Ahli Bank SAOG (ABOB) Earnings Call Transcript & Summary

[Foreign Language] Good afternoon. I hope you can hear us. I don't want to start without somebody telling us you can hear us.

We can hear you.

Okay. Thank you very much. Again, [Foreign Language] and good afternoon. My name is Said Al Hatmi. And today, I'm joined with the members of the executive management team of ahlibank. It's always a pleasure to welcome you all to these sessions. And thank you very much for taking the time to join us today. We do value your interest and your continued trust in ahlibank. I would like also to extend our thanks to MSX team for this opportunity and for facilitating today's session as well. Can we start? All right. This is a very standard disclaimer for you all, please, to note. So as usual, today's session will be divided mainly in 2 parts. In the first part, we will have a few slides and presentation to share with you. And maybe in the second part, we'll open it up for the Q&A session and discussion. So what I'll do, I'll start with a quick look at the economic overview and maybe the operating environment. And later on, our Deputy CFO, Hunain, will take you through the detailed analysis and discussion on the financial performance for the first 6 months of 2025. To start with at the macroeconomic level, Oman economy has remained on a steady footing in the first half of 2025. The growth slowed last year to around 1.7%, mainly due to lower oil output. But for the 2025, the outlook is more positive and closer to around 2.5% growth, and it's all driven by the land oil activities. The government continues to pursue prudent fiscal management while the surplus narrowed to about 12 -- sorry, OMR 215 million in June this year. This was expected, again, given the softer oil prices. However, the 2025 budget actually projects a manageable deficit of around OMR 560 million. What is important is the public debt is down to 34% of the GDP and both external and domestic debt levels are within the safe limits. All these efforts have been recognized globally. Both S&P, Moody's upgraded Oman to an investment grade earlier this year, and Fitch also moved its outlook to positive. That's a strong endorsement of the country's fiscal reforms and stability. Another highlight is the energy transition. The renewable now is made up of around 11% of the energy mix, almost more than double delivered at the end of 2024. And the country is targeting, as you all know, 30% by 2023. So just to summarize the slide in short. While oil remains important, the Omani economy today is more resilient, disciplined and increasingly diversified. So this gives confidence to investors as well as to the financial sector. At the operating environment level, which is the banking sector where we operate, it's been a strong -- I would say, a strong first half for Omani banks. Total banking assets now at around OMR 46 billion, showing a steady growth. Loan growth also solid at around 8.4% year-on-year with demand coming from corporate, SMEs, retail and alongside the Islamic banking. Customer deposits also grew by around 7.6% with Islamic deposits particularly strong. Liquidity in the system remain comfortable with Central Bank of Oman revising its repo rate down to 5%. Interbank borrowing also eased about 4.4%. All of this supporting credit growth in the country going forward. On the capital side, the capital adequacy stands at healthy 17.2% and nonperforming loans remained low compared to the regional standards at about 4.4%. Profitability across the system has also been resilient with banks boasting almost all banks double-digit income growth in the first half. So in summary, again, Omani banking system is well capitalized, very liquid position for sustainable growth and this is a very supportive backdrop for ahlibank and other banks as well. Next. Now turning to ahlibank itself. We, in ahlibank, remain very focused on our strategic objectives. As it grows, further diversification of our deposit base, enhancing fee income, and of course, the continued operational efficiency across different functions of the bank. Areas like the digital transformation continue to be a very strategic priority for us. And in fact, we have progressed very well in this area in the recent years. Other critical areas, including the human chemical development, scaling up SME offerings, this is, of course, of a particular -- quite frankly, particular importance to us in ahlibank. So yes, I mean, we always pride ourselves being the fast-growing bank in Oman today with a market share of around 10% in both loans and deposit. And we continue to serve more than 0.25 million of retail customer and over 12,000 corporate clients. Our footprint in the last few years with the retail expansion strategy we have adopted a few years ago, our branches grew to 52 branches today. This includes digital branches and dedicated coverage branch. And behind all of this, I would say, is a strong institutional shareholding base, which provides stability and alignment with the Oman long-term growth plans. Looking at the -- so on the number on the growth side, I will leave big part of it to Deputy CFO later on. But what I would like to highlight actually is a few things here. As I said earlier, many times, our growth being consistent and also well balanced. The total asset crossed OMR 4 billion with an average growth of around 12%. Again, also loans over OMR 3.1 billion with a steady double-digit growth. Deposits have also crossed the OMR 3 billion mark, and it's growing at a strong base. What's also important to note here is actually how we've been growing. Our cost-to-income ratio remains low at around 43%, showing a strong efficiency even as we invest in branches and digital transformation. Fee income also has increased to 26% of total income, diversifying sources of revenues and reducing reliance on spread. Particularly retail deposits now make up around 46% of our funding. This gives us a more stable funding base and maybe this has been an area of discussion in the past few years. So our disciplined performance has been recognized also by the rating agencies with both Fitch and Capital Intelligence moving us on a positive outlook. So maybe this is the last slide before I hand it to Hunain. With regards to the past few years, we continue to strengthen across all our businesses. In Wholesale Banking, we continue to support strategic projects in line with the Vision 2040 mandate and priorities. This includes funding major logistics and industrial hub projects. Retail Banking, we expanded, as I said, our digital offering, including premium and wealth management through enhanced applications and new multifunction kiosks. ahli Islamic remain a growth driver for us and with a strong growth opportunity in both retail and corporate banking. The investment and asset management businesses continued to broaden their solutions for both institutional and high net worth clients. And at the same time, we discussed also this in the last session, we continued to strengthen our capital base. We have introduced the MCB program a few years ago. This year also, we have added additional OMR 11.7 million into the MCB. And also this month, we've successfully concluded a rights issue of OMR 50 million. So all of this show that we are at ahlibank is fully focused on strengthening our growth strategy and delivering exceptional value to our stakeholders. With this, I'll leave it now Hunain to take us through the financial performance in details. Hunain?

