Ahli Bank SAOG (ABOB) Earnings Call Transcript & Summary

Okay. [Foreign Language] Good afternoon. Welcome to this session where we discuss the ahlibank performance for the 2024. As usual, this session will be in two parts. The first part, the CFO, will present the financial performance of the bank. And on the later session, we will take your questions. Before we start, I will just briefly introduce the team here. My name is Said Al Hatmi. I'm the CEO of ahlibank. On my right-hand side is Bilal Anwar. He is the Deputy CEO, Business Group. Next to him is Fahad Al Shuaili, our CRO. This side is Hanaa Al Kharusi, Senior GM, looking after the Wholesale Banking. Habib Al Hamaid is the Investor Relations. And then we have Sriram Balakrishnan, who is our CFO. So as I said, we'll start with the presentation from CFO, and then later on, we'll open the session for Q&A. Sriram?

Thank you, Said. A very good afternoon to everyone. Before we start this presentation, a general disclaimer, the purpose of this presentation is to discuss the performance of ahlibank for the year-end 2024. The intention is not to give indication of future or any forward-looking statements. Oman's economy has done very well during the last few years post-COVID. Oman has had fiscal surplus for last consecutive 3 years, since 2022. In 2024, the surplus ended at OMR 540 million. The debt-to-GDP ratio has been brought around 34% from right around 40% in 2022. Oman's rating has been recently upgraded to investment grade by S&P. Oman's GDP also has recovered well past the COVID and is expected to grow around 3.1% in 2025. Moving on. The budget for 2025 shows an overall revenue of OMR 11.18 billion based on an oil price of $60 per barrel, an expense of OMR 11.80 billion with a deficit of OMR 620 million. However, it is expected to perform better based on the expected oil price hovering above $70 per barrel. Sufficient allocation has been done for various development initiatives in the budget, including private-public partnership programs and other national programs, as mentioned in the slide. Moving on, Oman's banking performance. Oman's banking sector has shown some strong credit fundamentals, with total assets growing by 7.2% CAGR from OMR 38.8 billion as of the end of 2022, growing to OMR 44.6 billion as of the end of last year. Loans and advances grew by 5.5% CAGR during this period to reach OMR 32.2 billion. Customer deposits during the same period has grown by 10.7% CAGR to reach OMR 31.7 billion. The sector is well capitalized with overall CAR at 18%. The profitability of all the listed banks were up by average 15.2% compared to 2023, and the NPL ratio was 4.3%. Moving on. ahlibank has a professional and well-qualified executive management team support and led by the CEO, Mr. Said Abdullah Al Hatmi, and guided by an experienced and knowledgeable Board chaired by Mr. Hamdan Nasser Al Hinai. To ensure best industry practices and comply with regulatory requirements, 5 Board-level subcommittees, namely Audit & Compliance Committee, Executive & Credit Committee, Executive Risk Committee, Nomination & Remuneration Committee and Digital Transformation Committee, at the Board level; and 9 management committees have been set up for effective functioning of the bank. These are ahlibank's vision, mission and values. The values are innovation, integrity, responsibility, excellence and sustainability. Based on the bank's vision, mission and values, the strategic objectives and priorities have been set. The strategic objectives include growing our assets in a very prudent manner, diversifying our deposit base by increasing the number of customers and reducing the concentration, increasing our other operating income into the overall operating income level, and improve our operational efficiency through digitalization initiatives. Moving on. ahlibank commenced its full-fledged commercial banking operations in 2007. Currently, it operates 49 branches, including 25 Islamic branches, and has 16 ahliExpress multifunctional kiosks. The bank has a very strong institutional shareholding. The market share of the bank reached 9.5% in loan and deposits 8.7% as of end of 2024. Since 2022, the assets have grown at a CAGR of 10.3% to reach OMR 3.75 billion as of end of 2024. Deposits have grown by around 9.5% during the period to reach OMR 2.76 billion. The net loans and advances have grown by 9.9% to reach OMR 3.02 billion as of end of 2024. During 2024 alone, the bank grew its assets loan by OMR 322 million and deposits by around OMR 287 million. The bank continues to have NPL lower than the industry average of 4.3% at 4.1%. During 2024, the shareholders and Board approved the MCB program, the mandatory convertible bonds program, whereby part dividend was distributed in lieu of dividend as MCBs. The MCBs shall be converted to shares at the end of their second anniversary. As part of the program, in 2024, the bank issued OMR 10.4 million of MCBs. During 2024, the bank also raised fresh AT1 capital of OMR 40 million after exercising its call option on OMR 20 million AT1 capital raised in 2019. During the year, ahlibank has launched a lot of new funds like Islamic money market fund, balance fund and real estate funds. The bank also participated in a lot of greenfield loans and financing. The bank continued to invest and progress on various digital transformation initiatives. Omanization ratio as of end of year was 94%, and female staff contributed around 40% of the overall staff of the bank. Moving on. The bank continues to deliver sustainable growth and consistent returns to the shareholders with a payout ratio of over 50%. ROAE was at 11.1% as of end of December. The bank has one of the lowest NPLs in the industry and has an efficient operating model with a 42.8% of cost-to-income ratio in spite of investment in digital program and branch expansion. The bank has a strong institutional shareholding as indicated in the chart to the right. The Board has recommended a OMR 0.05 per share as