National Bank of Oman SAOG (NBOB) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to NBO's interactive session. This is Aisha Al Moosa, Investor Relations Officer. In today's session, we will discuss our financial results for the year-ended during 2024. Before we start, I would like to remind you all if you are facing any technical issues or the sound, please feel free to type them in the chat so we can assist you accordingly. Now let me introduce you to our team management. We have here Mr. Abdullah Al Hinai, our Chief Executive Officer; and Mr. Giri, our Chief Financial Officer. We also have [ Swamy from Business Performance ] and [indiscernible] from Regulatory Reporting and Mr. Balaji, Head of Investor Relations, joining us remote. And we also have Mr. [indiscernible].

Good afternoon, everyone. Thank you very much for taking time out of your schedule and joining us on today's presentation as briefed by Aisha. Basically, we can present our financial performance as of 31st December 2024 and as disclosed to the market end of January 2025. We have a very standard presentation. I'll briefly take you through the slides -- the initial slides and then my colleague Giri will be taking us into detailed financial performance. But before I start on the presentation, again, we would like to thank everyone that supported us in our journey that started in 2021 [indiscernible] been performing extremely well over the past 4 years now. We've entered in 2025 [indiscernible] 5-year strategy. And we are quite proud in terms of our achievement for the past year. 2024, we witnessed the highest profitability ever achieved by the organization in its [ 52 years ] history. This slide by the view has certain key messages that we would like to [indiscernible]. The key aspect is that we have a first Commercial Bank, locally incorporated Commercial Back and was founded in 1973. This means that we bring with us strong and long-term relationship with different segments of the market, be it local companies, government and government entities as well as individuals. We have a very strong management team. We continue to see a review the strength and expertise and knowledge of our colleagues. We continuously add new experiences as and when that is required and as demonstrated last year. Overall, we have collective experience of over 100 years in banking. Like I mentioned, in 2021, January 2021, we've embarked on a 5-year journey and the [indiscernible] of the journey is returned to prominence. We strongly believe that we've maintained and achieved a lot of the KPIs that we've set to ourselves given the challenging global macro picture as well as local damages and changes, and volatility that's been there in the market over the past 4 years. We are on the fifth year of that strategy. We believe that this year we'll continue the same pace that we've seen and witnessed over the past 4 years. We are also embarking now in terms of preparation for the new strategy. We come to the market as and when that has been approved by the stakeholders. The other aspect that I would like to also discuss here, we predominantly operate in the Oman market. Majority of our revenues come from our relationships in Oman. We believe that Oman provides a very strong macroeconomic market for us with strong stability, and we've seen rating agency [indiscernible] that aspect [indiscernible] and with one of the rating agencies actually bringing back the rating of the country back to the investment grade. We are hopeful that others will follows it. As a bank, we are proud in terms of our technologies. We continue to invest selectively in certain specific areas, we've committed to the Board and shareholders, and we go back to our past presentation to see we are committed in terms of making significant investment in technology to ensure that we market leader there. Another key set for the bank is the shareholder [indiscernible] Commercial Bank of Qatar and [ Suhail Bahwan together ] on close to 49% of the bank equity with government [indiscernible] supposed to 35% of the bank equity. So a very strong achievement at pace. We do better with their expertise and knowledge in the market [indiscernible]. Next slide please. I've seen the overall economic pressure. I think you are [indiscernible] Oman banking sector. Again, the banking sector has proven to be a quite resilient sector. Coming out of the pandemic situation, the volatile U.S. rates et cetera, and has been able to post a quite strong recovery. This slide shows the continued growth and the balance sheet and financial parameters of the Oman banking sector. Clearly, in the last 1 year, there was a stronger growth on the liability side, the deposit base vis-a-vis the growth in the loans segment showing a strong liquidity position or online banking, et cetera. CBO continue to be the main regulator for Omani banks, and there are quite active in monitoring and ensuring that it turns to a very prudent and [indiscernible]. It's important also to mention that earlier this year, beginning of 2025, there was a rate decrease issued by [indiscernible] issuing a new banking law. We are reviewing the new drop [Technical Difficulty]

As of now the EBITDA is higher, but your EBITDA would not remain the same for the next year.

[indiscernible] the governments has issued banking law which basically we are waiting for more circulars and regulations from the Central Bank of Oman. Next slide. On the sustainability, the country has embarked and has committed in terms of focus on sustainability. It is part of Oman's 2040 vision, and this slide demonstrates some of the key aspects and [indiscernible] sustainability element and [indiscernible] has embarked on that journey, and we expect that we will going to publish our first report sometime in end of Q1 or Q2 of [indiscernible] divisions. With that, I'll request Giri to take us full specific details of NBO. If there's any questions, I'm happy to take it at this stage for after Giri finishes his financial sessions.

