Bank Dhofar SAOG (BKDB) Earnings Call Transcript & Summary

Good day, everyone, and thank you for attending the Bank Dhofar session discussion. My name is Hilal Al Yarabi. I am the Investor Relations Officer. And with me today, Mr. Gopakumar, our Bank CEO, and Mr. Kamal Al Marazza, Chief Dhofar Islamic Officer. Also, I'm joined by our CFO, Mr. Vikesh Mirani, along with the Investor Relations team, Ms. Sundus Al [indiscernible] and Maram Al Hadhrami. The session is scheduled for one hour. We are going to divide our session into 2 parts. In the first part, at the presentation, we'll present the financial results as of 31st December 2024 and the second part for the Q&A. Appreciate down your questions for the second part. Now, I will hand over the stage to Mr. Vikesh to take us through the presentation.

Thank you, Hilal, and good afternoon, everyone, and thank you for joining us today in our investors' call, where we are going to discuss the full year 2024 numbers and our performance. So, to move on, the first slide, of course, is the disclaimer. We will be shying away from making any forward-looking statements. The agenda that we are going to cover today is essentially to look at the Bank Dhofar's overview, a quick glance of our key financial performance, as well as key performance indicators. I'll be going through the operating environment that we operate in within the Sultanate of Oman. We'll look closely at our business strategy. We'll look closely at our segmental performance. We'll deep dive into our financial performance, both for the conventional bank as well as Dhofar Islamic, followed by some concluding remarks. Move on, I'm on the slide that you see on your screen, Bank Dhofar, at a glance as of the end of 31st December 2024. The total income stood at OMR 152.8 million, which is higher compared to last year by almost 6%. Last year, our total income stood at OMR 144 million. The net profit as of the end of 2024 stood at OMR 43.6 million, again, an increase of almost 12.5% compared to last year, year-on-year. Last year, we achieved a net profit of OMR 38.7 million. The net loans, advances, and financing to the customers stood at OMR 3.93 billion, which is higher as compared to last year, almost 4.46%. In terms of customer deposits, it was a good story. The overall customer deposit numbers went up by almost 14% to OMR 3.76 billion. Total assets crossed the OMR 5 billion mark for the first time for Bank Dhofar and stood at OMR 5.09 billion. The fee-to-income ratio stood at 25.3%. The fee contribution came from all the businesses, which is corporate, consumer, FX, investment business, as well as Dhofar Islamic. Return on assets improved by 3 basis points to 89 basis points. Return on shareholders' equity stood at 7.66%. If I adjust that for our Tier 1, it stands at 6.01%. Our cost-to-income ratio increased to 51.59%. This is mainly on account of the investments that we continue to do in our business, which is through the expansion of branch network as well as some of the new departments that we have opened in the business as well as some of the new business initiatives that we are focusing on. I'll talk about that in detail in my subsequent slides. The ECL coverage ratio stood at 94.29%, and capital adequacy at 16.51% as of the end of 2024. We have 16 nationalities of full-time employees working with the bank. 43% of our employees are women. We have one of the fastest, in fact, the fastest growing branch networks in Oman. We reached a total branch network of 130 branches, 105 of that was conventional and 25 were Islamic. In fact, as of March, we should have a branch network of almost 132 branches. We are rated by both Moody's and Fitch. Moody's has rated us as Ba1 with a positive outlook. Fitch rates us at BB+ with a positive outlook. Moving on. As I mentioned, we have one of the fastest-growing branch networks in Oman. This slide shows the geographic footprint of our branches within the Sultanate. As you can see on the map, right in the middle of the slide, we are spread across the entire breadth of the country in terms of our branch network. We have doubled our branches from almost 64 to 130 in the last 2 years with 24 branches coming up in 2024 itself. In terms of the number of ATM and CDMs, the total ATM stood at 332, cash deposit machines at 157, and multifunctional kiosks at almost 4 as of the end of 2024. In terms of our market share, our assets, loans, and deposits have market shares of 5%, 13%, and 12%, respectively. The total number of customers who bank with the Bank stood at 635,000 customers at the end of the year. And it's essentially spread in terms of conventional retail business at close to almost 500,000, corporate and SME at 35,000, and Dhofar Islamic at 107,000 for the year 2024. Moving on, this slide shows our balance sheet, our income statement, and some of the key ratios. As I mentioned in the very first slide, our net loans stood at OMR 3.9 billion, which is an increase of almost 4.46% compared to last year. We had a one-off prepayment of loans earlier in the year, and that resulted in a slight reduction in our overall loan growth. Overall loan growth stood at just a shade below 5%. Investment securities at OMR 648 million grew by almost 41%, predominantly into government development bonds as well as treasury bills, improving our high-quality liquid assets. Customer deposits, as I mentioned, is a good story with an increase of almost 14%. So clearly, our strategy with regard to the branch expansion network has contributed to expanding both the number of customers, which, as I mentioned, is 635,000, plus the overall increase in our deposit numbers by almost 14% during the year 2024. In terms of our income statement, operating income is at OMR 153 million, higher by 6% as compared to last year. Operating expenses in absolute terms stood at OMR 79 million, higher by almost OMR 10 million compared to last year. My impairments stood at OMR 24 million. The cost of risk has declined to 63 basis points during the year 2024, giving me a net profit of OMR 43.609 million, an increase of almost 12% compared to last year. Some of the key ratios. Our total capital adequacy ratio at 16.51%, CET1 stood at 12.43%. Our nonperforming loan ratio has come below 5% now and stood at 4.67%. Our return on shareholders' equity, adjusted for AT1, as I mentioned, stood at 7.66% and 6.1%. Our net interest margins have marginally improved as compared to 2023 at 2.09%. The cost-to-income ratio is shaped above 50% at 51.59%. But as I mentioned, this is mainly because of the investments that we have done in the business in 2023 and 2024. Headline loans to customer deposit ratio, given the increase in our deposit numbers by 14%, stood at 104%, an improvement from 114% the year before. This slide shows the bank's performance trajectory over the last 10 years, starting from the left in 2014, where our total income stood at QAR 99 million. It has since then increased to almost QAR 153 million as of the end of 2024. 