investor presentation mar 2019 - bank muscat · investor presentation mar 2019 1. contents note:...
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Investor Presentation Mar 2019
1
Contents
Note: The financial information is updated as of 31 Mar 2019, unless stated otherwise.
Bank Muscat Introduction
Operating environment
Bank Muscat business - Overview
Financial Performance
Annexure
2
Bank Muscat Introduction
3
Bank Muscat at a glance
Overview
#1 Bank in Oman with a significant active customer base with ~2 millionclients and a workforce of 3,771 employees as of 31st Mar 2019.
Established in 1982, headquartered in Muscat with 169 branches acrossOman, 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 servicesoffering
Listed on the Muscat Securities Market (with a market cap of USD 3,231million as of 31st Mar 2019), London Stock Exchange & Bahrain StockExchange
Ownership as of Mar 2019
Key Financials Bank Muscat Footsteps
4
In US$ Millions, unless otherwise stated Q1 2019 2018 2017 2016
Tota l Asse ts 31,112 31,917 28,959 28,104Gross Loans 24,675 24,073 22,484 21,483Deposits 20,888 21,981 19,268 19,369Ope ra ting Inc ome 302 1,160 1132 1081Net P rofit 119 466 460 459Tie r 1 17.35% 18.14% 16.87% 14.75%Tota l CAR 18.45% 19.38% 18.56% 16.90%Loa ns to De posit Ra tio 113.88% 105.63% 112.26% 106.69%
NPL Ra tio 3.10% 3.09% 2.94% 2.91%Cost/ Inc ome 41.76% 42.61% 42.22% 41.83%ROA 1.51% 1.53% 1.61% 1.64%ROE 10.68% 10.83% 11.44% 12.50%
Royal Court Affairs, 23.63
Dubai Financial Group LLC, 11.77
ONIC, 9.90
Civil Service Pension Fund,
7.55
Ministry of Defence Pension
Fund, 6.49
Public Authority for Social
Insurance, 5.13
Others, 35.53
Bank Muscat – Key Highlights
Management
Largest Bank in Oman by total assets of 35.1%, as of 28th
Feb 2019, around the size of next 3 Omani banks combined. Market Capitalisation of USD 3,231 million as at 31st Mar
2019 Largest branch network with 169 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%
Significant direct and indirect Government ownership through various entities.
Stable and consistent financial performance Solid topline income growth Stable cost-to-income ratio
despite business and infrastructure expansion
Strong and sustainable profitability metrics: Operating profit 2014-2018 CAGR
of 3.9% Net profit 2014-2018 CAGR of
2.4%
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 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 18.45% as of 31st Mar 2019
Stable Asset Quality
Conservative lending approach Strong risk architecture and policies Adequate asset quality metrics
5
Operating Environment
6
Sultanate of Oman – OverviewOverview
GDP Growth GDP Composition
(1) Source: National Center for Statistics (Nov ‘18), Rating Reports: Moody’s and S&P as of Apr 2019
Source: National Center for Statistics and Information, figure as of Sep 20177
Oman
SaudiArabia
UAEQatarBahrainKuwait
Source: IMF data as of Apr 2019, & National Centre for Statistics & Information as of Dec 2018
2nd Largest country in the GCC with an area covering approx. 309.5 thousand km2,strategically located, sharing borders with Saudi Arabia, & 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 4.66mn as of Feb 2019 - predominantly represented by Omani Nationals who
account for 56.3% of the total population The economy will continue to grow with the following drivers: 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 andtourism
7
Key Indicators (1) 2018 2019Sovereign Ratings Moody's\S&P Baa3/BB Ba1/BBBudget Surplus\Deficit in OMR -1.9 Bn (Nov '18) Est '-2.8 BnSurplus\Deficit % of total revenue Est -19% Est -28%Net Public Debt (% GDP) Est 50% Est 53%-55%
Petroleum Activities, 34.94%
Manufacturing & Mining, 10.26%Const., Elec. &
Water supply, 8.24%
Wholesale & retail trade, 7.25%
Hotels & Restaurants,
0.94%
Transport, storage &
communication, 5.32%
Financial Intermediation,
5.99%
Real Estate Services, 4.74%
Public admin & defence, 11.53%
Other services, 10.79%
2.8%
4.7%5.0%
‐0.9%
1.9%
1.1%
‐2.0%
‐1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
2014 2015 2016 2017 Est. 2018 Est. 2019
GDP Growth %
Oman Banking Sector – OverviewOverview
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 36.6% of totalsector assets. bank muscat represents 35.1% of total banking sectorassets as of Feb 2019
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 soundcapitalization
Implemented Basel 3 regulation with effect from Jan 2014
Loans and Deposit Growth
Gross Loan: +10.5%Deposits: +7.1%
US$ billion
Oman in the GCC banking sector context(1) Asset Quality(2)
(1) GDP data is estimated for FY 2019 (Source: World Bank, National Central Banks) Oman, KSA, UAE & Kuwait as of Feb 2019, Bahrain as of Jan 2019, & Qatar as of Dec 2018.