Yes. Thank you, Mr. Said. Good afternoon, and warm welcome, everyone, again. I would like to walk you through the business segments and the financial performance of the bank in the following slides, starting from the Wholesale Banking. Our sector-focused corporate and SME teams continued to deliver a comprehensive suite of products and services with a particular emphasis on ESG financing, infrastructure projects and sector aligned with Oman diversification strategy. Wholesale Banking assets recorded a 2.7% year-on-year increase, representing a strong average growth of 10.9% over the last 2.5 years. Operating income also rose by 20% year-on-year basis driven by healthy loan growth and a reduction in cost of funds. Beyond corporate and SME banking, our treasury and financial institution groups provides an extensive range of services to corporate, commercial clients and the government sector. Our investment banking division, encompassing the advisory, asset management and brokerage, continues to expand its offering providing clients with fundraising opportunities, innovative investment solutions and diverse asset management services. Moving to Retail Banking. Retail Bank remains focused on delivering superior customer experience, expanding our customer base across both conventional and Islamic banking segments. Retail Banking has continued to strengthen its contribution to the bank deposit. As earlier explained also, it is accounting for nearly 46% of the total deposit of the bank, a clear testament to the success of our long-term strategy. Retail Banking assets recorded a 9.2% year-on-year increase, representing a strong average growth of 14% over the last 2.5 years. Our branch network has also expanded to 52 branches equally between 26 conventional and 26 Islamic branches. We continue to focus on customer experience across both conventional and Islamic banking. Our wealth management division continues to evolve, offering clients a comprehensive app-based wealth management portal that integrates advisory investments and portfolio management services. ahli Islamic remains a strong contribution to the overall book of the bank. In line with the bank strategy, ahli Islamic branches were also increased to 26 during the year. We have market leadership in Islamic deposits and innovation continues, being the first Islamic Bank in Oman to offer digital onboarding. Together, these segments show that ahlibank is a diversified player with strong franchise value across retail, wholesale and Islamic banking. I would be discussing financial performance of the bank and a few key indicators as of June 2025 in the following slides. Total assets increased by OMR 156 million, mainly contributed by the net loans, which increased by OMR 140 million during the year, while deposits rose by OMR 257 million during first half. Operating income grew by 13.1% year-on-year basis, the highest amongst the peers in the country. Net profit was around OMR 22.4 million, increased by 10.7% year-on-year basis. ROAE was 12% with an adjusted ROAE of 8.5% and ROAA was 1.2%, healthy by regional standards. Cost-to-income ratio was 42.9%, in line with our strategy. So ahlibank growth has been broad-based, income diversified and profitability sustained despite investment in the transformation and expansion. Our total assets reached OMR 3.9 billion as of H1 2025 compared to OMR 3.67 billion in H1 '24, reflecting a year-on-year increase of 6.5%. Over the past 2.5 years, assets have grown at a strong average rate of 11.6%, supported by expansion across conventional and Islamic banking. Net loans grew to OMR 3.16 billion in H1 2025 from OMR 2.93 billion in H1 2024, an increase of 7.9% year-on-year basis. Over the past 2.5 years, this portfolio has grown by 11.3% average driven by selective lending in both corporate and retail segments. Customer deposits reached OMR 3 billion as of H1 '25 compared to OMR 2.76 billion as of H1 2024, representing a 9.4% increase year-on-year basis. Deposit growth has outpaced lending, reflecting strong customer confidence. And over the last 2.5 years, deposits has delivered a robust average growth of 14%. These 3 pillars, assets, loans and deposits, reflect steady balance sheet expansion. The year-on-year increases show momentum in 2025, while the multiyear average growth highlights consistency and resilience in our growth strategy. We have delivered one of the strongest profit growths in the market, maintained efficiency and enhanced shareholders' return while investing for future growth. NPAT reached OMR 22.4 million, increased by 10.7% year-on-year basis. Operating income was OMR 57.3 million. Net spreads improved to 2% from 1.7% last year, driven by lower funding costs and stable yields. ROAE was 12% with an adjusted return of 8.5% and ROAA was 1.2%. Moving to assets quality. ahlibank continues to maintain a disciplined risk and credit management framework, ensuring asset quality remains stronger than industry average. Our NPL ratio stands at 4.3% as of H1 2025, slightly below the sector average of 4.4%, supported by conservative provisioning and proactive monitoring. Loan exposures remained well diversified across the sectors, which includes government-related entities, manufacturing, trade, services and retail banking. At the same time, we continued to finance Oman Vision 2040 priority sectors, which includes the renewable energy, logistics, tourism, fisheries and agriculture ensuring prudent growth with sustainability in mind. Our funding portfolio remained sound, underpinned by consistent growth in customer deposits and deliberate strategy to diversify our funding base. Overall liquidity positions remained very comfortable with the ratios above the regulatory thresholds, reflecting our strong liquidity position and prudent balance sheet management. This shift has also helped to lower our cost of funds with CASA balances increasing significantly. On the capital front, CET ratio stood at 9.7% and overall CAR was 15.6% as of June 2025. As earlier mentioned, we have successfully completed our OMR 50 million rights issue in August 2025. Moreover, we have also issued second mandatory convertible bonds in April 2025, amounting to OMR 11.7 billion. Ladies and gentlemen, to conclude, ahlibank has delivered a strong first half of 2025. We achieved healthy growth in assets, income and profitability while maintaining strong asset quality and capital buffers. In addition to these financial results, I'm pleased to highlight some of the recent recognition the bank has earned, including being named Best Bank for SMEs and Best Bank for Digital Services in Oman, among other accolades. Our strategy remains very clear: to expand prudently, diversify income, continue to increase efficiencies and accelerate digital transformation, all while staying aligned with Oman Vision 2040. Thank you once again for your trust and partnership. We will now be happy to take your questions.