153 million being the highest total income that we have generated ever in Bank of Dhofar history and you can see the trajectory post-COVID 2021 continues to improve from QAR 126 million to QAR 153 million. Our total operating profit stood at QAR 74 million, a shade below last year's QAR 75 million, mainly because of the increase in overall operating expenses. The net profit trajectory continues to improve post-COVID, from QAR 25 million in 2021 to QAR 44 million in 2024. We are owned to the extent of almost 28% by government and social protection funds, giving us a very strong and sticky relationship with the government sector, which we do significant business with. The slide on the bottom of the chart on the bottom of the slide, you can see total asset segmental split with retail at 26%, wholesale 42%, treasury and financial institutions at 14% and Dhofar Islamic at 18%, giving us a good mix of business across all our business segments. The operating income contribution from these segments for retail was 28%, corporate banking at 47%, Treasury and Financial institutions at 10%, and Dhofar Islamic stood at 15%. This slide shows the history of Bank Dhofar and how the bank has evolved since its formation in 1990. Over the last 34 years, the bank has been in business. If I look closely at 2023 and 2024, some of the key achievements were OMR 40 million of Tier 1 securities bonds, which were issued somewhere close to the end of 2023. In 2024, we rebranded our Islamic window, which was earlier known as Misra to Dhofar Islamic. As of the end of 2024, as I mentioned, another achievement has been our total branch network, which is now the second highest in the country and stands at 130 branches as of the end of the same period. Some of the key strengths of our bank. We are one of the leading franchises in Oman, offering segmental business across all our consumer, corporate, as well as financial institutions and Islamic business. We are owned by the government and protection fund to the extent of 28%, as I mentioned in my previous slides, giving us strong government support, both in terms of stickiness as well as the support that you would expect. Stable and growing environment is what we operate in. We are well positioned to benefit from the growth in Oman as well as the economic diversification that the country has undertaken. We enjoy a solid and robust capitalization. Our capital adequacy ratio at 16.51% and our CET1 at 12.43% were higher as compared to the regulatory limit of 13.5% for the overall CAR as well as 9.5% for the CET1. We have a diversified and smart distribution channel. I talked about the number of branches, number of ATMs, as well as the CDMs that we have spread across the geography of Oman. Last but not least, we have an experienced and seasoned management team as well as the staff that we work with in Bank Dhofar. This slide gives us an overview of the Sultanate of Oman. We are the second largest country in GCC with a stable political system and a population of 5.5 million. The real GDP growth is expected to be at 2.7% as of the end of 2025; 2.9% was the budget for 2024. Closer to home, the Omani banking sector, within Oman, has almost 20 licensed banks, 16 of which are conventional entities, 2 state-owned banks, and 2 full-fledged Islamic banks. The total banking loans or assets reached QAR 45 billion as of the end of December 2024. There is an overall increase in the conventional business or bank assets, which stood at QAR 36.6 billion, and Islamic at QAR 8.5 billion. Islamic Banking continues to see a significant increase in its overall assets with a growth of almost 9.68% CAGR over the last 6 years. In terms of our Central Bank of Oman, we are supported by a robust and supportive regulatory supervision. In the year 2025, which is very lately, a new banking law was introduced by Oman. We have new environment, social, and governance reporting standards, which have been rolled out by the Central Bank of Oman. The Central Bank of Oman also very recently published a new circular on sectorial lending, essentially targeting some priority sectors to promote growth and development in those particular sectors. Looking at Bank Dhofar's strategy, we are a bank that is relationship-led, a bank that is easy to deal with, a bank that thinks long-term for all its stakeholders, shareholders, staff, regulators, and the market, and a bank that is responsible and secure. In terms of some of our key strategic pillars, digital engagement. So, whilst we look at branch expansion as one of our key strategic deliverables, we are also looking at and investing in expanding our digital footprint and the digital investments that we are doing in our banking space. Customers continue to be at the center of all our decision-making, with customer centricity at the heart of our strategic pillars. Performance culture, operational excellence, and future-proof technology, again, are important strategic pillars that the bank focuses on. In terms of our priorities, as I mentioned, enhancing digital engagement through omnichannel continues to be one of our key strategic priorities. Acquiring more customers through an expanded branch network. As I mentioned, 635,000 is the number of customers that we have reached as of the end of 2024. Our focus continues to be on simplifying processes and improving operational efficiencies. We are prioritizing ESG initiatives across all our business investments and risk management to foster sustainable growth. Data continues to be at the heart of our decision-making. We are using analytics and technology to improve our data capabilities to take informed decisions and improve our customer experience. We follow a disciplined risk management approach and continue to attract, develop, and retain the best talent in the market in terms of our people strategy. Looking at this slide, this essentially shows the overall distribution of our revenue, liabilities as well as assets. In terms of contribution, retail business contributed to the extent of 28% of the total revenues, 47% came from corporate wholesale banking, 10% from treasury financial institutions, and 15% from Islamic banking. We service almost 500,000 individual customers, offering them various diverse retail products and services, including bancassurance. In terms of our focus areas, priority banking, private banking, and premium banking through our [RFI] and all the other channels, wealth management, youth, ladies, and student banking continue to be our key focus areas. For corporate and wholesale banking, we service almost 35,000 wholesale and corporate banking customers, offering tailored services to our large corporate clients. Project finance and syndication for infrastructure projects is again one of our key offerings. Government business predominantly supports our deposit mobilization through our sticky relationships with our government partners. In terms of treasury and financial institutions that manage liquidity funding risk, it also supports businesses as well as our customers through money market currency swaps, interest rate swaps as well as commodity products. Islamic banking, which is Dhofar Islamic, supports almost 100,000 customers launched in 2013 and provides retail, corporate, treasury, and investment banking services. In terms of liability contribution, retail stands at 19%, wholesale and government at 54%, treasury and financial institutions at 9%, and Dhofar Islamic at 18%. In terms of asset contribution, I've already taken the audience through that in my previous slides. Looking at some of the key digital banking initiatives, we did win the award for the Best Digital Bank by Task Business Awards. We have launched multifunctional kiosks that offer statement printing, checkbook issuance as well as debit card issuance. We launched Dhofar Pay, Samsung Pay and Apple Pay in 2024, a new soft POS machine for merchants, enabling us to reach out to a larger set of merchants, mobile banking app, WhatsApp banking services, WhatsApp services as well as digital onboarding platform and app through our digital channels. Direct API integration with ICICI helps our customers do money transfers to ICICI Bank, and we offer enhanced card management services through our digital banking platform. To deep dive into some of the key financial numbers, the slide that you see shows the consolidated profit and loss statement for the bank. Our net interest income stood at OMR 114 million, which is higher as compared to last year by almost 3%. Net interest margins, as I mentioned, stood at 2.09%. Clearly, whilst we have seen pressures on the liquidity side at the start of 2024 that squeezed the margins a bit, our overall increase in CASA, which went up from 45% to 48% helped our net interest margins and which stood at 2.09%. Fee income continues to be one of our key focus areas. As I mentioned earlier, my total fee to total income stood at 25%. Overall, absolute growth in terms of fee income was at 16% total fee income at OMR 38 million as of the end of 2024. In terms of operating expenses, whilst we continue to invest in our business in terms of branch network, new department staff, et cetera, we