Thank you, [indiscernible]. Good afternoon to all of you. So the first slide, Slide #10, which you see on your screen, we are familiar with. We have mentioned that we are the first Omani Commercial Bank, and started the establishment. At the end of 31 December 2024, we had 1,434 employees given its impact on the number of customers and the number of branches that we have, et cetera. On Egypt, we've mentioned that both we had the process of legal closure of the operations in Egypt. Our primary focus is Oman and [indiscernible] business with UAE. Within Oman, [indiscernible] are aware of our confidence in [indiscernible] bank approach where we do retail, wholesale, international and Islamic banking. The CEO mentioned that it has been a record year for us. This is the highest profit that this bank is reported. So you can see below in the financials, we have asset growth grew robustly, we finished to get at $3.6 billion assets in U.S. dollars to net loss of about over just over [ QAR 10 million ], and a net profit of QAR 164 million, up from QAR 151 million at the end of 2023. I will cover these numbers in the subsequent slides on the right side, you see the shareholding as well as the rating that we had. We can move to the next slide. In terms of our priorities, clearly, the 5-year strategy CEO alluded to the 5-year strategy that was created at the end of 2020, making off -- sorry, at the beginning of 2021 onwards with our first year of execution. We have now in the last year of execution on the 5-year strategy. We are working on the target plan for the next 5 years. The target plan just to very quickly recap because we have presented this more than once is basically 3 areas, balance sheet focusing on the liquidity, capital and asset quality. These are the 3 key pillars for us. For those of you who are attending these calls for the first time. In 2021 or late 2020, [indiscernible] anyone that was new for call and we did call it -- the first thing the CEO and I when we came on Board was to [indiscernible]. Capital is a very important pillar for us and liquidity as well. So you will see when I talk about our capital adequacy ratio at the end 2024 at 17.1%. We are very well capitalized, and we have liquid as set out in the balance ratios. Asset quality with an NPL ratio is sub-5%, we improve our asset quality and I'll cover that when I talk a little bit -- provide a little more color to you on [indiscernible] business model involved the 3 areas again. One is revenue [indiscernible] growing the top line is an important priority for us. When we started our 5-year journey, our cost to income ratio was about [ 51.5% ] for the year-end of 2024, we just below 42% and better than the industry as well. So to capital management of the cost base and investing wisely we've been able to achieve that. The partnership pillar required us to work more that the bank close with every division, but also with our external partners including the regulators, the stakeholders and the other investors as well as our customers approach are our partners. And the other thing we talked about was sustainability, the CEO alluded to compliance with the ESG mandate for this year. But in terms of the sustainability that we identified 3 areas which are the brand, the digital channels where we have award winning digital channel proposition. And lastly, but most importantly, are people who continue [indiscernible] focus. So that's the key priorities for us. But these are known slides for us, so I do expect overshine and we get the slide the same in each of our presentations over the last 3 years. We can move on please. Then given the focus on ESG. ESG is now an integral part of each of these pillars, whether it be liquidity, capital, asset quality or the digital channels. We'll talk about various actions within each of these pillars. Our intent will be to make this as a way of life in everything that we do. And more color on this as we set out our prior strategic plan for the next 5 years that's what we're doing. Similar slide on the next. We talked about the other pillars, whether it be people and brand, revenue, optimization and partnership. Clearly, in each of these areas is -- some of this involve the mindset change or stakeholders and our employees. We are climbing that slowly but surely, and that's what we wanted to highlight. Lastly, before I go into specific numbers slide that talks about our commitment where by -- the ESG metrics and the stand-alone ESG report would come out at the end of the quarter, in line with the MSX disclosure guidelines. We are working on that. And as I covered earlier and the CEO as well alluded, we are drawing up our map for ESG implementation and also agreeing on targets 2025 and beyond. Now obviously, you see a lot of noise around with major banks walking away from some of these goals, et cetera, we have to play and see how all of these filters in the Middle East region and what some of this is going to [indiscernible]. We're not telling that distract from us from our core goal of [ publishing internal metrics ] and disclosure report by Q1. So that was a summary of our strategy and main priorities. I want to give key financial highlights and then put a few slides around the balance sheet, P&L, asset quality, capital and liquidity and then we will pause for questions. And so the first thing I want to follow is that the profit for the year was $163.8 million, up from -- up by 8.7%. This is the highest that NBO has ever reported, number one. Number two, our assets, $13.6 million I alluded to this number earlier, up 8.7% over the last year. What are the components of the asset growth and deposit growth which was 14.4%. As the CEO mentioned, this is actual not only the NBO, but most of the banks in Oman have grown the deposits fast and fair loans. Obviously, from our perspective, from NBO's perspective, we drove the loan book in a very cautious manner later when you see the sector breakdown, you will see that our focus has been on the [indiscernible] that kind of credit. So really now opportunity there, we are very careful about growing and thoughtful in the segments and the customers that we want to go after. So clearly, those 2 aspects, both customer deposits and gross loans, which grew by 11.6% year-on-year are key items of the growth, but a straightforward balance sheet. There are no complex derivatives or anything like that on the balance sheet at all. Then the [ AT1 ] we've already taken approval for $300 million of AT1 issuance. During 2024, we completed $150 million of that issuance. Earlier, we had completed the remaining portions, so effectively this takes up our capital adequacy ratio on a CET1 basis to 11.5% and total CAR at 17.1% well above [indiscernible]. Last but not least couple of the other items probably. One is the impairment number [indiscernible] 10% direction is not because we have providing investment, as I mentioned, our growth in the -- 2/3 of our growth over the last 3 years of the [ GRE ] segment here that should reflect. Secondly, we had a good year in terms of the recoveries, which have also been able to help us to reduce