Thank you. [Operator Instructions] Anyone has any questions, comments, please go ahead.

Looks like nobody wants to ask. Do we have an issue?

We have an issue with the audio.

Hello. Any questions?

Okay. [ Vishan ], go ahead.

Am I audible?

Yes, you are.

Congratulation on a good set of numbers. You mentioned about your retail network expansion strategy along with digital banking. If you could just give us an insight in terms of how many branches have been opened, what's the target over there? How do you see that sort of -- obviously seen the growth in deposits. So if you could just give us some sort of insights into your Retail network expansion strategy or branch expansion strategy? That's the first question.

Okay. On the Retail part, as I said, we have currently 52 branches across the country. These are physical, digital and we have also a corporate branch. In terms of the going forward, maybe as we mentioned earlier, our plan is to ensure that we're present in every city and major city in the country. So the plan is we are looking at a number around the 60 plus or minus where we ensure that between both Retail conventional and Retail Islamic, we have enough branches across the country. Having said that, we continue delivering on the -- our investment in the digital platforms as well.

Okay. Noted. Next question is with regards to your CASA ratio. On a Y-o-Y basis, it's up from 45% to 47%. But if I look at quarter-on-quarter, there's been a slight dip. Is that because of higher mobilization of deposits during the quarter? Because I believe during the quarter, your loans and deposit growth was evenly matched. So if you could just comment on the CASA during the quarter, and in general, what's an aspirational number?

See, the movement of CASA is basically when it goes a little bit volatile it's the corporate accounts. Sometimes you always have 1 or 2 call accounts, which go move from the call account out and in. So it's not a very material change. If I'm not wrong, it's a small change. And also, when the interest rates decline is happening and expected, some of the corporate customers move from the call account to fixed rate for the fixed deposit. So it's more of a short-term thing. Long-term basis, the growth in CASA will continue, especially from the Retail side.