have also looked at optimizing cost across all our businesses. Overall, cost increase was at OMR 10 million with a cost-to-income ratio of 51%. Operating profit at OMR 74 million, a shade below last year, mainly because of higher expenses. Overall cost of risk came down to 63 basis points with net provisions coming at OMR 24 million, giving me a net profitability of OMR 43.6 million as at the end of 2024. Next slide looks at Dhofar Islamic, which is our Islamic window. Overall, operating income increased from OMR 22.9 million to OMR 23 million, an increase of 1.69%. Fee income continues to be a good story at Islamic Banking level as well with fee income increasing by almost 11.9% and stood at OMR 5 million as at the end of 2024. Overall, operating expenses increased by 5% at OMR 11.78 million, net profit at OMR 7.6 million. Customer financing went up by almost 7% at OMR 735 million, spread across both wholesale as well as retail business. As far as deposits is concerned, again, a good story, which was mirrored both in conventional as well as Islamic Bank, an increase of almost OMR 132 million as compared to last year with both CASA as well as term deposit. The growth actually came mainly from CASA. So you can see the OMR 223 million, which was our CASA total in 2023, increased to OMR 336 million, taking our CASA ratio in Islamic banking from 39% to 48% as of the end of 2024. This slide shows the gross loans and advances, as I mentioned, went up by almost OMR 145 million, predominantly at retail business at OMR 92 million, corporate at 52%. We had one-off prepayments earlier during the year in the corporate business, and that's the reason corporate business grew at OMR 52 million as opposed to retail at OMR 92 million. Next slide looks at the credit quality. The top left chart shows the nonperforming loans, the nonperforming loan ratio, both gross as well as net. Overall, NPL came down from OMR 214 million to OMR 192 million as of the end of 2024, a decline of OMR 22 million. We had done a technical write-off somewhere in the middle of 2024. That resulted in the decline of overall NPLs. And we also continue to expedite and accelerate our recovery efforts, managing our overall NPL ratios. NPL ratio as a result of both the technical write-off as well as the recovery efforts that we have undertaken declined to 4.67% as compared to 5.39% last year. The year before in 2022, our NPL ratio stood at 5.87%. If I look at Stage 2 exposures versus the ECL coverage that we are providing on Stage 2, my Stage 2 declined from OMR 840 million to OMR 708 million and the coverage at the same time improved from 6.8% to 8.78% as of the end of 2024. The nonperforming loan coverage ratio, which stood at 95% last year has declined marginally to 94%. This is mainly because of the technical write-off that, as I mentioned earlier, we did that essentially whilst it reduced my NPL, it also had a marginal impact on my coverage ratios. Stage 3 coverage ratio was also impacted because of the write-off that we did, bringing it down to 54.6% as of the end of 2024. Next slide looks at funding and liquidity. Again, as I said, a good story here. Overall CASA went up from 45% to 48%. In absolute terms, CASA increased from OMR 1.49 billion to OMR 1.83 billion, an increase of almost OMR 342 million out of the OMR 463 million of deposit increase that we saw, supporting the overall net interest margin. So whilst I've seen a marginal increase in my cost of funds, which I'll talk about in my subsequent slides, it was supported by the overall increase in my CASA balances. Other liquidity ratios such as LCR and NSFR, again, stood quite healthy at 157% and NSFR at 110% at the end of 2024. This slide shows the profitability and performance. The chart on top left shows the income mix that we are generating from all our businesses with conventional interest income at 62%, Islamic at 13%, my total fee income at 19%, which is the core fee, FX as well as investment business contributing to almost 7% of my total income. The table that you see on the bottom left shows the absolute numbers. But what is important is to note the fee-to-income ratio. BankDhofar's fee-to-income ratio as at the end of 2022 stood at 14.49%, which was the lowest in the market. We have focused quite aggressively on expanding our fee income products as well as increasing our fee income. And that has led to a sizable increase in our fee in absolute terms as well as the fee to total income, which now stands at 25.3%. It continues to be our key focus area in the coming years as well, where we'll continue to build on this momentum and increase our fee-to-total income ratio in the coming quarters and years. Our operating expenses, which stood at INR 79 million in absolute terms, higher as compared to last year by INR 10 million, gave me a cost-to-income ratio of 51.6%. We, as I mentioned, have invested in expanding our branch network, which stood at 130 branches, our ATM network, and our CDM network, providing a greater reach to our customers. In addition to that, there were a number of new departments and businesses that we have created. And essentially, that is also in terms of our capacity buildup is getting reflected both in terms of the CASA buildup as well as the fee income increase that you have seen in my previous slides. The Next slide shows the yield, the cost of funds as well as the net interest margins. Yields during the year 2024 marginally improved by 6 basis points to 6.23%. The cost of funds was at 3.03% and went up to 4.09% in 2023 because of the Fed increase, we saw the sharpest increase in Fed rates between '22 and '23. That led to a 100 basis point increase in my cost of funds. That has largely now plateaued at 4.14%. We did see some liquidity challenges earlier in 2024, which have now improved with our expanded branch network, and we are seeing greater CASA mobilization, easing that pressure on our cost of funds. Going forward, as rates come down, we have already seen a 100 basis points reduction in the Fed rate. There's an expectation of another 50 basis points over the next 3 quarters during the year 2025. Hopefully, this will help us bring down our cost of funds further at lower levels and which will be aided by increased CASA in the coming quarters. Overall, net interest margins with higher yields as well as slightly higher cost of funds stood at 2.09%, a 1 basis point increase as compared to last year. This slide, which is Slide #24, shows the capitalization overview, i.e., the capital ratios. The total capital adequacy ratio stood at 16.51% as compared to 13.5%, which is the regulatory requirement. 12.4% was my CET1 ratio against the regulatory requirement of 9.5%. We continue to have a profitable history as well as a dividend-paying history. Overall, the dividend stood at 8%, which comprised both cash as well as stock. Our cash dividend stood at 6.55% and stock dividend at 1.45%, which is what we'll be proposing to our shareholders and which has been approved by the Central Bank of Oman. To conclude, some of the key takeaways, fee income, and other income increased by 16.27%. Clearly, our expanded branch network as a strategy as well as our investments into digital banking services and our expanded reach to our customers through our customer acquisition as well as some of the new offerings that we have been giving to our customers in the form of corporate advisory, asset management, wealth management businesses has helped us increase our fee income. The fee-to-total income ratio improved to 25.3%. Net profit at 43.6%, improved by 12.5%. CASA ratio at the consolidated level stood at 48.7%. Islamic banking particularly, increased from 39% to 48%. We continue to focus on increasing our footprint, which stood at 130 branches. We were the fastest-growing branch network in the country in 2023 and 2024 and, needless to say, were supported by an experienced team and staff to drive our performance during the year as well as in the coming years. I think that's it from our side, and we will now pass it back to Hilal for any Q&A that you may have.