(2) Source: Central Banks: Oman, UAE, KSA, Qatar & Kuwait as of Mar 2019, Bahrain as of Apr 2019.
8
793
625
390
219
88 64
433
791
193138
8140
183%
79%
202%
159%
109%
160%
0%
50%
100%
150%
200%
250%
0
100
200
300
400
500
600
700
800
900
UAE Saudi Arabia Qatar Kuwait Oman Bahrain
Assets as a % of GDP
Total Assets in $ Bn GDP in $ Bn Assets as a % of GDP
Bank Muscat – Unrivalled Leading Market Position in Oman
Total Assets Gross Loans
Deposits Net Profit
Amounts in USD mn.
9
Bank Muscat – Dominant Domestic Franchise in the Region
Market Share ‐ Assets Market Share – Deposits
Asset Quality Strong CapitalizationAssets as % of Total Sector Assets Deposits as % of Total Sector Deposits
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.
18.5% 22.0% 16.0% 19.3% 18.45% 16.9% 16.1%
10
5.6%
1.9% 1.8%3.1% 3.3%
1.5%
5.9%
80.3%
106.0%145.0%
129.6%
106.0%
207.0%
123.9%
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
CBQ QNB NCB BM FAB NBK ENBDNPL/GL LLR/NPL
17.6%
20.9%14.9%
18.4% 17.4% 14.9% 14.5%
0.9%
1.1%
1.1%0.9% 1.1%
2.0% 1.6%
QNB ENBD FAB NCB BM NBK CBQTier 1 Tier 2
Bank Muscat Business Overview
11
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 “To Serve you better, everyday” 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
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
12
Bank Muscat – Business Lines
Key Highlights Asset Contribution
Profit Contribution
WholesaleBanking
Corporate Banking
Leading Corporate BankFranchise offering the fullarray of corporate bankingservices
~ 6,500 corporate customersin Oman
Strong expertise in projectfinance
US$ 11.8bn
36.7% of total assets
US$ 50.5mn
42.3% of total profit
GlobalInstitutions,InvestmentBanking & Treasury
Comprise of treasury,corporate finance, and assetmanagement
Financial Institutions
US$ 6.7bn
20.7% of total assets
US$ 36.4mn
30.5% of total profit
PersonalBanking
Leading Retail Bank platformin Oman
~ 2 million retail customers inOman
Largest distribution network
US$ 8.5bn
26.5% of total assets
US$ 40.3mn
33.8% of total profit
Meethaq – Islamic Banking
OMR 65mn (c.US$167mn)capital assigned to thisbusiness
Officially launched in January2013. Currently operatingthrough 20 full fledged Islamicbranches.
US$ 3.7bn
11.6% of total assets
US$ 6.3mn
5.3% of total profit
International Operations
Presence in GCC, Iran andSingapore through overseasbranches, rep offices andsubsidiary
US$ 1.4bn
4.5% of total assets
US$ (14.2)mn
-11.9% of total profit
Deposits
Loans & Advances
13
Ministries & Other Gov Orginisation 29%
Private Commercial24%Financial Institutions
2%
Individual & Others45%
Import Trade4.1% Export Trade
0.2%
Wholesale & Retail Trade
2.4%
Mining & Quarrying 3.6%
Construction4.0%
Real Estate 3.3%
Manufacturing6.9%
Electricity, gas and water 5.9%
Transport and Communication
9.2%
Financial Institutions
5.6%Services 13.1%
Personal Loans39.2%
Agriculture and Allied Activities
0.4%
Government0.4%
Others 1.8%
Corporate BankingOverview Opportunities Strategy
Leading Corporate Banking Franchise
Extensive and expanding range of products and services
Strong project finance capabilities
Large corporate client portfolio with c.7,200 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
Amounts in USD mn.
Corporate Loans- Peer comparison Asset Growth Operating Income
US$ billion
14
15.06
4.953.92 4.25
2.243.41 2.76
BankMuscat
Bank
Dho
far
NBO
Bank
Soh
ar
HSBC Oman
Ahli Bank
Oman
Arab
Bank
Wholesale Banking – Global Financial 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
Amounts in USD mn.
Securities Portfolio Asset Growth Operating Income
15
Personal BankingOverview 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 (169 branches, 452 ATMs, 247 CDMs and the best online platform in Oman)
Substantial low cost retail deposit base Merchant acquiring market share of
over 72% by volume as of Mar 2019 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
Amounts in USD mn.
Personal Loans- Peer comparison Asset Growth Operating Income
US$ billion
16
9.63
3.50 3.63
1.78 1.89 2.051.28
BankMuscat
Bank Dhofar
NBO
Ahli Bank
Oman Arab
Bank
Bank Sohar
HSBC Oman
Meethaq – Islamic Banking Overview Opportunities Strategy
One of the most successful Islamic banking operation in Oman since 2013
20 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
Amounts in USD mn.
Financing Portfolio Operating Profit
17
1,6772,259 2,566
2,940 3,081
0
1,000
2,000
3,000
4,000
2015 2016 2017 2018 Q1 2019
5266 70
79
20
‐
20
40
60
80
100
2015 2016 2017 2018 Q1 2019
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
Amounts in USD mn.
