Bank Nizwa SAOG (BKNZ) Earnings Call Transcript & Summary

[Foreign Language], ladies and gentlemen, [Foreign Language]. I'm delighted to welcome you to the special presentation on behalf of Bank Nizwa, the leading and the most trusted Islamic bank in the Sultanate. My name is Tahani Al Alawi, Deputy Manager of Sustainability and CSR at Bank Nizwa, and It is truly a pleasure to be with you today. It gives me a great honor to introduce our esteemed Chief Executive Officer, Mr. Khalid Al Kayed, who will be sharing valuable insight into our bank's performance, strategic direction, and our vision for the future. Before we begin, I would also like to extend our sincere appreciation to MSX for organizing and hosting this event. However, I would like to emphasize that the content of this presentation provides general background information about Bank Nizwa as of the presentation date. It is intended as a summary and may not include all relevant details. This presentation is not investment advice nor does it take into account individual investment objectives or financial situations. We encourage investors to seek independent professional advice before making any investment decision, while Bank Nizwa who has taken care to source information from reliable references, we do not guarantee its accuracy or comprehensiveness. Before we begin, I would like to kindly ask everyone to keep your questions until the end of the presentation, feel free to ask your questions in either Arabi or English. Now please join me in welcoming Mr. Khalid Al Kayed.