Thank you, Mr. Vikesh. Now, I will open the floor for the Q&A session. [Operator Instructions]

Thank you, Mr. Mirani, for the fantastic presentation. Congratulations on a good year. Second, your opinion on a lot of positive things, good things that have happened for Bank Dhofar. We saw a change in the CASA ratio. We saw fee income pick up. And all of that has resulted in your ROEs. I mean, okay, you spoke about reported ROEs. As analysts, we track adjusted ROEs. Either way, no matter how you look at it, your ROEs have gone up. So, congratulations on a good year. And ever since this management has taken over, at least now we know where the bank is going in terms of where aspirationally, I see where you're going. Just a couple of questions. These are the good story points. The challenge, in my opinion, are your adjusted ROEs are still way below the sector forget the top guy; even if you take the second, third guy, or fourth guy, you're below the sector. And there's no easy path to get there, in my opinion, but you're trying to make moves in the right direction. The issue I'm seeing right now is your Stage 3 provisioning coverage. You spoke about the technical write-off, and I understand that it is below the sector average. So logically, if you start ramping that up, and I'm assuming you would because your cash dividends are cut by CVO compared to what you proposed to what they accepted. So I don't know if it was just the provisioning or if there's something else in it. But clearly, it looks like you'll have to build up some coverage over the next couple of years, which might keep your ROEs under a bit of pressure. Is that understanding correct? Or am I missing something in nuance?