Total Assets Operating Income
18
Financial Performance
19
Operating performance & Profitability
Overview Net Interest Margins
Resilient operating performance Stable top line income growth – 5 year CAGR of
3.9% Stable cost to income ratio with marginal growth in
operating costs Strong core revenue generation with net interest
income and commission and fees contributing to over 90% of total operating income Increasing focus on top line commission and fee
income generation Stable net interest margin in spite of increasing cost
of funding.
Operating Income & Cost to Income Profitability
20
66% 65%68% 68% 68%
23% 21% 22% 22% 20%
11% 14%10% 10% 13%
41.8% 42.2% 42.6% 42.6% 41.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2015 2016 2017 2018 Q1 2019
Net Interest Income Net Commission & fees
Other Income Cost to income ratio
4.03%3.85%
4.05%4.31%
4.54% 4.61%
1.30% 1.22%1.45%
1.73%2.04%
2.06%
2.73% 2.63% 2.60% 2.58% 2.50% 2.55%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
2014 2015 2016 2017 2018 Q1 2019
Yield % Cost % Spread %
Asset Quality
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 on provisioning IFRS 9 fully implemented
Gross Loans by Sector Impaired assets & Provisioning
21
Import Trade4.1% Export Trade
0.2%
Wholesale & Retail Trade
2.4%
Mining & Quarrying 3.6%
Construction4.0%
Real Estate 3.3%
Manufacturing6.9%
Electricity, gas and water 5.9%
Transport and Communication
9.2%
Financial Institutions
5.6%Services 13.1%
Personal Loans39.2%
Agriculture and Allied Activities
0.4%
Government0.4%
Others 1.8%
19,813 21,484 22,484 24,073 24,675
2.75% 2.91% 2.94% 3.09% 3.10%
8.3% 8.4%
4.7%
7.1%
2.5%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
2015 2016 2017 2018 Q1 2019
Gross loans in USD (LHS) NPL% (RHS) Loan Growth % (RHS)
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 26% 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 17.35%, above the minimum regulatorylevels of 13.575% and 11.575% respectively.
Liquid Assets Capital Adequacy Ratio
22
Annexures
23
Balance sheet
24
Amounts in USD 31‐Mar‐19 31‐Dec‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15Cash and bal. with Central Bank 1,868 3,394 2,428 2,705 6,265Due from banks 1,418 1,236 1,538 1,368 2,575Loans and Advances 20,766 20,334 19,113 18,447 17,391Islamic financing receivables 3,021 2,884 2,520 2,221 1,649Non trading investments 3,283 3,298 2,668 2,748 3,944Tangible fixed assets 205 181 187 194 199Other assets (incl. invt in associates) 551 590 505 422 560Total assets 31,112 31,917 28,959 28,104 32,583
Bank deposits/FRNs /Bonds 4,086 3,701 3,478 3,157 7,924Customer deposits (incl. CDs) 18,327 19,491 16,778 17,389 17,502Islamic Customer's Deposit 2,561 2,490 2,493 1,982 1,624Other liabilities 1,193 1,126 975 962 1,034Subordinated debt 102 102 315 430 625Convertible bonds 0 0 84 167 246Total liabilities 26,269 26,909 24,236 24,086 28,954
Share capital and premium 2,184 2,159 2,027 1,911 1,803Total reserves 1,277 1,262 1,266 1,162 1,057Cumulative changes in fair value ‐29 ‐13 44 50 50Retained profits 1,073 1,261 1,092 945 769Shareholders' equity 4,505 4,669 4,385 4,068 3,678Perpetual Tier I Capital 338 338 338Total liabilities + shareholders' equity 31,112 31,917 28,959 28,104 32,583
Key ratiosLoans and advances/customer deposits 113.9% 105.6% 112.3% 106.7% 99.4%Shareholders' equity/total assets 14.48% 14.63% 15.14% 14.48% 11.29%Subordinated debt/(debt + equity) 2.06% 2.00% 6.71% 9.55% 14.51%BIS total capital ratio 18.45% 19.38% 18.45% 16.90% 16.10%
Profit & Loss Statement
25
Amounts in USD 31‐Mar‐19 31‐Dec‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15Net interest income 187 719 667 651 628 Net income from Islamic financing 18 72 64 61 48 Other operating income 97 370 402 369 382 Operating income 302 1,160 1,132 1,081 1,058 Operating costs (126) (494) (478) (452) (444)
176 666 654 629 614 Net impairment losses on financial assets (35) (112) (112) (102) (108)Gain/(loss) from associates ‐ ‐ 6 4 5 Profit before Tax 141 554 548 531 511 Taxation (22) (88) (89) (72) (57)Net Profit 119 467 459 459 454
Key ratiosCost/income ratio 41.8% 42.6% 42.2% 41.8% 42.0%Return on average assets 1.5% 1.5% 1.6% 1.6% 1.7%Return on average equity 10.7% 10.8% 11.4% 12.5% 13.7%Basic EPS (US$) 0.038 0.062 0.062 0.442 0.442Share price (US$) 1.044 1.049 0.956 1.221 1.216