Okay. Noted. And with regards to sort of -- so the key drivers for the numerator, for your savings account, how do you see that mobilizing and the expansion strategy, how does that sort of dovetail into higher sort of CASA buildup over the next few quarters?

We continue to be bullish as far as the retail CASA segment is concerned. We believe that the investment made both in the branches, technology and people are showing results, which last 6 months are a very clear example of that and the next 6 months are not going to be any different. If anything, it should be better because whatever investments we have made, as I said, in technology, in people, in branches, it's all showing results. The pipeline seems to be good. So we are pretty optimistic and positive for the second half as far as the retail CASA buildup. The corporate CASA, institutional CASA is a bit more opportunistic based on the money supply situation and what is going in the country. Our focus continues to be more of the retail CASA, which is more solid and which is more long term, it's more cost effective.

Okay. One of the observations about ahlibank over the past few years has been extremely efficient in utilizing your balance sheet. And what I mean by that is, if I look at the bank, it's every periodic interval it's raised money through rights issue, but at the same time, it's justified that by a very solid loan growth and asset growth. So congratulations for implementation of the strategy. We've seen a rights issue earlier this year. What sort of runway do you see with that extra capital in terms of loan growth? And what are your thoughts on overall asset growth for the bank?

See, the asset growth will continue to have the same pace, if not better, in the second half. Of course, a lot of to caveats to be put, it's all the competition, the market situation, what you call geopolitical. Everything is, of course, with all the appropriate caveat, we do not see any hole or any decline in terms of the asset growth. And as you rightly said, we have some firepower in our kitty with the capital of OMR 50 million raised. And the second half should be better than the first half.

Okay. I'll continue asking questions if there's no one else in line. Else I can wait and come back, is that fine?

Yes. That's fine.

Yes. I think it's fine.

Anyone else has a question, please go ahead. If not, we go back to [ Vishan ], if you have any further question.

Yes. I'm privileged to have the opportunity to have a one-one with the management.

So go ahead, [ Vishan ].

So the next question is with regards to cost of risk, or in general, the risk sentiment in the market. How do you see that evolving? We're well passed COVID now. We've been blessed to have stable oil prices over the past couple of years, which has seen very good macro buildup. As a bank, what sort of discussions are you having with your clients? What are the sort of sectors where you still see some pain, or in general, some comments on cost of risk? Because we saw a pretty big cost of risk number in the first quarter. Second quarter was in line with your sort of generalized cost of risk. How do you see that evolving? What sort of discussions are you having? You gave us a loan split up and 28% is from the Retail segment. But if I'm not mistaken, at least please correct me, personal loans are capped at 6%. And I would imagine your overall sort of blended lending rate would be more than that. So how you see that mix? And I will also mention that ahlibank, I think, is a market leader when it comes to corporate to retail split. So it stands at 70% to 28%, which I think the highest in the market. So just a general comment on how cost of risk is, what your comments as one of the sort of players in the market?

Okay. So we continue our focus on corporate growth. And like you mentioned, yes, Wholesale banking is an area of growth. Maybe the growth has not been seen as much as usual in the first half. There have been a lot of competitive pressures in the market, but we are selective in the assets that we are booking. We want to do a balanced approach where there's lower risk, obviously, lower reward with the high-risk transactions as well. So we see a healthy growth in our pipeline. But as I mentioned, it's going to be quite selective in terms of the risks that we are getting into. There are some sectors, which are coming out of difficult situations, but we are seeing a lot in the diversified sectors and these are quite healthy using transactions. A lot of PPPs and government-owned companies coming up with refinancings and expansions and transactions as well. So we are confident that with the expected Fed cut rate over the next couple of months, we would be seeing better yields going forward [Foreign Language]

Next question is with regards to -- sorry, any other comments?

No, go ahead. Go ahead.

Next question will be with regards to your other operating income. I've read the report, I've seen sort of some key traction on that. You have the mining project of OMR 100 million, the Sukuk issuance, they've got debt progress. Now if I look at your other operating income, and I think if I'm not mistaken it's around 25% of the total income. What are your thoughts on other operating income as a driver of overall profitability? And what's an aspirational number there with regards to the market or in general as a bank?