Thank you, Vas, for your question. You rightly pointed out that in terms of monitoring, we do look at both the adjusted ROE as well as the gross ROE, and we understand the returns that are due to the shareholders as well as the adjusted returns. So, I think that's something that we should closely monitor as part of our performance management review. You're right. I think that currently, our adjusted ROE stands at 6%. Mainly, if you notice our ECL, as you mentioned, it has been higher compared to the industry average. So if I look at the overall gross provisioning that I have taken, whilst the net provision was 24 million, the gross provision stood at almost EUR 43 million. Now, these is some of the legacy assets that we are trying to clean up. Clearly, this is having a drag on my profitability. We expect this pain to continue over the next 4 to 6 quarters. So you will see that getting reflected into my cost of risk. So, whilst my cost of risk was upwards of almost 93 basis points, it came down to 89 basis points and has now declined to 63 basis points. I would expect this to be in the range of 60 to 70 basis points over the next 4 to 6 quarters. This will allow us to both increase our coverage ratios as well as address any legacy challenges and assets that we have been carrying. So clearly, once this falls off, this immediately gives a boost to my net bottom line as well as my return on equity. What we have done as far as our top line is concerned is to look at expanding the customer base, CASA, and improving our fee income. So that's an effort. It's an area that we continue to focus on. So that is also helping us absorb any additional ECL that may be required. So, whilst my ECL and the coverage on Stage 3 came down because of the technical write-offs, we continue to be conservative as far as provisioning is concerned, and we expect our coverage ratios to improve over the next 4 to 6 quarters. Yes, it will have an elevated cost of risk, but this is something that we want it to be done with so that our ROEs overall start showing a significant improvement.

I'll just add a couple of -- your question is absolutely valid, relevant. And the 2 aspects that you highlighted, which is below sector average of ROE as well as below sector average on the ECL, I think both are in that sense linked. As Vikesh explained, and you said it as well, there's no easy way out of this. We need to increase the profits, and that's the only way the ECL can be covered fully and the ROE elevated as well. So if I reflect back on what we have done as a bank in the last 2 or 3 years, we have created a huge amount of infrastructure, which was missing in the bank, both in terms of fiscal infrastructure as well as the capabilities of people and as well as the sustainable business model. If I look at, say, retail banking, the number of customers that we had as a bank compared to what was 3 years back is more than doubled. And from here onwards, we would expect to see more than a proportionate increase in terms of the customer base. In terms of credit cards, again, a very good story in terms of the POS. A lot of fee-based income of the bank as you are seeing from the top line, they are increasing. And it's come to a level where we can accelerate further. So my expectation here, and that's what our management team is working on is can we disproportionately or in a much higher way increase our operating profits this year as a result of which many of these provisions that we are talking about in an accelerated manner can we take and thereby address both the questions that you have in terms of an ROE and the ECL coverage.

Just to follow up on that, you mentioned that increasing operating profit is actually the only sustainable way to grow your ROEs over the long term. And you've obviously spoken about fee income, and I've followed your bank for a while, and you've delivered on the fee income side. And aspirationally, what you're saying is there's more growth to fee income as well. Just before your call, I was on the Bank Muscat call, and I was talking to Sheikh Waleed and asking him where does he see sector growth and where does he see Bank Muscat's loan growth? So, he was saying we should grow in line with the economy. Obviously, they have 35% odd market share. Now when I look at BankDhofar, I think you're very interestingly placed, and I wanted to listen to your guidance about where do you see growth. I'll tell you where I'm coming from. You have mobilized this kind of CASA deposit and lowered your cost of deposit. You're very healthy on the capital adequacy side. So I would imagine you would be probably growing at higher than sector average. But I just wanted to hear from you. Where do you see this growth coming in, and which sectors are you focused on for the next couple of years?

I think in terms of growth, obviously, we are focused on increasing the growth. I think I come back to the bank that you mentioned, our balance sheet size is far lesser. And in terms of growth, I would expect that we are able to do it more than the sector average. So that's really what we are focused on. Only when you do that can you see the type of growth. Of course, you have to be prudent in where you're growing the sector that you are looking at. So we will assess the risk of each of these. And we are not chasing a particular sector. Where we see an opportunity at good risk, prudent risk that we can take, we will expand, and we hope to do it more than the sector average for this year.

And one of the other places that you're lagging is a cost-to-income ratio. And it's always been the case for the last few years. Mr. Mirani was talking about in our previous interactions as well that at some point, you're going to start seeing positive jaws coming in because you've obviously stocked all these departments with department ads. I know anecdotally as well; I've met a few of them. So you've kind of got this infrastructure in place, both people and I'm sure otherwise. Now I don't see costs going down. So effectively, the cost-to-income ratio can only go up by your income going up. Is that fair? Or is there any possibility on the cost side? Because spreads are spreads, right? It's very difficult to change spreads in this market, given your sizing of the bank. So one way you grow is the fee income, which we've spoken about. The second thing is that you accelerate loan growth. And the third thing on the jaws or the cost-to-income side is you will do something to the costs. Now, can you touch upon that as well because the bank is clearly lagging here compared to your peers, and that's also eating into your bottom line and your ROE, sir?

