Ahli Bank SAOG (ABOB) Earnings Call Transcript & Summary

[Foreign Language] Good afternoon. Thank you for joining us today for Ahli Bank's discussion session covering our performance for the first half of 2026. This session, as usual, will follow the same format. Ahmed will take us through the presentation first and the detailed bank's financial performance. And then we'll open the session for questions and discussions later on. Ahmed? [Foreign Language]

[Foreign Language] Thank you, Said, and good [indiscernible] afternoon, everyone, and thank you for joining us today. On behalf of Ahli Bank, I welcome you all to our MSX discussion session covering our performance for the first half of 2026. Today, I will walk you through 4 areas: the macroeconomic environment and overall of Ahli Bank, our financial track record across our business segment, and our H1 2026 financial performance detail. We'll be happy to take your questions at the end. Before we start, I would like to draw your attention to the standard disclaimer and forward-looking statements included in this presentation and request you to kindly take a note of the same. I will begin with the macroeconomic overview and -- since our last presentation in February 2026, Oman's economy has remained resilient. That said, the external environment has become more uncertain, driven by regional geographic tensions, volatility in the energy market, and disruption on global trade and shipping routes. Against -- against this backdrop, Oman's economy continued -- on a path of sustainable growth and diversification, GDP grew 2.4% in 2025, and IMF projecting 3.7% growth for 2026, broadly in line with the global forecast of 3.5%. The government continued to manage its finances prudently. The 2025 fiscal year closed with a deficit of around OMR 461 million, and the 2026 budget projected a deficit of approximately OMR 530 million. Public debt, external and domestic combined, stands at around OMR 15.4 billion, bringing the debt-to-GDP ratio down to 34.7% from 36.5% in 2023, comfortably within a safe limit. A strong vote of confidence has come from the rating agencies, Fitch upgraded Oman to BBB- in December 2025, S&P affirmed BBB- in April 2025, and Moody's upgraded to Baa3 in July 2025, all with stable outlooks. All 3 agencies now place Oman firmly in investment-grade territory, reflecting strong confidence in the economy's credentials. And Oman is accelerating our -- it's -- accelerating its energy transition, targeting 30% renewable electricity by 2030, creating the green lending opportunity for the banking sector in line with Vision 2040. Moving to the next slide, I will highlight the operating environment for the banking sector in the first half of 2026. Condition in the first half of 2026 is very positive. Lending grows strongly, up to 12.3% compared to the last year and up to 8.3% in just the first 6 months of this year. Sector banking assets reached to OMR 52.7 billion and loan reached to OMR 38.3 billion, both growing around 11% to 12% annually. Customer deposits across the sector also grew strongly, up to 13% compared to June last year, including healthy growth in the Islamic banking deposit. On the interest rate, the average lending rate in Oman came down to about 5.3% from 5.5% a year ago. The Central Bank of Oman also cut its repo rate to 4.3% in line with the U.S. Fed. The sector remains well capitalized at 17.4% and the asset quality is stable. The industry NPL ratio was 4.4% at the half year. As I will show you shortly, Ahli Bank is doing better than the industry in both fronts. Now let me turn to Ahli Bank itself, who we are, how we are led, and what we have delivered. On the strategic objective, our strategy is to build a clear objective and disciplined execution. Each priority supports the others, and together, they position the bank for sustainable long-term growth. The bank is guided by an experienced Board of Directors and executive management team with deep expertise across banking, risk strategy, and transformation. Strong governance is a key priority on how we operate. The Board is supported by dedicated committees, and management by specialized committee, together ensuring sound decision-making and effective oversight. Our H1 2026 result shows scale, growth, and delivery of our objectives. Let me highlight a few points. First, our scale. 19 years of a commercial banking, serving over 300 retail customers and more than 12 corporate entities through 53 branches, including 3 digital branch and dedicated corporate branch. We hold 10.1% market share in loan, and 9.4% in deposit, with a strong Islamic business of 26 branches. Second, our growth since 2024, our total assets have grown at 13% CAGR to OMR 4.5 billion, deposit at 17.2% to OMR 3.5 billion, and net loan at 15.3% to OMR 3.7 billion, all ahead of the market. Third, delivery against our objective, 24% fee income share among the best in the market, 40% -- 46% retail deposit up by 25%, reducing reliance on expensive institutional funding and our cost-to-income ratio is at 42%, maintained even as we invest in branches and digital. Externally, our credit profile is validated by Fitch at BB positive and Capital Intelligence recently upgraded to BBB- stable. And underpinning all of this, we are backed