Bank Nizwa SAOG (BKNZ) Earnings Call Transcript & Summary

[Foreign Language] Ladies and gentlemen, good afternoon. This is Rashid Al Maharbi, Head of Strategy and Investor Relations at Bank Nizwa. It is with immense pleasure that we host you today to discuss Bank Nizwa's first half performance. We have here our Chief Executive Officer, Mr. Tariq Atiq; and our Chief Risk Officer, Mr. Mohamed Fida; and our Financial Controller, Mr. Jafar; and our AGM of Operation, [ Mr. Mohamed Iqbal Mahrab Al ]. I will hand over to our Chief Executive Officer for the opening statement. [Operator Instructions].

[Foreign Language] Ladies and gentlemen, Distinguished shareholders, investors and partners. Good afternoon, and it is a pleasure to be with you today. Every successful journey begins with a clear sense of direction. The direction alone is not enough. What truly defines an institution is how it turns that direction into action, how it will respond when the environment changes and ultimately, how it creates lasting value for the people and community it serves. At Bank Nizwa, the first half of 2026 has been exactly the kind of a journey. It has been a period of transformation, disciplined execution and important strategic decisions. More importantly, it has been a period that has given us greater confidence in where we are heading. Today, I would like to take you on that journey. Let me begin with our strategy. Over the past period, we took a deliberate step back to ask ourselves a fundamental question, what should Bank Nizwa look like in the years ahead? And what role do we want to play in the future of Oman's financial sector? To answer that question, we brought together our leadership and our people had invested more than 800 hours of intense and collaborative work. We challenged assumptions, we tested our ambitions, we studied the market. We analyzed the external environment through PEST and Porter's Five Forces, and we pressure tested our strategic choices against external perspectives. This was not simply an exercise to produce a strategy document. It was about creating a clear road map for the future of Bank Nizwa, one that is aligned with Oman Vision 2040 and responsive to our regulatory environment and grounded in the evolving needs of our customers and stakeholders. And from that journey emerged a clear vision to be a reliable, responsible and relevant financial institution that benefits all stakeholders. Our mission is equally clear, to empower customers through trusted financial solutions, digital innovation and responsible banking. And underpinning everything we do are 4 core values: being Sharia-compliant, being customer-centric, being inclusive and fair and driven by integrity. These are not simply words on a page. Being Sharia-compliant means that our products, services and practices remain firmly anchored in the principles of Islamic finance. Being customer-centric means putting the customer on the heart of everything that we do and moving beyond transactions to build relationships based on trust, care and excellence. Inclusive and fair means ensuring that access to reliable and ethical financial services extends to all while treating our customers, employees and stakeholders with fairness and with respect. And integrity means doing the right thing with honesty, transparency and accountability. But the vision only becomes meaningful when it is translated into action. That is why we have developed our strategic delivery road map, which translates our strategy into a structured portfolio of initiatives across 4 perspectives. First one being financial growth; second, being customer excellence; third, being our internal processes and the fourth being learning and growth. By 2030, we aim to grow our balance sheet while maintaining strong capital adequacy, high-quality assets, robust liquidity and greater operational efficiency. Ultimately, this is about creating sustainable value for our shareholders, strengthening our equity base, supporting an attractive dividend proposition and building a stronger institution for the future. Our strategy must ultimately translate into performance. And while we recognize that there is still significant work ahead, the first half of 2026 provides a solid foundation. As of 30th of June 2026, our total assets reached approximately exceeding OMR 2 billion, representing a growth of 5% compared with the same period last year. Financing to customers increased by 2% to OMR 1.66 billion, while total shareholders' equity grew by 4% to OMR 277.6 million compared to the same period last year. Our operating performance remained positive with operating income growing by 5% to OMR 30.3 million, while operating profit increased by 4% to OMR 15.5 million compared with the first 6 months of 2025. As a management team, we do not look at our performance through one number alone. We look at the complete picture. We celebrate the progress while remaining disciplined about the areas that require further attention. Thus, our objective is not simply to deliver 1 strong quarter or 1 strong year. Our objective is to build sustainable performance. Along the way, we have also achieved a number of important milestones. One of these was our appointment as a primary dealer for International Islamic Liquidity Management Corporation. This is an important step for Bank Nizwa. It strengthens our franchise, expands our institutional relationship and gives us the opportunity to establish