investor presentation dec 2016 revised - bankmuscat uae central bank; national central banks and...

Subject:

Department:

Investor Presentation

December 2016

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.

I. bank muscat introduction

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

II. Operating Environment

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

III. bank muscatBusiness Overview

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


US$ 152.5mn


PersonalBanking

Leading Retail Bank platform inOman

Over 1.80 million retail customersin Oman

Largest distribution network

US$ 7.4bn


US$190.4mn


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


US$ 23.2mn


International Operations Presence in GCC and Singapore

through overseas branches, repoffices and subsidiary

US$ 1.9bn


US$ 6.9mn


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


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


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


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

IV. Financial Performance

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


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


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%

Subject:

Department:

شـكــراً لـكـمThank You

VII. Annexure

Balance Sheet


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


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

investor presentation dec 2016 revised - bankmuscat uae central bank; national central banks and...

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