[Foreign Language], and very good afternoon to everyone. I would like to welcome everyone on the call. And we will actually deliver the presentation bilingual. We will talk English and Arabic, and we will receive also in the questions in both languages. And we'll start the presentation now, sharing with you our feedback on the year -- for year ended of 2024 [Foreign Language]. Salman, you can go to the first slide, please. Thank you. First, we will give some light on the economic update and to share with you with the macroeconomic updates and from our perspective at Bank Nizwa, in spite of all the recent developments at a macro level, globally, regionally and locally, we still have the same stand having a positive outlook reflected on the performance of this industry, the Islamic banking here in Oman and in Bank Nizwa performance in particular. Continuing to what we shared actually last year, we're still seeing a very positive signals coming from the prudent management of the government on the financial affairs, and we are expecting further enhancement and upgrade on the credit rating of the country, the Sovereign, which will be followed [Foreign Language] with a similar upgrade to Bank Nizwa rating. Also, the other macroeconomical indicators showing a growth -- credit growth in the economy also showing positive growth 7%. With the support and direction of the government, the foreign investments is still actually enhancing and they are showing good progress in this matter. And the results of the effective management by the Ministry of Finance, showing also good commitments and response to the macroeconomic situation and commitments from the government to support -- showing the resilience and sustainability of the Omani economy. This is at a general look. We still maintained our positive outlook into this side. And moving from that to the market update. Now we will be more specific on to the Islamic banking, and we'll start with an overlook within the GCC market. As we mentioned, this industry is still showing growth and acceptance by the different stakeholders. And Bank Nizwa growth in the second -- sorry, the Islamic banking industry in Oman still showing growth year-on-year. And in comparison with the GCC countries, we still see potential for more growth for this industry as a part of the total conventional banking system in the GCC. In particular, in Oman, I think there is a new milestone by end of December, we are -- what we're seeing based on the recent statistics by Central Bank, the Islamic banking industry actually exceeds 20% market share in deposits and financing. And at the total balance sheet level, it's almost 19%, which is promising, and in line with the expectation and ahead of some expectation as well. So we are still seeing this positive growth, which actually reflect the increased demand on the Islamic [Foreign Language] compliant products and services, as well as the maturity and -- the maturity of the industry, the higher level of awareness for the industry and the reach of the Islamic banking industry through the stronger financial position when it comes into the releases and capital adequacy ratios and increased risk appetite and ability to serve the economy and the social in more aspects. So on the Omani banking sector, as we mentioned, total banking sector showing resilience and supported the GDP growth in different -- in both sides, the convention and the Islamic as well. But we witnessed this Islamic banking growth is going higher than the normal growth, we need to compare to the conventional side. Today, the Islamic banking industry between the fully-fledged banks and windows, they are able to actually support governmental projects as well as private sector at a larger scale. And through this indication, this is a new area of opportunity and a new area of development for this industry to take the further market share as we go with the mega projects and large projects. If you go through the numbers and see the update on the also recent statistics by the Central Bank, it's very clear that on this slide, you can see the growth for the last couple of years is showing a steady growth in spite of all the macroeconomical conditions and at first which we faced by the Islamic banking industry here in Oman continue to show a steady growth and resilience by absorbing the shocks and the negative implications or facts during the last, and this is a very strong testimony this industry is really turned in a strong infrastructure and foundations. Total assets, OMR 8.5 billion, total financing OMR 6.9 billion, also on the deposit side OMR 6.7 almost. So the financing growth and deposits growth showing a double-digit 14% and 21%, and this has actually exceeds the normal growth in the total banking sector. And we are expecting for this growth to continue. This is one indicator for this industry to be classified as an attractive industry and further potential growth to happen. If we move further to the next slide, we can now touch on Bank Nizwa in specific touching with the shareholders as it's a clear -- we have the same shareholders since last year, and we have pledged financial investment holding company at 35%, and social protection fund [indiscernible] and we have other shareholders at 55%. And we maintain the same mix. And Moody's also classified Bank Nizwa as [ Ba1 ], but we changed the outlook from stable to positive. And this is another indicator coming from independent rated company showing that the global evaluation Bank Nizwa going in the positive side. So there is a positive outlook for the industry and Bank Nizwa. In particular, touching in our branches and channels where we have a very clear digital strategy, which we already implemented 2 phases, and we are into the third phase. We are focusing, but we continue to maintain our distribution across the country. Currently, we have 23 branches, in which one is a fully digital branch at Oman, and we are increasing the mobile banking penetration to reach 75%. We are trying to enhance further on the digital channels and the migration of our clients from the normal channels and to the e-channels. This is progressing very well, and we will continue our distribution and reach to the bank with a more focus on the digital side rather than only the physical. With the distribution in the Sultanate from the north to the south, west, east, we are there [Foreign Language]. The second thing here, I would like to highlight the latest program issued by bank last year, and this is programs for 5 years. We issued Sukuk and this Sukuk considered as additional Tier 1. Mudaraba Sukuk program approved last year by the Central Bank and our general assembly. We -- this program is a OMR 50 million Sukuk under Mudaraba program. Every year, we have almost OMR 10 million to be issued and listed in the market with the profit rate 6%. This product will be paid in a semi-annual basis. It is mandatory convertible after 5 years or before based on the event. It's a complement with Basel II and III as additional Tier 1 instruments and it's paid per year by returned earnings. This program is a very unique and first of all the expectation and the requirements of all stakeholders. It supported our capital as it provided dividends to our shareholders. And also it was welcomed by the regulatory bodies being part of the sustainability, supporting the sustainability of the