a stronger trading and distribution footprint in international Sukuk markets. At the same time, our total investment portfolio, including Sukuk and equity recorded strong growth, increasing by 61% from OMR 169 million at the beginning of the year to approximately OMR 272 million as of 30th of June 2026. These achievements reflect our broader ambition to deepen our capabilities and strengthen our position across the Islamic financial ecosystem. But transformation is not only about financial markets. It is also about how our customers experience Bank Nizwa every day. One of the most visible examples is our revamped mobile banking application. We did not simply redesign the application. We started with the customer. We listened to what our customers needed, redesigned the experience around those needs and delivered a new version that has already received very encouraging feedback. We have also taken another important step in our corporate banking journey through the launch of our state-of-the-art transaction banking platform and the successful migration of our customers to the new platform. Transaction banking is becoming the digital backbone of corporate financial operations, built on a robust Oracle-based infrastructure. The platform enables businesses to manage payments, collections, liquidity, reporting and connectivity through a single, secure and fully Sharia-compliant ecosystem. We have also continued to enhance our digital branch proposition by turning the branch into hybrid branch to better respond to our customer needs. For us, digital transformation is therefore not about technology for technology's sake. It is about making banking simpler, faster, more connected and more relevant to our customers. Transformation is also about how responsibly we operate. Sustainability has become an integral part of our business model, and we are increasingly embedding ESG considerations into our processes and decision-making. A good example is the digitalization of our retail account opening process. By moving away from paper-based processes and enabling digital sharing and acceptance of terms and conditions, we expect to eliminate more than 200,000 sheets of paper annually, reduce printing costs, improve turnaround time by approximately 50% and significantly reduce archiving and document transformation costs. We have also enhanced our home finance process, which is expected to improve turnaround time by approximately 67% reducing paper usage from around 10 pages per application to just 1. And sustainability is not only about reducing our environmental footprint, it is also about financing a more sustainable future. During the first half of the year, we financed 317 eco-friendly vehicles with a total financing value of approximately OMR 2.6 million. These are practical examples of how ESG can move from strategy into everyday banking. But no transformation can succeed without people. Technology can change processes, strategies can change direction, but it is our people who ultimately make transformation happen. During the first half of the year, we continued investing in Omani talent and in the development of capabilities within the Islamic finance industry. We provided 300 face-to-face training opportunities, while our upgraded lending management system now provides access to more than 90,000 training opportunities across different fields. We also launched a comprehensive AI and AI generative training program that will equip our employees and participants with practical tools and applications that can enhance operational efficiency and improve customer experience. The program brought together participants from the bank and the government sector, reflecting our commitment not only to developing our own people, but also to sharing knowledge and expertise across the wider ecosystem. Because when we talk about transformation, we are ultimately talking about transforming capabilities. While we have been transforming from within, the broader Islamic banking landscape in Oman has also been evolving. Islamic finance has become 1 of the key growth drivers of Oman's financial sector. The combined assets of Islamic banks and Islamic banking windows reached approximately OMR 10 billion by end of June 2026, representing around 18.9% of the Sultanate's total banking sector assets. It demonstrates that Islamic finance is no longer a niche segment. It is becoming an increasingly important component of Oman's financial system, supporting economic development, financial inclusion, national projects and the objectives of Oman Vision 2040. Against this backdrop, we welcome the Central Bank of Oman's recent decision to enhance the operational independence of Islamic banking windows. I would like to take this opportunity to express our sincere appreciation to the Central Bank of Oman for continued leadership and commitment to developing Oman's Islamic banking industry. This decision reflects the maturity that the Islamic banking sector has achieved and demonstrates the regulators' forward-looking approach to creating a more dynamic, resilient and competitive Islamic financial ecosystem. We believe that greater operational independence can create further opportunities for innovation, enhance competitiveness, broaden the range of Sharia-compliant financial solutions and allow institutions to respond more effectively to changing customer and market needs. It can also further strengthen the role of Islamic finance in