the broad charge or the net charge -- net impairment charge. Fee income was a very strong story for us. We are conscious that while we chase growth, it can be all balance sheet driven. So a key focus area for [indiscernible] that's basically the headline. Let's quickly go into the other slides, and I've got 3, 4 slides at best to cover in detail and then we'll stop for Q&A. So operating profit, I covered most of these already. And then you see the first point there talking about net interest income and that coming off. That's primarily because of cost of funds -- higher cost of funds, and that's an issue not by NBO, but for the industry. But also, our focus has been on GRE exposure. I repeat 2/3 of our growth over the last 3 years have come to the GRE loan growth. These are finally priced. Our view is that we were not compromised on this in terms of asset quality, albeit the margins being slightly lower. Cost to income ratio, I covered, let me provide a little bit of color. You've seen that our cost/income ratio decreasing year-on-year, primarily not because we are not investing in the business, but we have our optimization program effectively for the last few years. We may go see every contract that we have, we are very thoughtful in terms of additional people that we hire, but [indiscernible]. We continue to invest in 3 areas. Number one, are people. Number two, our brand and branches. Number three, our technology. These are 3 areas that we are very thoughtful in terms of how we invest. We cut out and eliminated -- we have eliminated a lot of bad costs already, but we've created space in the P&L to sustain some of these investments. So in terms of mechanisms you see our return on asset, return on average equity, assets abroad, et cetera, all improving in the right direction, very importantly, of course. Then the final story I covered, basically on why it's a [ story ]. It's not because we're providing less as a beat. It's because collections were better last year and also we have the asset quality [ too, so that's why ]. So on the right side, you see the chart, which talks about the cost-to-income ratio, the ROE, ROA, et cetera, improvement in each of these [ skills ] and also talk about on the left side, bottom table gives you the composition of our income between net interest income, other operating income and also staff costs and other operating expenses. You will see that the staff cost number has remained broadly flat between '22 and '24, while we -- our other operating expenses reflect the investment that we are making in the areas that I just talked about. So we move to the next slide, a favorite slide of ours. We'll start talking about the asset quality and our 2% asset growth, mainly driven by exposure to sovereign and GRE. We have a diversified loan portfolio, clearly well diversified. Continuously, we are building our Stage 1-2-3 provisions. We look at a total provision of 4.1% NPL again, that because of reclassification of some exposures, but still below 5% net. And then the Stage 2 loans, which some have come off from 20.6% to 13.6%. You see on the right side our exposure by stages. Again, we monitor all of this, it's a very strong partnership between me as a CFO and the Chief Risk Officer and the CEO in terms of in our work approach we take for loans. Together, we work with the businesses to achieve this outcomes. That's really my color on this slide. Again, we're pleased with where we've been able to build for this bank over the last 3 years. And in one of the calls, and I'm sure this question is going to come up, we seem to be a boring bank. But perhaps so, but we don't believe in giving surprises. We want to grow steadily and in a manner being both well-capitalized and [ liquid ]. That's our framework. And that neatly leads into what I want to talk about next, which is the capital and funding and liquidity slide. And then I've got a slide on Muzn, our Islamic Bank, and then I'll stop for questions and commentary. So the -- I look at how we fund the book as is on the right side, you see that current and savings account in dollar terms comprise of 50.5% of our deposits and term deposits are 49.5%. Could this ratio be higher? Yes, perhaps, but it's not just CASA for the sake of CASA. It has to be priced attractively and you all know how the cost of funds in Oman went up over the last 18 months. And NBO is no exception. But we talked to you all about how we manage liquidity in the bank, where we have -- the CEO and I share a weekly liquidity [ sort of ] balance sheet meeting where we sit down with the businesses and look at how what rates we are bringing in the deposits, what their focus is, et cetera. That's what we do. So if you look at how we look at some of this in a prudent manner. Then we talked about liquidity ratios there in our liquid asset ratio is at 21.9%. Liquidity coverage ratio, again, LCR at 277%. So very well capitalized and liquid. I've already talked about the capitalization level, CET1 also I talked about. We are at 11.5% against the regulatory minimum of 9.5% with a 2% buffer. We do have a [ gap ] process in place, so we manage this on a very tight basis. I'll also talk to you about the [ a Tier 1 ] issuance-type [ debt ]. The issuance is, again, listed in Dublin. So we continue, the CEO and I believe that at any given point in time, we'd like to have some papers which are listed internationally. We will continue to explore further opportunities during '25 and early part of '26 to be able to be more visible to our international investors. And my last slide is on Muzn, and then I will pause. So Muzn has been an area of growth for us. Someone expressed an interest to see what we are doing in Muzn. For us, for the CEO and I, this is a particularly rewarding area. When we started our journey with NBO, we are trying to see what are the engines of growth, where are the areas of focus. So 2 areas which were at a point, struggling, one was our international operations, which is Dubai -- UAE that is, sorry, not Dubai. And the other was Muzn. So you can see from Muzn's performance then where you could see -- argue that its growth at a small base off of a small base, I do agree with that. But that said, look at on a CAGR basis what we've achieved. I think that's really good in terms of the profit as well as the profit growth is quite impressive. Small, I acknowledge, but that's an area of focus, and we continue to grow our Muzn. We've been talking about the rebranding of Muzn, you will see a fresh look in our branches, et cetera. That was my last slide on performance. Clearly, the detailed balance sheet has been given as an update. To sum up, 2024 was a record year in terms of our profit. We are well capitalized and liquid. We have clearly defined strategy on which we are executing. This is the last year of our 4-year strategy. We are working on the next 5-year strategy, and we will update investors at the right time on this after the approval of the Board, et cetera, which I expect will be in Q1 2026. That's really what I wanted to cover. I just ask if Aisha wants to add anything, and then we can open for Q&A.