bank and supporting the capital of the bank. We did this last year. And this year, we are issuing the second tranche, which will be another OMR 10 million. So the total will be OMR 20 million. Moving ahead to the -- touching on the key financial performance of Bank Nizwa, [Foreign Language] Bank Nizwa still showing a very positive financial position reflected on the financial position as the balance sheet from structured capital, funding structure versus the uses of the fund and the investment portfolio and the financing portfolio. During the year of 2024, we've been able to close a net profit of OMR 18.1 million and net after tax as a profit compared to OMR 17 million last year 2023, and it brought us increased by almost 11%, which is a double-digit growth. We still continued our sustainable growth on the financing with a 15% growth, driven by both the wholesale banking as well as the retail banking business. Also, we continue to gain our trust from our depositors, our clients where the deposits grew by 24% last year, year-on-year growth to maintain the balance between the financing and the deposits and to enhance the liquidity position of the bank. Also, we -- part of our strategy, we have sustainability strategy, and we worked in different levels within the bank. Part of that is the issue in the sustainable finance framework, which is already published, and we've been able to actually publish our sustainable annual reports as well. We maintained a very strong capital position with a 15.3% capital adequacy ratio. We are targeting the capital ratio to be ahead of the minimum -- higher than the minimum requirements, and to have a more effective use of our capital. And in the future, we will work more closely for more efficient capital management through focusing on the non-funded as well as trade finance activities, which we can add better capital allocation and enhance the value. Cost-to-income ratio is still in control 48%, with the bank 48.5%. And we are managing this closely to support the business expansion as well as key efficiency at a higher level. Capital adequacy we mentioned. And it's supported by the Sukuk insurance, while we kept a very attractive dividend yield year-on-year. Last year it was 7%, distributed between the Sukuk 4.5%, along with cash dividends, which totaled that reaches [ 7% ]. This is attractive compared to the market situation. Asset quality is one of our top priorities. We identified our priorities at the bank level, at the management level with the Board, and we kept since maybe 7, 8 years asset quality as the first priority. And it reflected in numbers through being -- enjoying the lower nonperforming ratio in the industry with 2.14% compared to 2.45% last year, the year 2023. And the coverage, if you convert the ECL to the total Stage 3, we are almost at 124% of coverage. We enhanced this year also the liquidity because we are balancing between the credit risk and the liquidity. Liquidity is our next priority after the asset quality as reflected here by enhancing the LCR ratio from 130%, 109% to 164%, the same net-stable also liquidity and midterm enhanced to 137%. Both are ahead of the minimum request of 100% as per the regulatory. So we are keeping this margin, not in the difficulty actually in managing the liquidity in the Islamic banking compared to the conventional due to different factors. The core business of the bank on the financing still continue to show a double-digit growth, 16.7% growth in the financing compared to 12% in 2023. The same with deposits growth of 23%. And we maintained a balanced approach on the [ AB ] ratio at 100% almost, and this is actually a good balance between the liquidity and profitability. So we're still showing a very robust resilience financial position, and this actually will help us to gain more opportunities and enhance the growth in the coming 2 years. Then going specifically to Bank Nizwa and 2024 in particular. You can see in this chart, the movement in the balance sheet, how we are moving for OMR 1.6 billion in 2023 -- end of 2023 to almost OMR 1.886 billion in the assets. It is driven mainly by the financing along with other activities on the investment side. On the liability side, we moved from OMR 1.6 billion end of 2023 to OMR 1.86 billion (sic) [ OMR 1.886 billion ]. Also, it's driven by the customer deposits, and this is showing the appetite and the ability and the access Bank Nizwa has and continue to have during the period by enhancing the deposits with the financing. So we have a good access and we still have opportunity to grow. Also moving ahead to the funding mix. On the funding side, as you're aware, we have also a very robust funding mix of Bank Nizwa at balance sheet, while we are maintaining our capital adequacy at an acceptable level, which enabled the bank to take the opportunities to grow. Also the major -- the largest part is growing as a core funding source is the customer deposits, and it's showing the -- actually the trust and the ability to reach and attract deposits from the customers year-on-year growth of 24%. This is something higher than the run rate on the industry. And we are using the interbank market to actually balance the funding structure within the bank based on the market dynamics as we go. So this is, from our perspective, is still showing a strategic mix which we are targeting and following build up a core funding to the bank, reduce the dependencies on the interbank due to the fluctuations, and keep the core source within the customer deposits and focus more in enhancing the CASA, by focusing more on getting into the cash management and transaction and banking as well as focusing for retail when it comes into the saving and capital accounts. Moving ahead to the market share and growth. We actually touched on the same I think information earlier. But here, it's very important to show that Islamic banking growth, it's actually showing a higher percentage compared to the conventional with all these macroeconomical situation, we're still seeing year-on-year growth at a higher percentage compared to the conventional. And this is actually just to confirm this industry still has the appetite to get more opportunities and increase the market share, while balancing the structure of the financial position and the profitability accordingly. Numbers are there and it's all on the positive segments. If we move ahead also -- but the comparison on the financing and deposits between the conventional where the Islamic, we are seeing a good progress where the Islamic banking industry gaining more market share from the conventional. This is a clear based on the statistics shared by the Central Bank has increasing year-on-year. Here, it's good to reference to Moody's expectation for this industry in Oman to reach almost 25% by 2030. And we are expecting this to have been maybe at an early stage to 2023, if we continue with the current growth rate. Yes. Moving ahead to the segmental analysis at the Bank Nizwa level. We have here the net profit distribution by segments. You see a good allocation among the three segments, which actually showing the sustainability and the stability of the bank, 43% to the wholesale banking, 36% to the treasury and investments, while retail contributed 21% of the bank in the year 2024. Touching on the wholesale banking. We have actually been driven by wholesale banking, and we