cash dividend and OMR 0.05 per share as MCBs. The MCBs carry a coupon of 6% and will be converted to equity at the end of second year. ahlibank has a strong financial track record as shown in this chart. Assets have grown by 10.5% CAGR compared to the industry average of [ 7.2% ]. Moving on. The Wholesale Banking segment includes sector-specific teams of corporate and SME, offering full array of services. It also has a dedicated team for treasury and FI supporting the corporate team and institutional customers; an investment banking teams handling asset management, corporate advisory and brokerage divisions. Wholesale Banking continues to contribute around 3/4 of the asset size of the bank and about 2/3 of the operating income of the bank. Wholesale Banking assets have grown from OMR 2.3 billion as of end of 2022 to OMR 2.9 billion as of the end of 2024. Operating income has increased from OMR 61.8 million in 2022 to OMR 71.3 million in 2024. The bank continues to focus on various sectors as part of the Sultanate's diversification strategy and Vision 2040. The bank was part of many financing projects of national interest and also performed advisory role in many of the key national projects. Our Retail Banking segment consists of specialized team dedicated for retail, premium, private banking and wealth management customers. This segment contributed around 1/4 of the asset size of the bank and 1/3 of the total operating income of the bank. Retail assets have grown from OMR 733 million as of end of 2022 to OMR 845 million as of end of 2024. The operating income has increased from OMR 29.9 million for 2022 to OMR 37 million for 2024. Retail branches also expanded to 49 branches at the end of the year, which includes 25 Islamic branches. Retail deposits contributed around 46% of the total deposit base of the bank. Moving on. ahli Islamic offers Shariah-compliant products and services catering to all customer segments, including institutional, corporate, SME and retail customers. ahli Islamic have 25 dedicated branches. The gross financing of ahli Islamic increased from OMR 498 million as of end of 2022 to OMR 670 million as of end of 2024. Deposits increased from OMR 479 million to OMR 698 million as of end of 2024. ahli Islamic financing contributes around 21% of the loans and financing of the bank and 25% of overall deposits of the bank. Also, it contributes around 21% of the overall operating income of the bank. 2024 was another successful year for ahlibank. Some of the key milestones include the bank opening 3 new branches, 7 ahliExpress multifunction kiosks, crowdfunding was introduced to ahli Islamic. The bank launched corporate credit cards and prepaid cards. The bank launched the Personal Finance Manager for its customers, instant issuance of credit cards. The asset book grew by around 13.2%, crossing OMR 3.7 billion mark. Retail deposits reached 46% of the overall deposits. The market share of loans reached to 9.5% and deposits reached to 8.7%. The bank's operating income crossed the OMR 100 million milestone to reach OMR 108 million for the year 2024. Some of the key metrics, some of them we discussed already, but I will again bring it here. Total assets grew by 13.2% to OMR 3.755 billion as of end of 2024. Loans and advance grew by 12.2% to OMR 3.02 billion. Customer deposits grew by 11.6% to reach OMR 2.763 billion. Equity grew by 7.1% to reach OMR 558 million. Operating income increased by 9.9% year-on-year to reach OMR 108.31 million. Impairment charges for the year was OMR 13.4 million. Operating expenses increased by 7.6% due to investment in branches and digitalization. The cost-to-income ratio was brought down to 42.8% from 43.8% over the previous year. The profit after-tax was OMR 41.66 million, which is a 14.3% growth over the previous year. ROAE increased to 11.1% from 10.7% from the previous year. ROAA was 1.2% compared to 1.1% in the previous year. NPL ratio was at 4.1% compared to 3.9% in the previous year. CAR ratio was 15.7% and CET1 was at 9.8%. However, the Board has approved a capital raising of OMR 50 million, which was disclosed in the market. Moving on. The operating income crossed the OMR 100 million mark to reach OMR 108 million for the year 2024. Other income to total income increased to 31.8%. Excluding the one-offs, it's still around [ 25% ]. Net interest spread reduced marginally to 1.7%. However, it's expected to increase from Q1 2025 onwards. Cost-to-income ratio was brought down to 42.8%. ROAE increased to 11.1%. ROAA remained at 1.2%. Loans and gross loans increased to OMR 3.1 billion at a 9.9% CAGR as of end of 2024. The NPL ratio was 4.1% compared to the industry average of 4.3%. The overall coverage was 80%. The overall asset staging was Stage 1 comprised of 82%, Stage 2, 13.9% and Stage 3, 3.5%. The chart below shows the well-diversified portfolio of the loans and financing across various sectors. On the funding side, deposits grew by 9.7% to reach OMR 2.76 billion. The deposit comprised of retail deposit share of 46%, corporate contributed 38% of the overall deposit, government and pension funds contributed 16% of the overall deposits. Capital adequacy ratio was 15.4% and CET1 9.9% post the proposed dividend. The net loan-to-deposit ratio remained stable at around 109%. LCR, liquidity coverage ratio; and NSFR, net stable funding ratio, was well above the regulatory levels. In 2024, the bank was honored with several prestigious awards, reflecting the bank's commitment to excellence and innovation. ahlibank was honored as Corporate Bank of the Year Awardee in MENA Banking Excellence Awards. It was given 3 awards: in the New Age Banking Summit, including Excellence in Private Banking, Excellence in Corporate Banking and excellence in Digital Transformation. And it was honored with 2 awards in Alam Al Iktisaad Awards, namely Excellence in Corporate Banking and Innovative Solution and Best Performing Company - Large Cap. With this, we come to the end of the first part of the presentation.

