bills. (2) Others include Baa1 to Baa3 securities and unrated Banks. Data as of Dec 2016.
15
Wholesale BankingGlobal Institutions, Investment Banking & Treasury
5.04%6.67%
87.55%
0.74%
Securities Portfolio
Aaa to Aa3
A1 to A3
Ba1+ to Ba3
Others
Personal Banking
Source: bank muscat audited financial statements and interim financials as of Dec 2016, except Oman Arab Bank as of Sep 2016
Personal Loans –Peer Comparison Asset Growth Operating Income
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, 440 ATMs, 227 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
US$ million US$ millionUS$ billion
16
7.34
3.623.15
1.68 1.65 1.56 1.26
BankMuscat
Bank
Dho
far
NBO
Ahli Ba
nk
Oman
Arab
Bank
Bank
Soh
ar
HSBC
Oman
Meethaq – Islamic Banking
Source: bank muscat audited financial statements and interim financials
Financing Portfolio Meethaq – Product and Portfolio Development
2016
Consumer Child saving accounts, employee saving
funds, Ijara products
Corporate Government checking accounts with profit
distribution
Investment & Treasury Sukuk issue and advisory, FX hedging
products
Asset Management Real estate and Equity Funds
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
17
403739
1,060
1,727
2,221
0
500
1,000
1,500
2,000
2,500
2012 2013 2014 Dec‐15 Dec‐16
Loans (USD)
International Operations
Source: bank muscat audited financial statements and interim financials
Assets Operating Income
Overview Opportunities Strategy Presence in GCC and Singapore
Branches in Saudi Arabia and Kuwait
Rep offices in UAE 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
US$ millionUS$ million
(1) Includes US$25 million being gain on acquisition of BMI bank by Al Salaam Bank, Bahrain
18
Operating Performance and Profitability
Operating Income Composition Profitability
Overview Operating Income & Cost to Income Resilient operating performance through the financial turmoil Solid top line income growth – 5 year CAGR of 6.5%
Stable cost to income ratio in spite of business and infrastructure expansion Solid profitability Stable Return on assets
Strong core revenue generation with net interest income and commission and fees contributing to over 80% of total operating income Increasing focus on top line commission and fee income
generation
US$ million
US$ million
CAGR: + 6.5%
41.2%42.2%41.6% 41.9% 41.8%
(1) Other income: FX Income, Profit on sale of non‐trading investments, Dividend income and other income
Source: bank muscat audited financial statements and interim financials20
Cost to Income
US$ million
Operating Income
Asset Quality
Gross Loans – Sector Breakup Impaired Assets and Provisioning
Overview Loan Growth 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
Source: bank muscat audited financial statements and interim financials21
US$ million
US$ millionServices 10%
Mining and quarrying 5%
Manufacture 6%
Real estate 5%
Wholesale and retail trade 2%
Import trade 5%
Financial institutions 5%
Utilities 6%
Transport 10%
Construction 4%Government 0%
Agriculture and allied activities
0%
Funding and Liquidity
Source: bank muscat audited financial statements and interim financials
Liquid Assets Capital Adequacy Ratio
Overview Funding Mix Stable funding structure with a diversified funding base Largest deposit base in Oman with significant granularity Retail deposits comprise 71% of total deposits
Top 20 depositors represent 25% 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 16.90% and Tier 1
at 14.75%, above the 12.625% and 9% ratio required by the CBO
US$ million
US$ million
25,26822,04320,555 31,545
16.10%15.92%16.50%16.32%
27,141
22
Total Capital Adequacy Ratio
Total Assets
16.90%
Balance Sheet
Source: bank muscat audited financial statements and interim financials25
Amounts in USD 31‐Dec‐16 31‐Dec‐15 31‐Dec‐14 31‐Dec‐13Cash and bal. with Central Bank 2,705 6,265 2,589 1,512 Due from banks 1,368 2,577 2,283 2,252 Loans and Advances 18,447 17,391 16,586 15,230 Islamic financing receivables 2,221 1,649 1,040 725 Non trading investments 2,748 3,943 1,924 1,460 Tangible fixed assets 194 197 187 173 Other assets (incl. invt in associates) 422 560 660 690 Total assets 28,104 32,581 25,268 22,043
Bank deposits/FRNs /Bonds 3,157 7,926 2,802 2,303 Customer deposits (incl. CDs) 17,389 17,502 16,481 14,545 Islamic Customer's Deposit 1,982 1,624 734 241 Other liabilities 962 1,030 1,056 1,042 Subordinated debt 430 625 625 641 Convertible bonds 167 247 162 121 Total liabilities 24,086 28,954 21,860 18,894
Share capital and premium 1,911 1,802 1,775 1,733Total reserves 1,162 1,057 1,004 889Retained profits 945 769 630 527Shareholders' equity 4,018 3,627 3,408 3,149Total liabilities + shareholders' equity 28,104 32,581 25,268 22,043
Key ratiosLoans and advances/customer deposits 106.69% 99.36% 95.13% 103.10%Shareholders' equity/total assets 14.30% 11.13% 13.16% 13.35%Subordinated debt/(debt + equity) 9.66% 14.69% 15.81% 19.74%BIS total capital ratio 16.90% 16.10% 15.53% 15.10%
Profit and Loss
Source: bank muscat audited financial statements and interim financials26
31‐Dec‐16 31‐Dec‐15 31‐Dec‐14 31‐Dec‐13Net interest income 651 628 589 578 Net income from Islamic financing 61 48 43 33 Other operating income 369 382 362 272 Operating income 1,081.0 1,058 995 884 Operating costs (452.1) (444) (410) (373)
629 614 585 510 Recoveries from impairments 94 93 67 84 Credit loss impairments (183) (187) (168) (131)Other impairments (12) (13) (4) (12)Gain/(loss) from associates 4 5 4 3 Profit before Tax 532 512 484 455 Taxation (72) (57) (60) (59)Net Profit 460 455 424 395
Key ratiosCost/income ratio 41.83% 41.95% 41.21% 42.24%Return on average assets 1.64% 1.72% 1.79% 1.86%Return on average equity 12.50% 13.68% 13.89% 14.49%Basic EPS (US$) 0.145 0.200 0.184 0.187Share price (US$) 1.22 1.22 1.51 1.65
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