are putting more emphasize on this sector because we believe through the public/private partnership, supporting the governmental projects, aligned our strategy with our Oman Vision, segment-wise, objective-wise, this area will -- we believe there are more opportunities to be sized by the bank. We are introducing a more focus on the advisory and sustainable finance. And we believe there will be a more focus going through the -- due to the demand on the Islamic compliant products on the Sukuk, Islamic finance, project finance, Musharakah finance, which is already asset-backed. It's just -- also more focus will be on the credit finance as we go and the treasury and transactional banking. On the retail side, we're still showing our growth, more focus on to digital, more focused on specific segments, wealth management, priority banking. We will continue doing the mass market banking as well, but with more focus on specific segments, including the wealth and private priority banking. We will introduce more focus on the savings through some new products, and we will try to reach more of the clients through the digitalization as we grow. And we are happy with the market share we are getting now on the growth in retail side. Treasury and the investments is an opportunity in spite of the limitation when it comes into the products and limits. However, we still believe this area is an opportunity to bring the Islamic banking in second -- to take it to the second level. Sukuk market is a big market for both for the sovereign and private sector, corporate side. So we are focusing on this. And part of our strategy is to focus more in the non-funded business, which we are taking as a part of the treasury and investment. More focus into the [ FI, ] the international banking, trade finance. We are trying to expand the relationship outside Oman through building a relationship with banks, bank-to-bank relationship and introduce the Islamic banking of Oman into new countries. And almost we will be due to the expected enhancement in our credit rating, we are expecting this -- such kind of activities to actually grow more and we are expecting a lot of opportunities as we grow on this in the international business side. Going internally, we believe at Bank Nizwa, since day 1 in our human capital, and we are trying to build investment only to support Bank Nizwa for sustainable growth, but also we want to support the industry here in Oman, it's our responsibility also. So we are trying our best at all levels to support our staff through maintaining our [ harmonization ] ratio of over 90% at all levels. Also at top management, more than 80%. So [Foreign Language], we're able to maintain compliance. We introduced a program high potential staff, and we introduced this 2 years ago, and we will continue by giving a real developments through different levels of internal as well as external training, including shadowing and other monitoring and mentoring programs. We will continue this including women empowerment at our workplace, and we will ensure that our taking care of our staff at a different level, which actually will support the Bank Nizwa as well as the industry as we will keep this as one of our strategic learning and development is one of our best core plan and strategy, and we'll continue our focus on this area as we go. Of course, our customers, they are in our focus and radar, and we are trying to bring a very advanced experience to them through the technology through introducing new products, and we continue our commitment to be the model of the ethical banking, standing next to our clients in difficult as well as a good time. And we allocated targets to our SME segment with the full support to increase the percentage of the financing as well as transactional banking SMEs. And we are focusing on reducing the sustainable financing [Foreign Language] through Green Sukuk and other Islamic products, which can take this industry to the second level. Our community in focus since inception and being an Islamic bank, this is part of our strategy. We will continue the support in different manners. And this is part of not only from CSR perspective, but it's a partnership, and we believe this is something on our top priority, and we will continue the support at staff level, individual level, at institution level, at the Board level, at industry level. We will continue this support [Foreign Language] to our community. Of course, our shareholders in focus as well, we are trying to deliver value to our shareholders. With sustainability, we shifted our mind to understand we have different stakeholders. We have to support in a balanced approach. However, our shareholders, we are focusing to deliver value to them. And as -- if you review the financials for the last couple of years, you can see that Bank Nizwa generated almost OMR 54.5 billion wealth above the invested capital over the last 5 years. This is a real value introduced to our shareholders. Our dividend policy and plan also is very clear. Our dividend yield is very clear. Our old -- what we are doing at the performance is reflected into the financials and supporting the value of our shareholders. And the program of Sukuk is something also adding to that in a unique participation. Actually, the sustainability, part of our strategy is to align our strategy from a business perspective with Oman 2040 Vision. And recently, we received a director from the Central Bank showing great progress by introducing specific risk-weighted assets to specific segments, which is an incentive -- incentivize this industry and banks now adjusting their targets in the business side towards the segments where the focus is there, and we just implemented the same. It's already part of our focus, but we are focusing more now in the selected segments where food, agriculture, energy, education, technology, transparency and governance as part of our day-to-day operations. We are also trying to promote the women SMEs and the innovation. We have a lot of efforts going into digitalization and innovation, which will be actually announced as we go. And we still believe we are doing -- all what we are doing is to be a responsible banking and showing the ethical banking as our model at present. Future outlook, I just keep it as presented here with the recent developments in spite of all the recent developments in the trade tariffs on the oil price expectation, the Federal Reserve, we still believe at our size at Bank Nizwa and the Islamic bank industry in Oman, we still maintain the positive outlook. Same applied to Oman and GCC, with all what we are seeing in the developments, but our view is still showing a positive outlook. Even on the banking sector, as mentioned earlier, we still believe this industry will continue to grow and gain more of the market share. Yes. We -- our response to 2025, which is a little bit on the outlook, but we're still focusing on organic growth. We are still focusing to bring sustainable value creation to our shareholders. And we will continue supporting the Omani economic transformation and Vision 2040 goals, and we are partner with the government to support the governmental projects at the country level. [Foreign Language]. So I think this is our presentation so far, and thank you for good listening, and we are happy to receive your questions and try to address whatever we can please.