Okay. We'll move to the second part for the Q&A. [Operator Instructions]

This is [ Vishant ]. Just a few queries. Firstly, congratulations on a good set of numbers. Just wanted to check -- one comment from my side before I begin, sir. You reported your ROAE, and it's good to see the bank growing its profitability and ROAE. But if you could also just quickly mention your adjusted ROAE because there's a perpetual interest cost. And if I look at your notes for this year, the net profit reported is OMR 41 million, OMR 41.6 million, but there's also a perpetual interest of OMR 12.2 million. So the adjusted net profit is OMR 30 million on the equity base. So ideally, it would be just prudent and fair to report an adjusted ROAE. So the trend is growing, but the adjusted ROAE, per my calculation, sir, is 7.8%. So I just wanted to highlight that if that's a correct sort of number from your side. Just wanted to confirm that.

Yes, [ Vishant ], that number is correct.

Appreciate. Okay. Moving on, sir. I think the bank has done fairly well. The metrics were good. We've seen improvement in cost-to-income. We've seen overall profitability growing year-on-year, loan books growing. And we've seen in order to -- you're actually one of the few banks that sort of, let me put it this way, maximizes your balance sheet because you keep asking for rights issue, but I get the rationale for that. So it's not like I'm saying it's a bad thing. But just one of those sort of things we've noticed for the second time now where there's a dividend paid, and I understand it's a mixture of cash as well as MCBs, where there's a dividend paid and there's an immediate follow-up with the rights issue. So if you could just give your quick comments on sort of, one hand, give cash; other hand, take cash, that policy. Or is it just, as a corporate signaling action, you want to maintain a dividend policy and, at the same time, the same shareholders are okay to then come back and inject capital into the company. If you could just comment on that, please?