I think, [ Vishan ], we have hit the sweet spot, what you call, as far as the other operating income is concerned as a percentage of total income. And our objective is to ensure that we sustain these numbers as we grow in our balance sheet and as we grow in our overall operating income. The good part is that a substantial, if not, a very substantial part of this other operating income is coming from core businesses. When I say core businesses, it's more sustainable businesses rather than one-off at least in 2025 when we speak of the first half. Our wealth management business and asset management business, investment banking business, which we started a few years back, have given us a good traction in the other operating income as much as our treasury business with the increase in the balance sheet and the -- our footprint in the interiors. Our SME business increased, our ForEx in the treasury business has also given us a good amount of traction. So our objective continues to maintain these numbers in the range of what we have right now and to ensure we are able to scale up as we scale up the balance sheet and the P&L.

Okay. And last sort of comment/query from my side. Firstly, thank you for explicitly mentioning adjusted net profit and return on adjusted equity. I think I'm notorious for requesting management. So I duly appreciate putting it out there, I think it's prudent and very well appreciated...

It's more transparent. I think it's more transparent in the...

Absolutely. I've seen tremendous growth from the bank. So kudos. It's at 8.5% as we stand. So how close are we -- or I know you don't do put forward guidance, but realistically, a double-digit adjusted ROE, are we on track for that? How what sort of traction do we see? That's all, that's the last question also to the entirety from my side.

Definitely it's going to take some time, but I think it will come.

It's our aspiration also. I mean we can't give you a time orientation, as Mr. CEO said, forward-looking. But hopefully, one day we'll sit here and you will see that number very soon.

Will give few seconds for other people. If they have any questions, they can raise it. Yes, from [ Bijan Shaoor ].

I hope I'm audible. I'd just like to build up on [ Vishan's ] question earlier regarding your impairment charge. We have seen a substantial drop in the impairment charge during the quarter, which has obviously elevated your profits now. If my understanding is correct, your total coverage is lagging the sector average, right? So what is your guidance? Should we be seeing an accelerated coverage in the upcoming quarters towards the sector average? Or should we see the current impairment charge to be stable and sustainable?

I'll split this question into 2. I mean, on a half year basis, yes, I mean month by month, quarter by quarter, things can be a little different. But as a half year basis, we have made more provisions or more impairment than the last half year -- first half year of last 2024. So that's a point in fact. Our provision -- I mean, this is not benchmark that we want to be 80%, 90%, 100%. The provision comes from the model which we adopt, the IFRS 9 model, which is prepared and a very robust model, which is vetted by the statutory auditors, which is vetted by the central bank, by the examiners. So the provision is a reflection of the model which reflects, and it depends upon the quality of your overall loan book and also the security of the NPAs which you have. So if God forbid, we continue to [indiscernible] more NPAs, which are on a clean basis, unsecured basis, provision coverage, of course, will increase because we have to make more provision. But if the NPAs come with a heavy security coverage, heavy collateral, corporate guarantees, bank guarantees or some sort of securities, then the percentage will be less. So we can't say there's any specific number, which we should target. What we should target and what we're targeting is adequate and right provisioning, which is reflected in the business model.

Right. That makes sense. Another quick question is on your recent capital issue. So we have been seeing some equity injections in the bank's equity. Although your capital adequacy ratio, your CAR, has been fairly stable over 15% and yet the bank goes ahead with additional Tier 1 issue. So what sort of levels are you targeting because your CAR seems stable.

I mean, thank you, [ Shaoor ]. I mean, the reason why we went for rights issue, you might have observed in the financial, our CET1 was a bit more challenging than the overall ratios of capital adequacy. And what it helps is CET1 improves and we're able to lend a bit more aggressively in the market. Otherwise, we would have to have constraint as far as our growth is concerned. Our CET1 was not as comfortable as the capital adequacy ratio, which is now corrected, and we are on the right path to move.

And my last question is regarding your deposit split. We have seen a certain shift in the split, which indicates that your fixed deposits have increased a little bit relative to your total number. So should we expect this to correct going forward? Or is it the new deposit mix that we should work on?

I don't expect any huge change in terms of percentage point, 1 or 2 percentage point is what happens from the market situation. As we said, when interest rates expected to go down, some institutional customers will come and try to lock their interest rates from a call account or current account to the fixed deposit. But I do not expect a very material change on the negative side as far as these ratios are concerned.

Anyone else? So if there is no question, Mr. CEO...

Thank you for everybody's time. Thank you very much for attending today's session.

Thank you.

Okay. Thank you, everyone, for attending and see you at the next half, which will be the year-end. With that, we conclude the session. Thank you.