by a strong institutional shareholder base and reputable long-standing investor, a solid foundation of our long-term direction. Moving to the next slide. Our recent highlight partnership, new project, capital, and network. A quick look at what we have delivered in the recent past, reflecting innovation and commitment to sustainability. As a partner in excellence, we are funding a priority project aligned with Vision 2040, and we acted as a financial adviser for Oman's flagship Sustainable Urban project. On product and service, we launched instant credit card printing at [ Linux ], the first child mobile app, a POS financing program, and an upgrade our mobile banking application. On a capital, as you know, we have completed the rights issue of 357 million shares last year. And in H1, we have completed our third issuance of mandatory convertible bonds of OMR 16.2 million, reinforcing the capital base that funds our growth. And on network, we have opened 4 new branches and expanded our MFKs across Oman. Moving to the next slide, on our digital transformation strategy. Our digital transformation strategy moved from enablement to intelligent transformation, what we call digital transformation 2.0. We are focusing on 4 areas: hyper-personalization of our loyalty and finance tools using AI, end-to-end digitalization, including digital lending and environment management, deploying AI across all the organization for efficiency and resilience, and finally, regulatory innovation such as eKYC and open banking. In the next slide, we are showing what we delivered in 2026. First, from a digital adoption and growth, our digital adoption rate has reached to 98%. Islamic transactions have grown 29x since last December 2021, and we have added over 130 features to our mobile app. Second, from the operational excellency, we have delivered around 200 automations, saving hundreds of hours of manual work across our processes. Third, from a strategic milestone, we have been first to market with more than 15 digital services in our MFKs. And also, we launched 12 new digital channels. The result of all this, our customer satisfaction score reached to 90%, which is a clear proof that our digital investment is improving the customer experience. The next slide, I will highlight our digital road map for the remainder of 2026, built around 4 priorities: digital business expansion, AI and advanced analytics, platform modernization, and regulatory compliance. First, from a digital business expansion, we will launch a future products in digital lending and introduce our new ahliMarkets app. Second, AI and advanced analytics, significant investment in AI infrastructure and use case deployment and talent. Third, from a customer centricity and platform modernization, investment in key initiatives to drive customer centricity with critical upgrades to our core applications and infrastructure. Fourth, from a regulatory compliance, we are ensuring the bank remains compliant with an evolving regulatory landscape as new mandates are expected in 2026. Now we will move to our financial track record across all the 3 business segments: wholesale banking, retail banking, and Ahli Islamic. I will start with wholesale banking. And our wholesale banking remains a core engine of the bank, as total assets grew from OMR 2.9 billion in 2024 to OMR 3.3 billion by June 2026, a 10.2 CAGR. And operating income grew at nearly 14% CAGR, to OMR 39.7 million in H1 2026. In corporate banking and SMEs, we serve the clients through a sector-specific teams, and we support SMEs with different products. We are also strengthening our procedures to help funding ESG project. We continue to focus on the sectors that form part of the Sultanate's diversification strategy. In investment banking, we acted as the issue manager for one of the biggest IPOs in Sultanate, and also our brokerage division is a leading player in MSX. From a retail banking segment, retail banking is our fastest-growing segment. Total assets grew from OMR 845 million in 2024 to OMR 1.14 billion by June 2026, 21% -- a 21.8% CAGR, and operating income grew at a 17.6% CAGR to OMR 22.9 million in H1 2026. We serve our retail, premium, private banking, and wealth management customers through specialized teams across 53 branches nationwide, including 26 branches in Islamic. We opened our first digital branch, ahli express, in 2022. And by the end of June, we had 26 MFKs operational, which is the highest in the market. And through our app-based wealth management portal, we offer our high-net-worth clients a complete and integrated service for managing their wealth. On the next slide, we are focusing on Ahli Islamic, and our Ahli Islamic has posted a robust growth since its launch in 2013. Gross financing reached OMR 979 million by June 2026, a CAGR nearly 29%, and operating income grew at a remarkable 39% CAGR to OMR 13.9 million. And in retail, Ahli Islamic is a leading market in a customer -- customer deposits. We were the first Islamic bank in Oman to digitally onboard the customers through mobile banking and the first to offer IPO leverage. Going forward, we continue to expand our retail business and digital branches with a strong focus on a deposit mobilization. Now we will move to our financial performance for the