supporting Oman's ecosystem development and contribute to establishing the Sultanate as a leading regional hub for Islamic finance. For Bank Nizwa, regulatory developments such as these are not simply changes to which we respond. They are opportunities to think ahead. They encourage us to ask how can we position Bank Nizwa to lead the next chapter of Islamic finance in Oman. It is with this mindset that we have taken a proactive strategic initiative regarding the proposed acquisition and merger of Alizz Islamic Bank into Bank Nizwa. We believe that bringing together 2 Islamic banking institutions has a potential to create greater scale, stronger capabilities, enhanced competitiveness and broader opportunities for the development of Islamic finance in Oman. Furthermore, we remain disciplined in our approach. The transaction is currently at the due diligence stage, and there are a number of regulatory, financial, legal, operational, commercial and other matters that must be carefully assessed before any further decisions are taken. We will continue to follow the appropriate regulatory and governance processes, and we will keep our stakeholders informed of any material developments. As we look towards the second half of 2026, I want to emphasize 1 important message. We are not standing still. We are taking Bank Nizwa to the next level. We are strengthening our strategy. We are investing in digital transformation. We are developing our people. We are expanding our capabilities in Islamic capital markets. We are embedding sustainability into our businesses, and we are exploring strategic opportunities that can strengthen our position for the future. We will continue to focus on disciplined execution, stronger customer relationships, operational excellence, innovation and sustainable growth because ultimately, our success will not be measured by financial numbers alone. It will be measured by the enduring value we create for every stakeholder. When we look back at the first 6 months of 2026, we see more than a collection of financial results and achievements. We see the early chapters of a larger story, a story of a bank that is becoming more ambitious, digital, sustainable, capable and more prepared to lead. Before I conclude, I would like to express my sincere appreciation to the Central Bank of Oman and all our regulators for their continued guidance and support. Also, I would like to thank our shareholders and the Board of Directors for their continued confidence and support without which many of these milestones would not have been possible. And most importantly, I would like to thank the entire Bank Nizwa family for their dedication, commitment and belief in what we are building together. Thank you. And now I would like to invite Mr. Rashid, our Head of Strategy at Bank Nizwa, to take you through our financial performance in greater detail.

Thank you. Thank you, Mr. Tariq. Welcome back, everyone, dear audience. I will be more than happy to walk you through the financial performance for the first half of 2026. Before we move forward, a slight disclaimer that this presentation is only intended to provide a general overview of Bank Nizwa as of today, I may not cover all detailed aspects. It is shared for informational purposes and should not be considered as an investment advice. We do encourage investors, stakeholders, shareholders to seek independent professional advice based on their risk appetite and their individual circumstances. Today, I will be covering 4 main areas. We will talk about Oman's macro operating environment. We will then funnel down to the banking sector overview and Bank Nizwa's newly formulated 5-year strategy. And last but not least, we will talk about Bank Nizwa's performance. After the presentation, we will open the floor for any questions the audience might have. Oman's economy has shown great signs of resilience and growth, underpinned by strong fundamentals and robust economic activity. During 2025, Oman's trade balance showed a surplus of OMR 4.6 billion, signaling a strong export market for Oman. As of December 2025, the Muscat Stock Exchange showed exceptional performance, reflecting the strength of the national economy and the success of various government initiatives. Market capitalization for MSX rose 59% since 2020, driven by the initiatives like the capital markets development program, enhanced liquidity and enhanced confidence among local and international investors. Average daily trading volume reached around OMR 20 million in 2025, making it 1 of the Gulf region's top performers in 2025. During the same year, the expected oil price was $60, and that was the basis for the budget for 2025. But the full year average for Oman's crude was actually $70 in 2025, $10 more than the state budget. As a result, we saw higher revenues and spending by the government and a shrinkage of the expected fiscal deficit, reaching OMR 480 million or in other terms, 4.3% of revenues. Moving over to Oman's 2026 budget. The assumption was the same, $60 per barrel. As of the latest results, the price of Oman's crude is around $99 and has been on a higher average trajectory than last year, which would spur more investment from the government, higher expenditure and further spurring of the basic infrastructure in Oman. Moving on from the physical side to the economic. Oman's real GDP grew 2.4% year-on-year, driven by non-oil activity and seeing the private sector playing a