Anyone would like to ask any question? [Operator Instructions]

Congratulations on a phenomenal results. The bank has obviously been doing really well in the banking sector. My question relates to the future. As we have seen that Bank Nizwa has obviously recorded impressive growth [ year-over-year ]. I would like to think that a reason for this might be because of the low base that the bank has risen from. Obviously, as the base gets bigger and your deposits increase keeping -- maintaining the same pace of growth, do you think would be easily achievable? Number one. And my second question is the growth in deposits that we have seen this year has largely been from the fixed or time deposit accounts, and there has been very ominous growth in the savings account side. Now obviously, I'm assuming that savings account is the low cost deposit, which actually helps the bank generate -- push on the NII. How is the bank going to strategize going forward to improve the deposit mix towards more low-cost deposits?

Thank you for your question, Mr. [ Shaur. ] First one, when it comes on to the small base of Bank Nizwa, I think just to quickly tell you that we started the bank with OMR 150 million capital. And today, we are talking about OMR 1.8 billion in 12 years, and growth year-on-year is still showing a positive. If you go to the absolute numbers, you can see Bank Nizwa growth, it's almost equal to the other conventional banks at a large scale. If you see it in numbers, OMR 200 million, OMR 170 million compared to the industry. It's coming in a similar value. Our expectation this will continue. The growth [Foreign Language] based on the growth of the industry and the opportunity of migration, this will continue. And bank, according to our 5 years plan, we are aligned until now with the expectation and we are meeting this growth. This is one. On the other side, when it comes into the deposit mix, I think Bank Nizwa, we are also enjoying if you read the annual report correctly, I think -- I don't have the number with me now, but maybe Salim can touch later. But the CASA percentage, the low-cost deposits to total deposits is showing a higher rate, percentage-wise is still healthy, and we still have a good base on the saving from the retail mainly and as well as the core accounting and the government. While the growth in the deposits coming from the Wakala, which is time deposits equivalent. This is normal, but the bank continue to maintain the percentage of CASA low-cost deposits to total deposits at an acceptable level. Maybe it's more than 40% to 50% at the bank level. Salim can confirm. So we are considering the mix of the funding and the mix of the deposits components. And what I want to add here at Bank Nizwa, we are focusing more now to utilize the digitalization toward migrate more of the low cost. We are introducing some enhancements in our systems coming to transactional banking and cash management, which will support the bank in the future.