Thank you, [ Vishant ]. You're absolutely right. Again, the bank has a dividend policy. And as you rightly said, the bank is trying to optimize its capital. And as we said several times, we have all the sort of support from the shareholders. And whenever the banks require any additional capital for its growth, the shareholders were always there to support and inject capital. And again, as I said, it has to do with the dividend policy. There's various type of investors, right, from small investors and institutional investors. So the bank is trying to address and balance between various interest within its structured shareholding. So the 10% cash -- sorry, the 10% dividends, of which 5% cash and 5% MCB, we have discussed also, we have introduced a year back, this program, the MCB program, to ensure the bank has enough capital to sustain its future growth through the recycling of the MCB. MCB is listed and any investor who wants to liquidate and sell the MCB can do that and give the cash. Those who wish to retain their investment, then this MCB gets converted after 2 years into a CET1. So this whole thing is part of the capital plan as endorsed by the Board as well. So you're absolutely right. It is to do with ensuring that we are meeting the expectation of our shareholders in terms of the dividends but also, at the same time, ensuring the bank has sufficient capital for its expansion and future growth.

Noted. Next question, if I look at your loan book split-up, I think it's the highest in terms of the split between corporate and retail lending. I think the latest quarter figures are 73-37. Now given the nature of that book, how do you see the current scenario? And what are your thoughts on where the economy has sort of improved over the years? The ratings have come through. In general, how is the lending environment? Just wanted your view as a top banker in the economy.

Yes. So what we're seeing in the market, obviously, we're coming out of COVID. We're coming out of a time when the economy was not doing well, and the interest rate scenario as well didn't help. What we're seeing going forward, especially with the Sultan Haitham City coming in, and a lot of the salaries being increased as well as an uptick on the retail side. Just as much as the retail side, we're seeing similar on the corporate side as well, with the government announcing quite a lot of public-private partnerships and a lot of government contracts coming in as well as a lot of FDI. We're seeing a lot of foreign direct investment coming in, in terms of industrial projects as well as tourism projects. So we're quite confident for 2025. There will be a continuous uptake on the lending, both on the retail and the corporate. In fact, we're seeing quite a lot coming more from the retail than it was historically. The corporate will still continue to do their double-digit growth as it is. The retail would be a little bit higher, I would say.

Okay. Okay. Interesting. Historically, you've obviously worked hard to improve on the CASA. But historically, CASA has been a sort of, let's say, concern area. Or let's say, with regards to peers, it's been on the lower side. Now when I look at interest rates and how they have panned out, of course, we've seen the peak and hopefully, that's passed us. But the rate of decline of interest rates has not been as per plan and probably a bit slower. In that event, sort of the higher cost of funding that probably you bore the brunt of most of '23 and '24, how do you see that panning out with sort of a pause now in interest rates and a wait-and-watch on the inflation before Fed takes its next steps? So how do you see that impacting your sort of cost of funding and overall NIMs and margins?

So actually, we're already starting to see the cost of funds coming down, but you'll understand that there's always a lag. So it doesn't mean that if international market rates come down, then Omani rial follows immediately. There's always a lag in how the rates come down. You would see that our strategy has been to diversify in terms of the low-cost deposits. And as Sriram mentioned, our retail deposits have already reached 46% of the book of the bank, which is mostly sticky, and lower cost than on the wholesale. So this is done strategically. But we're really starting to see the cost of funds coming down gradually. And so we do expect an improvement in the NIM in 2025.

Okay. Interesting. And with regards to sort of the duration of your deposits, did you sort of see a higher sort of -- or tendency to sort of lock in longer-term deposits when the interest rates were high? If you can just comment on that.

So a lot of them have already come to maturity, but obviously, the ones that were maybe a 3-year-plus tenor are still coming to maturity now. So as those come to maturity, obviously, there will be a revision in pricing. And call account rates are things that we're able to revise anyway, so those gradually come down.