bigger role. We have witnessed Oman's credit rating moving to investment grade by all 3 major rating agencies as a result of continuous improvement in the state's public finances and lowering of external debt. As we embark on Oman's 11th 5-year plan from 2026 to 2030, it is important to reflect on the key indicators from the 10th 5-year plan. Major indicators include the reduction of public debt from 67% to 35% in a span of 5 years and raising foreign direct investments by more than double to reach OMR 30 billion in 2025. It is worth noting a lot of these foreign direct investments come from countries like the U.S., the U.K. and other major developed countries. On the left-hand side, we will look at some of the key government initiatives that is included in the 2026 budget. And those are the basic initiatives that the government is investing to spur the economy and create a more developed economy as we look forward towards Oman's Vision 2040. For education alone, an allotment of OMR 2.1 billion is going this year alone into education. That's going to go to the construction of 42 new public schools and the opening of a new college of law at SQU, along with more than 11,000 scholarships for young Omanis internally and externally. Health, for example, will be allocated OMR 1.3 billion this year. We will see construction of 6 new hospitals, 9 health centers and the onboarding of more than 3,700 qualified Omani personnel. On the social security and welfare side, there has been a lot of subsidies and support for the local citizens and a lot of insurance and social grants that have been given. We will see that the Muscat Expressway expansion is underway, along with road dualization projects. Last but not least, there is the great Sultan Haitham City and also Raya, which is under construction now, which should add a lot of units and attract a lot of investments and expats and investors from overseas. Moving over to the Omani banking sector. So the Omani banking sector combined charts we see here is a combination of the conventional and Islamic balance sheet and profit and loss. It is clear to see that there's been remarkable growth across different metrics, not just remarkable, but consistent. So for example, when we talk about the total sectoral credit, which has hit more than OMR 35 billion, it's almost a little less than $100 billion with a compounded annual growth rate of 4.89%. On the right-hand side, we'll see total sectoral assets hitting a CAGR of 4.82%, almost touching OMR 50 billion. On the deposit side, the growth and the momentum has actually outpacing the credit. This is a sign of ample liquidity in the market, 5.81% CAGR over the last 5 years, and a staggering 12.55% growth in the sectoral profits. This is in real OMR 576 million from OMR 319 million just 5 years ago. This is of the top 8 Omani banks operating in the Sultanate. The key message here is that the sector is very healthy. It is consistent, it is robust and is on a growth trajectory. We witnessed a strong growth momentum on both sides of the balance sheet. So here, we will break down the balance sheet and the P&L growth from conventional and Islamic sides. It is worth noting that Oman is not immune to the global economy, the local indicators and the geopolitics. So despite the strong headwinds that we are facing globally and in the region, the banking industry showed strong resilience and continues to have strong performance underpinned by solid capital, liquidity and low NPLs compared to the region. When we look at the credit for conventional banks, conventional banks alone grew 12.8% year-on-year, while deposits increased 14.2% during the same period. This trend has been holding true for several years where deposits are growing faster than credit, giving a lot of room for financing and lending growth. Credit has been driven from the private sector demand as well as GREs. On the other hand, for conventional banks, the public enterprises deposits went up 72% year-on-year. So while that might seem a bit high, those are actually the normal levels that we witnessed in 2025, first half and the second half of 2024. So they have dipped a little bit, and then it's back to the normal level. On the rial lending and deposit rates for the sector, we have seen a decline. OMR lending and deposit rates went down 15 basis points and 22 basis points, respectively. When we look at the Islamic side, Islamic banks and windows increased 8.7% to reach around OMR 10 billion in assets and almost 19% market share from the total sectoral assets. Islamic financing alone reached OMR 8 billion, a growth of 10.5% and total deposits reached 7.8%, an increase of 9.7%. Bank Nizwa is embarking on a new and exciting journey ahead. And to continue our strong positioning, we formulated a new 5-year strategy, focusing on adding value to our customers, being digitally innovative, giving back to our community, all while maintaining our unshakable Sharia values and transparency. Our vision is simple, yet clear is that we want to be a reliable, responsible and relevant institution in today's ever-evolving world. Our values remain unchanged and intact and clear on the right-hand side to be Sharia-compliant, put customer centricity at the base and focus of what we do every day, be inclusive and fair and have integrity in everything that we do. To do so, the bank has adopted the global best practice of the balance scorecard, whereby focusing on 4 key pillars on