No, absolutely. And I think, as Vikesh mentioned in his presentation, in the year 2024, the cost-to-income ratio went to nearly 52%, 51.6%. But whereas the previous year, that's '23, we were below 50%. Ideally, we would like to see it around the 45% to 46% range in the near term, and that's what we are working on. So, while there is no obvious magic on the cost side, what we're looking at is we can optimize the cost wherever possible, and we will do it. Arrest the cost increase, that is also something which we are very closely focused on. And income, both on the net interest income as well as on the fee income, there is a huge amount of focus. As you rightly appreciated the bank's coverage, yes, the last few years, we have seen there. From our point of view, we don't think that we are still at full capacity on the fee-based income. We still have more steam on that left. So we will want to push the fee income higher as well as on the net interest income with higher asset growth. So yes, obviously, more of income will help the cost-to-income ratio to go down as well as arresting the cost increase, and there might be, in some cases, optimizing it as well. As a result of both sides, you should expect that positive jaws to happen, and we would be wanting to look at much below the 50% range, getting closer to the 46%, 47% this year, and that's really what, as a target that we are working on.

That's a pretty healthy target. I would love to talk to you about this again at the end of the year, but that's pretty remarkable target. Is the Bank of Baroda acquisition going to help you anyhow? I don't think the market has any numbers when it comes to Bank of Baroda. Are you in a position to share anything? How much did you pay for them? What valuations are you getting in return? What sort of return, what size of the book? Can you share anything about the Bank of Baroda right now?

Yes. I can give you some broad numbers. In terms of the assets, it's around QAR 50 million, QAR 55 million in terms of the assets. And in terms of the purchase, we have done that at slightly below book. So if you adjust some other items, that's below book very clearly. In terms of profitability, we think it can add a couple of million riyals on a healthy basis; that should be the sort of addition to our net profits.

What was that bank generating in ROE terms?

It was close to almost 15% to 16%, [ Abas ]. That will definitely help the overall BankDhofar's book as well. More importantly, it also creates a strategic partnership with that bank. So I think that's something that we are also focusing on. So, over the long term, this is a transaction that should benefit the bank substantially.

So you seem to have paid a good price for it. For a bank generating 15% ROE, if you got away with paying less than 1x book, I mean, kudos to you and the team for doing that. But is this a cash deal where you're going to start leaking some money on the CET1 and you might have to -- I don't know, how do you balance that with growth as well? I'm just trying to think -- firstly, is this a cash deal, or did you give them shares?

It's a cash deal.

So then, that's out from your CET1? Is that kind of cash is going away where you can't leverage that and grow your loan book?

Whilst the total asset book is slightly higher than 50%, it's predominantly cash treasury bills, et cetera. So, the overall impact on my capital adequacy ratio, Abas, should not be more than 20 to 25 basis points.

That's manageable. That's not bad. And when you consolidate, when does the transaction get over? I mean, complete whatever in your terms, where you take over the business?

So it's a work in progress now, Abas. We are looking at financial integration anytime soon because we have done our detailed due diligence, and that's already behind us. So that should happen pretty soon. On the technology side, we are looking at migrating the entire customer base, et cetera. And that should also get completed in the next 6 weeks' time.

A question for Mr. Gopakumar. You're still the acting CEO. When do you find out one way or the other that you get confirmed as CEO, or does someone else come in? Any update on that for the shareholders?

I think there's nothing to announce now. If there's any development, we will make the announcement to the market inshallah, everything will happen in time.

Just to bring this one thing, of course, you are addressing the ROE issues by everything that we've spoken about, not just today but over the last couple of years. In terms of the liquidity issue, right, because obviously, part of the management job is to maximize shareholder value. I mean, in my opinion, that's probably the most important job of any management to maximize shareholder value. Now Dhofar, being a 10% index weight, is notoriously illiquid. And now, CMA or MSX has allowed you the opportunity to appoint a liquidity provider. And I was quite surprised that Dhofar has not jumped on it yet because I feel like that's one bank that could definitely benefit from more liquidity. So, any update on that?

I think we are actively considering it. Hopefully, in the next few weeks, we should be able to make some announcements on that.

Another move in the right direction. I think my first question was kind of lost. Why did CBO cut your dividends? Why did they not approve the same cash dividend that you announced?

I think from the central bank's point of view, they are looking at retention of more profits in the bank. And after the COVID situation got better after the COVID crisis, there were a lot of the stressed assets, and the CBO is expecting some acceleration in the provisioning of those assets. So a combination of all these factors that they felt that, look, the cash dividends of the bank or the payout of the bank should not be higher. So currently, we are paying out about 45% of the amounts that we announced, which was 8% cash and would have been a 55% payout. So I think an additional 10% is money staying with the bank and which helps our capital adequacy and all that. So we take that in that spirit it helps us. I think we have some work to do, and we are focused on getting it done.

As a follow-up to what you just answered, what struck me is what you mentioned about CBO expecting stressed assets to probably deteriorate in quality. I mean, at least that's what I got from the conversation. So you're referring to the restructured book that most of the banks are sitting on, including Dhofar, and you feel that, that book has gone, I mean, is that what you said? Or am I putting too much into it? Like, are you saying that the restructured book is probably a little more stress than we think it is? Is that what you're saying?