Okay. Last query before I go back in queue and let my peers ask their queries. With regards to provision coverage, we've seen the overall cost of risk has come down in the sector, which is encouraging to see. With regards to provision coverage, if I look at your provision coverage, specifically, it's on the lower side compared to the sector. So what's an aspirational provision coverage? And would that imply taking higher sort of provisions on the income statement? If you could just comment and give us some sort of flavor on that or some sort of guidance on that?

See, the provision coverage is around 80%. I mean we were slightly lower than the previous year. It's because of a lot of loans being well covered with the collaterals. So we expect it to be around this range or to improve going on.

All right. And would it be wise to assume that this improvement would come through sort of higher provisions in the income statement?

Both by higher provision as well as improvement in, I mean, the NPL ratios.

[ Vishant ], just to add, we have a robust IFRS model. And identifying and saying we want a specific provision percentage is not the right way. What we need to ensure in the IFRS model, which we adopt; and the CBO guidelines, which we adopt are adhered to the T, and we ensure that whatever is the appropriate provision reflecting the risk in the book is always taken off at any point in time.

No, no, I completely agree with that point. And with regards to IFRS compliance, I'm sure, all the banks do a robust job. I'm just making a broad, let's say, a layman comment, looking at the rest of the sector at 122% and ahli at [ 78% ]. I just thought I'll ask that.

From [ Sriram ] from Vision Capital.

I'd like to continue on [ Vishant's ] question regarding the NPLs and the coverage. We have seen a surge in the nonperforming loans in the third quarter, and then this was somewhat mitigated in the fourth quarter. Why was this anomaly in the financials? Was there a particular [ loan ] or something, if the management could dial in.

It is a combination of all 3 factors which can affect NPL. Your denominator grows in terms of your balance sheet, debt reduces your NPL. You recover some, which we have done, which reduces that NPL. And we've also written off some NPLs because of, I mean, more expectation of old NPLs, which we are carrying. If you see historically, we had not written off NPLs. But this year, we wrote off some NPLs, especially those which happened 5 years, 10 years, which we are carrying 100% provision on them. So it's a combination of all 3.

Okay. Any other questions? [ Vishant ], do you have any questions? Okay, [ Joyce Matthew ]?

See, I have a specific question on your other operating income, which has increased significantly during this year and especially during the second half of the year. And what I've noticed is there's an unrealized gain of around OMR 6 million -- more than OMR 6 million at the end of the year. So could you please throw some light on what's the nature of this investment? And is it already booked? Or it continues to remain unrealized.

So this is unrealized on the M2M valuation of some of the bonds, which we are holding in our book as of 31st December. This is still unrealized. We know this is one-off, and we don't see this, I mean, year-on-year. That's why we said our other operating income ratio, I mean, was 31%, including this. Excluding this, still, we are growing in the other operating income.

All right. Another one I have is on your margins. Your margins has declined by almost 35 bps during this year. Could you please throw some light on how do you see the margins behaving going forward?

See, we already have seen the repricing. As Hanaa mentioned, we've seen the repricing of many of our time deposits that has come through in the last quarter of this year. We expect the margin to improve from Q1 2025 onwards.

Just to add, see, 2024 was quite a challenging year in terms of the cost of funds. However, towards the end of the 2024, we saw 3 cuts. Fed has cut the rate 50 basis and then 25 and 25 basis. So at least we are starting the year with a reduction of around 100 basis points in the Fed rate. We do expect 2025 will be a better year in terms of NIM. Hanaa and Sriram, they mentioned that we have seen a rationalization in the cost of funding already. And we do expect 2025 to be a better year in terms of our NIM. So we should see an improvement, but I'm not sure if we will regain the entire 35% in 2025 itself. But definitely, there will be an improvement in the NIM.

Appreciate that. And how do you see the yield on assets? Because that has remained relatively stable during the couple of years. So do you expect the yield to remain stable or move somewhat maybe up or down?

There will be a pressure on the yield on assets. As Hanaa has mentioned, there is a time lag. But definitely, we have seen some competitive pricing already on the asset side. However, we do expect we will be able to reduce our cost by a higher margin compared to the reduction on the yield on the assets.

[Foreign Language]

[Foreign Language] Other operating income increased in different lines of streams of revenues. One of them is the realization of MCB.

Any other questions before concluding the session?

Thank you.

Okay. Thank you very much.