Yes. Thank you, Khalid. This is Salim Maharbi, CFO here. Joining here with me Mr. Salman Kabani, Head of Enterprise Risk and Strategy. When it comes to the deposit, actually, our growth in deposit was around 24%, December '24 compared to previous year. And in March, it was around OMR 300 million, which was very, very positive and outlook for the bank because that is very important to source our funding base. Now the good things on that whatever we have, more than 50% is in CASA, so current and saving account and also the lower cost deposit. And in fact, we are also continuing this strategy also this year also according to March also there is also a good percentage, double-digit percent growth in the deposits as well and also in all the balance sheet aspect, which again also on the CASA and the lower cost deposits.

I hope we have answered your question, Mr. [ Shaur.] So please Mr. Shaheen, if you can unmute yourself and ask your question.

A couple of questions from my end. Mr. Khalid, you mentioned trade finance and you're looking at the opportunities outside Oman. Could you elaborate any specific geographies that you're exploring? The second question would be that you're looking at -- you've projected a pretty good loan growth in terms of your -- in terms of what you expect. What are the kind of sectors that you believe are going to propel this loan growth?

Thank you, Shaheen, for your questions. I think trade finance is one of our strategic business segment, which we are focusing. This came as a result of our overall strategy. At Bank Nizwa, we are looking to the off-balance sheet growth as a strategy. So we want to enhance the volume of the trade financing activities to support the off-balance sheet volumes compared to the on-balance sheet, and this will come aligned with our strategy when it comes on to the capital management, when it comes into a non-funded. So based on that, we are introducing the trade finance strategy to reflect. And in order to do that, you need to cross the border by doing international trade activities. This will apply to targeting the new clients supporting the recent trade activities between Oman and other countries. And also part of that will be through the financial institutions, the bank-to-bank relationship. So with that, we are targeting, and we actually announced on the MSX previously, we have planned after getting the CB approval to have a branch in the [ FC ], we are expecting this branch to be this year. And one of the elements will be focused on more trade finance activities, which is what I can share at this moment. When it comes into the growth and the specific segments. During the presentation, we presented our targeted sectors, which we are focusing on, and we are expecting the same to be the opportunity for the bank, along with the developmental projects and the PPP transaction or projects, which is coming during the year. My colleagues, Salim and Salman, if you want to comment further, please comment on this.

Yes. Thank you, Mr. Khalid. We contain the same response on specific sectors, like you mentioned, is the bank is keeping the preferred sector at the Central Bank that helps us also in terms of asset quality also has on the capital side. So the recently, Central Bank has issued guidelines wherein a specific preferred sector, which is in line with the Vision 2040, banks financing then gets a credit release on the capital side. So that's also a part of the strategy that we are targeting now. Those sectors include manufacturing, agriculture, sustainable-linked financing, green energy, food, healthcare, those are the preferred sectors.

One more question, if I may. The current economic uncertainty, is Bank Nizwa impacted with what's going on? And what's your view going forward in 2025.

Well, global economic definitely impacts economies as well. But Oman, to a certain extent, is not much materially affected, reason being that Oman local consumption and the market that Oman target U.S. where the tariff and the U.S. linked policies are least affected Oman internal or economic policies. So it can be also witnessed that the yield curve that in the U.S. has followed, in Oman is little bit divergence. So that momentum, the Oman has picked up, we expect that going to continue, especially the diversification initiatives taken by the government, specific focus sectors and as also leading agencies Moody's and S&P, are expecting that non hydrocarbon sector going to grow by 6%. So we are bullish on the sectors. We're not expecting materially impacting the Oman. In fact, the counter side, expect that there's a potential for the Oman also to benefit from these changes and that favorable policy that the base tariff that is applied. So maybe there is a potential for the countries to start manufacturing here and install their manufacturing units here and then export from here. So that is possibly an area where Oman can benefit. So -- but we cannot talk more on that. But taking Bank Nizwa specifically portfolio is concerned, we are not seeing that any material impact on that.

Any other questions, ladies and gentlemen. If this is the case, thank you all for your active participation and engaging questions. This concludes our session. We truly appreciate your time and interest in Bank Nizwa's journey and the future. Have a wonderful day, and we look forward to seeing you again in the future engagement. [Foreign Language]. Thank you.

[Foreign Language]

Thank you, everyone.