No, you're extrapolating a little bit further. No, I don't think that's what we are implying. No, we're not definitely implying that in any sense. So, the bank has a provisioning model, which takes that x number of years to get to the full provisioning level. In some of the cases, even if, say, an asset is looking good, CBO is looking at it, and then you can provide more to keep yourself safe. It is more that sort of a prudent approach, which has been suggested, and which we take that as a good suggestion on board, yes.

Are there any questions?

Just one question on your CASA. See, I'm seeing that you have done a very commendable job on the CASA mix during this year, 48% from 35%. So, congratulations on that. And could you please tell us what would be an ideal CASA ratio that you would be comfortable with? And probably when do you think that you will be able to achieve that?

Thank you for the question. You would recall that Bank Dhofar historically was relying a lot on wholesale as well as government funding or deposits, and which is what we have been consciously moving away from in terms of the spread of customer base as well as the spread of CASA. So it has come up from 40% to 48% levels now over the last 3, 4 years. And this was despite the higher interest rates that were prevailing in the market. So it was quite a bit of a challenge at the same time to get those ratios increased. Both conventional and Islamic saw a healthy increase in CASA. So if you ask me, aspiration is definitely to get to a level upwards of 55%, 60% levels within a couple of years. And that is what we have been aiming at given our branch expansion network, the products offerings, et cetera, that we are doing. We understand, again, that CASA doesn't come in easy. You have to have product penetration and customer stickiness associated with that, which is what we are really targeting to increase. So, we believe we are on the right trajectory. 48% is what we've achieved now. And we will continue to expand this through our expanded branch network and customer acquisition that we are doing. So if you really look at it, if you ask me aspirationally, 58%, 60% is what we should eventually get to in terms of the overall CASA ratio.

Another question is on the Stage 3 coverage, which is at 55%; it was 60% a couple of years ago. What would be a comfortable level of coverage for you for us to understand from a modeling perspective?

So as far as Stage 3 exposure is concerned and as Mr. Gopakumar mentioned, you obviously set aside a percentage and that develops over a period of 5, 6 years, so that is what we've been doing. In addition to that, collaterals also play a large part as far as the overall provisioning that is required. So we do have IFRS 9 modeling ECL modeling in place, which essentially determines the adequacy of provisions that we are carrying on Stage 3. Needless to say, with the write-off, this did come down to 53%, and we'll continue to build on our NPLs over the period that Basel, as well as IFRS, allows us to do. And you will see a gradual improvement in the coverage ratios. I would expect the ratios to reach closer to 60% by the end of 2025.

Yes. In case anyone, I mean, I'd rather let someone else ask a question, but if I have time, I have just one more question. Just a couple of quantitative queries there. Contrary to the sort of direction that the banking sector has been taking, you've adopted, in addition to the digital approach, the brick-and-mortar approach. And it's quite interesting. So, you mentioned you stand at 130 branches as of now. And I know this has been going on for 2 years. So, in the last 2 years, how many branches has Bank Dhofar opened?

I think we expanded our branch network from 64 pre-expansion to currently, we have 132, which means we have doubled our branch network as well as our ATM, and CDM network as well, we have doubled. So, the way we look at it is a few years back for a citizen or a resident in the country, there was just one real credible choice for an account opening with a bank. Now, we have provided a very credible another choice because we are present across the country everywhere. So I think that's the thing, and that's what the market is appreciating. And that's all, as you have said in the previous comments or the questions the CASA ratios. So we are able to engage with individuals with the SMEs and the corporates across the country. So that's really what has come in. So we think this would be hopefully a very sustainable business model, and as we build on that, because all the network that we have is fairly young, and as we go on, it will continue to expand in terms of the business and the traction that we will get from the customer base.

Now, if I ask build up on the doubling of branches over the, let's say, pre-expansion phase, I saw one of the slides that your individual customers stand at 500,000, I think 35,000 corporate customers. Could you give us some sense of pre-expansion versus today that 500,000 grew from how many and the 35,000 grew from how much? I understand you probably must have completed the expansion in some areas, so you'll probably see the results in due course. But if I may just have some comparison on those 2 numbers and any other sort of quantity metrics?

At an overall level, we doubled the customer base as compared to what it was, say, 2 years back.

So effectively, if I put that in numbers, you've doubled the customer base, you've doubled the branch, that's linearity. You have effectively increased your CASA to late 40s, which should go up to mid-50s. In terms of OpEx, now most of that must pretty much be reflecting this year or towards at least in Q4, and the revenue you would imagine would follow in the coming quarters. Is that a fair assessment?

I think in my opinion, we would have peaked on the cost last year. Vikesh, please.

That's absolutely correct, Mr. Gopa. Vishal, you're absolutely right. So the investments that we have done in the business really takes our cost at its peak now. Yes, we'll have some supplementary costs here and there. But clearly, this is something that, in terms of expansion network, we are almost there. So what you will see now in the coming quarters is essentially the depreciation impact of this. But the top line impact will and should start flowing in or start flowing in '24, '25. So the new businesses, et cetera, that we have done should start helping us increase the overall top line as well and helping the overall cost-to-income ratio.

And the idea there, obviously, would be cross-products, if not direct CASA. You have other products as well that you would target even if it doesn't directly translate to CASA, which should help the overall revenue, right?

That's correct, Vishal.

And in terms of sort of overall for these branches, just to understand, do you monitor them at an individual level when it comes to sort of CASA or it comes to sort of cost or breakeven per branch? If you could just give us some sense in terms of how are you looking at it? Each branch has its own P&L that you closely monitor or do you group it as a region, saying this needs to be there purely for as a cost base, and we are okay with that if you could just explain our strategy?