first half of 2026. Let me start with the headlines. Our net profit after tax grew by 12.3% to OMR 25.1 million, up from OMR 22.4 million in the first half of last year. On the balance sheet, comparing to December 2025, total assets grew by 7.6% as -- to OMR 4.5 billion. Net loans grew 8.6% to OMR 3.74 billion. Customer deposits grew by 11% to OMR 3.5 billion, a very strong half for deposit mobilization, and equity stands at OMR 654 million. On the profit and loss, total operating income grew 9.3% to OMR 62.6 million. Impairment charges were contained at OMR 7.3 million, and operating expenses of OMR 26.3 million, reflecting our continued investment in growth and digital. On the key ratios, return on average equity stands at 11.2%. Return on assets is stable at 1.2%. Cost-to-income ratio improved to 42.1%, and our NPL improved to 4.0%, better than the industry average of 4.4%. And our capital adequacy ratio is comfortable at 15.5%. On the next slide, our balance sheet growth versus the market. These 3 charts tell a consistent story. The asset growth from OMR 3.76 billion in 2024 to OMR 4.5 billion by June 2026 at a 13% CAGR, ahead of the market's 11.9%. Net loan growth from OMR 3 billion to OMR 3.74 billion, a 15.3% CAGR versus the market of 11.5%, and customer deposit growth from OMR 2.76 billion to OMR 3.5 billion, a 17.2% CAGR versus the market's 11.3%. And in short, we are growing faster than the market on every balance sheet line, consistent -- consistently gaining share. On the next slide, our operating performance trend. First, the profit trend. Net profit has grown steadily from 20.1 % in H1 2024 to OMR 25.1 million this half-year. Operating income has followed the same, from 50.6 % to OMR 62.6 million, steadily predictable growth across the year. Second, income quality. Other income contributes 24% of operating income, and our net interest spread has improved from 1.7% to 2%, supported by lower funding costs while yield stable. Third, efficiency. Cost-to-income ratio, as we explained previously, improved from 42.1% -- sorry -- improved from 43% to 42.1% against last year. And finally, the returns. Return on equity stands at 11.2%. Return on assets is stable at 1.2% across all the 3 [indiscernible] . As the marker on the slide shows, we ranked the third in the market on cost-to-income ratio, return on average equity, and return on average assets [indiscernible] . On the next slide, our gross loans and financing grew to OMR 3.8 billion at a 10.9% CAGR, and the portfolio remains well positioned. 85.9% of exposure is in Stage 1. Stage 2 has come down to 10.7%, and Stage 3 stands at just 3.4%. As the sector chart shows, our lending is concentrated on -- in historically low-risk sectors: personal loans at 29%, services at 12%, and financial institutions at 10%, which is why our NPL ratio stayed consistently below the industry average. In the next slide, our funding position is a real strength. Customer deposits have grown at a 13.3% CAGR, and the mix is high quality: 46% retail, 38% corporate, and 16% GRE and others. This significant increase in the retail contribution means less dependency on volatile deposits. Our liquidity metrics is also comfortable: loan-to-deposit at 106.7%, liquidity coverage ratio at 118.8%, and net stable funding ratio at 107.6%, all well above the requirement. And on capital, our capital adequacy ratio stands at 15.5%, above regulatory requirements. The final slide highlights the external recognition we received during the year. These awards are independent validation of our progress across Islamic banking, digital banking, and SMEs and corporate banking. They confirm that our strategy is delivered -- is delivering tangible outcomes, and more importantly, they strength our brand and support our customer acquisition, engagement, and retention. And now we will move to the Q&A session.

Now we'll open the floor for any questions, queries. [Operator Instructions]

I just had a couple of questions regarding the bank's strategy on the recent regulatory changes issued by the Central Bank and FSA. What is the bank's planning, if any, on specifically the separation of the Islamic banking from the conventional one?

Thank you very much. I think what you'll hear from us is more or less the same answers provided by our friends from other banks. This framework issued by the Central Bank is not surprising news to all of us. We've been in discussion with the Central Bank for a while. The Central Bank in its framework clearly gave a path for all windows to consider various options. At this point of time, we are considering all options, and we are assessing, as I said, our options. At the right time, we definitely we'll go to our Board, and then we'll announce whatever decision is being taken. But at this point in time, it's premature and very early for us to make a specific decision or comment on the way forward. Having said that, I think we all are quite glad and happy with the progress made in the Islamic banking over the last few years. And we do believe also this framework is further strengthening the Islamic banking going forward. So we look at all of this positively. And once we are done with our internal assessments, we'll follow the standard process for any sort of disclosure in this line.