the right-hand side, the financial pillar, the customer pillar, internal processes and finally, learning and growth. From those 4 perspective pillars, certain objectives were important. And from those objectives, we came up with a long list of initiatives, and we assigned those initiatives to C-level objective owners in the organization who are responsible to deliver these objectives that will and shall deliver and take us to what we aspire to be and where we want to be by 2030. Moving over, we will talk about Bank Nizwa's performance. We are committed to delivering value add to our shareholders while maintaining a robust baseline and consistent profitability. Bank Nizwa's financing book saw a CAGR of 5.95% since 2022 with a diversified portfolio of sectors. We remain committed to playing a vital role in the economy while adhering to CBO's sectoral lending guidelines. Bank Nizwa's asset base grew 6.67%, driven by increased financing and increased wholesale and treasury activity and investments in sovereign and government Sukuk. On the deposit base, we continue to be strong and customer deposits continue to be our main driver of our funding base. From 2022 to 2025, we have added almost OMR 500 million in pure customer deposits. The marginal dip in 2026 was part of our cost control measure as we remain liquid and adequately funded. Moving over to our equity story. We have seen strong growth in our equity, supported by increased retained earnings and our issuance of mandatory convertible Sukuk. Moving over to our profitability profile. We see our operating profit increasing 3.8% year-on-year from June '25 to June '26, supported by the increase in the right-hand side on the NFI side and a slight increase in the profit or the financing portfolio. It is worth noting that our NFI has gone up 22.7% year-on-year. This is again part of the overall enterprise strategy to enhance the bank's non-funded income and therefore, increasing the ROE for the bank and the shareholder value. On the bottom left-hand side, if we look at the operating expenses, which increased 6.8%, which is in line within the industry, and we continue to invest in the bank's infrastructure, digitization efforts and our people. On the right-hand side, we do witness a decline in our net profit. Nevertheless, this is due to our prudent approach in our risk management strategy. Moving over to our funding and liquidity. So when we look at the funding mix of the bank as of June 2026, 79.3% is from customer deposits, which is very healthy and very prudent and showcases the bank's ability and the franchise and the conservative approach to the ALM funding profile. Moving over to the Basel III ratios like the liquidity coverage ratio and the net stable funding ratio, LCR and NSFR. We're at very comfortable levels. It is worth mentioning that the minimum level of Central Bank is 100% for each ratio. So as of June, LCR stood at 123% and NSFR at 185%. What does this mean? It means that the bank is liquid, adequately funded and is well positioned for future growth. It is also worth mentioning that the CASA for retail banking makes up around 64%, while it makes around 51% for corporate banking. Last but not least, our capital adequacy ratio as of June '26 is at 14.6%. 14.4% of that is Tier 1 ratio, which is very healthy from a loss absorption and our core capital. That is above the minimum CBO limits by 110 basis points or 1.1%. The key messages here is that we continue to remain liquid. We pay attention to our capital, and those are the breathing pillars for any commercial bank. With here, I conclude my presentation and open the floor for any questions from the audience. Thank you so much.

Following up on [ as left ] point if anyone has any questions, please feel free to ask.

Yes. Related to your 5-year plan for the bank, what is -- can you please quantify some of the key metrics or your KPIs towards achieving this goal, for example, like in terms of your growth, your profitability, your ROE, things like this.

Thank you so much for that question. Sure. So our financial aspirations or the key metrics that we aspire to reach in 2030 are a lot from a balance sheet perspective. There are some from a liquidity funding perspective and then some from a P&L perspective. 1, from an ROE and ROA perspective, we aim to bring our ratios in line with the industry and to increase it to the level of where we see other peer banks and regional banks operating at. Our main driver for the aspirations is the -- or the baseline is the CBO limit for a lot of them. And we continue to build on that and keeping a buffer. So we aim, for example, from a balance sheet perspective to grow at a double-digit CAGR for the next 5 years. We want our cost-to-income ratio to be in line with the industry to come down significantly, and that's the story that we have seen in the last 1 to 2 years to be -- to adopt a more leaner model and a more efficient model and increase revenue. We want our capital adequacy ratio to have ample buffer above the CBO limit. So north of 15% is the number that we want to remain at, at all times. From an efficiency perspective, we want to -- from a lending financing ratio to remain within the CBO limit and in essence to fully optimize our funding profile and deploying it into a profitable asset base.

Does anyone have any other questions or shall we conclude the session? Thank you all for attending, and we wish you a good day. Thank you very much.