I'll ask Hilal to answer that question.

Yes, actually, we have a branch profitability report. So we are checking all the items there instead of net profits. Also, CASA consolidated our new branches as of the end of December '24, only 3000. So most of the branches in the profit side.

Essentially, just to add to what Hilal is saying, this is very actively monitored, and with the branch managers the regional managers, that is the setup we have. So there is also a level of awareness that is then getting generated at the branch manager's level in terms of what are the key levers of profitability. And that is helping us getting the branches to breakeven on an immediate basis. So, whilst we are pushing the top line, the cost that was incurred in setting up the branch at the outset itself was kept low. So we were quite conscious of making sure that we have a cost-conscious approach towards the expansion of the branch network. So both sides is helping us get the branches breakeven at a much shorter period as opposed to what you would probably see.

Just one further comment or rather query on that is if you look at the sort of structure, some probably, you're the experts, I don't need to know much about that aspect, but some sort of branches might be lucrative for raising deposits at an attractive rate, whereas some branches might be sort of lucrative for lending. So, when it comes to individual branches, do they get penalized? Or do you look at that approach saying you've raised deposits and not really been able to deploy as long as the overall entity is able to mobilize those deposits and then lend them? Just to understand that part. Because you mentioned about profitability per branch, sometimes that goes or hinders sort of a branch from taking on deposits beyond a certain point to not have extra sort of interest expense. If you could just clarify that?

So I think, Bishan, here also, the branches clearly, in terms of the catchment area that they are operating in, will have a different mix of business. But the focus is across all products, whether it's deposits, loans, cards, et cetera. And we have this internal FTP mechanism through which we measure performance both on the assets and liability side as well as FTP again can be used as a tool to inculcate a certain behavior. So, which is what we keep looking at from time to time. So when a branch is looking at its profitability, it is looking at both the assets as well as liabilities applying FTP. So that essentially drives the yield on assets given you've got an FTP cost associated with that or yields on liabilities or FTP on liabilities that then drives the overall cost of funds or actual cost of funds on deposits. So it's a mix of both assets, liabilities and cards, but it is measured at a product level, at a customer level in order for us to maximize the revenues that the branch is generating. And essentially, then that drives the right behavior within our branch network and our branch managers and so on. Abas, you had a question.

A couple of questions. One is with regards to CBO. Of course, his excellence Mr. Musallam has been CEO of 2 very large banks in Oman. So he obviously knows the challenges and the opportunities of the sector. What sort of changes are you seeing from the regulator? One thing is I recently read about that risk weights have been revised downwards for priority sector lending. And I think she was mentioning on the call that there are some changes on the personal loan side as well. Could you elaborate on what changes have you seen already? And are there any new changes coming, which is going to make business go faster or ROEs pick up? Just wanted to understand from the regulatory point of view, what are you seeing, sir?

So, to start with, the big picture is the new banking law was introduced in 2025. So, a lot of previous ratios which were part of the banking law are outside of it. And we expect over the next few months or few weeks, many circulars which will come from the regulator in terms of the guiding principles on various aspects of our business. So that's something that we are expecting. The other changes already made are adjustments in the risk weights for certain priority sectors. And so that will give a bit of capital relief for the banking sector. And the like, there are many other changes. As you said, the personal loan-related changes have already come, and many more such changes we are expecting that will come in the future.

What are the personal loan-related changes specifically?

I think the micro level changes it doesn't substantially alter the way we are doing business. The big change, obviously, is previously, there was a 15% cap for the housing loan and 35% cap for the personal. [indiscernible] be removed. So it's a combined 50% for the retail loans. So that's the one big change that has come. In terms of limits for people with higher salary limits, the debt burden for them can be higher as compared to the flat 50%, 60%, which was there for everybody. So that's again another big change. So we are going through the process, making the system changes and all that to flow through. We expect sometime during the year, the reflection of that happening in the growth of banks.

My last question is about your inorganic aspirations. Of course, there was a transaction that we were all talking about in the country, and anyway, that sort of was rejected by CBO at the last stage. And then you've got this Bank of Baroda acquisition, but on a much smaller scale. So what is that Mr. Gopa and Mr. Mirani, that you see in terms of value addition when it comes to inorganic aspirations for Bank Dhofar particularly? And you feel is there more appetite? And are there more banks that could potentially be targets? How do you see that evolving over the next couple of years? I've never got a chance to ask you this actually.

Yes, Sir, Bank of Baroda, whilst small in terms of its balance sheet size, is something that we have looked at and concluded. We continue to explore possibilities and opportunities in this space. The market is only as much as a limited market. So there's only as much you can do. But Bank of Baroda was a clear example. It was a good quality asset book that we looked at and helps us improve or increase our overall asset book as well as profitability. But yes, we are open to, and we keep looking at other inorganic opportunities as well in the space that we are operating.

Since there are no further questions, I will have to pass it back on to our CEO for concluding the remarks or the session.

I just want to say we enjoyed the session, a lot of active participation from the analysts, the investor group and the investors. So, I really appreciate all of you taking your time to come in and join us on this call. And we look forward to the next session. Hopefully, we have good news and better news to share as well. And thank you for all the support and appreciation for what we have done as a bank. Thank you very much to everybody. Thank you.