And I think we covered most of the presentations. We are happy now to see if there's any questions that you may have.

[Operator Instructions]

I apologize [ for the service ] earlier. I had a question regarding the coverage of the bank. As you mentioned in the presentation, your coverage ratio has declined. So should we be expecting any accelerated costs or accelerated ocverage or any inflection both in the upcoming quarters to get your coverage back up to over 95%?

There are some elements so where we are in terms of underwriting quality, et cetera. And then maybe Giri will directly answer your question. I think it's very critical just to understand the business that in [ booking ] over the past 4 years, like I mentioned multiple times in the presentation, 2/3 of our growth has come on high-quality, high-caliber GRE, quasi-GRE exposures. That includes Muzn, at least on the [ impacting ] side as well as our operations in UAE. So that's number one. Number two, in terms of the deals and the staging of our book as well, we tend to be more on the conservative side. So you see us and certain needs that maybe we share with peers or with more aggressive in terms of any downbleed and any ECL provisioning required at any [ liquidity ] stages. Most of the changes that would have happened would have been an amalgamation from one stage to another rather than a substantial new [ liens ] that has coming into our NPD book.

Yes. Thank you, basically covered it. So our approach to provisioning has been prudent, and we set that out 4 days ago, right? We will not [ just take ] to provide when it's absolutely required. And similarly, we're not going to go extremely [ contrary ]. So that's been the good, for one. Second, the CEO covered in this topic a good point where GRE forms a big part of our growth. But particularly, the reduction in the coverage ratio at the year-end was because of the reclassification of an exporter from Stage 2 to Stage 3. Obviously, we don't list this customer names, but that exposure obviously impacted the coverage ratio. But all I will ask you to look at is just not -- coverage ratio is just one metric. It's important I think, no question. But look at the total composition of the book as well and look at -- and we're very mindful of that. We have been having to take the coverage ratio up in this quarter, not really, because we have regular [ conversations ] coming to the [ Boards ] commenting on what we're doing and our approach to provisioning. We have a good space and during -- and we will gradually put this up during this year.

So it's important that we continuously maintain the earlier prudent approach. I would like to repeat the fact there's no specifically the detailed definition that you can compare with our peers, but our proposition with peers, our conversations with regulators completed and restated that we are way advanced in terms of both identification, classification, and coverage of the different stages of [indiscernible].

Am I audible?

Yes, you are.

This is [ Vishnu Avelu ] here. Congratulations on a fantastic set of numbers. You mentioned that you embarked on this journey of the 5 years on a transformative plan, and it's -- you've seen the results. It's there for everyone to see, so congratulations on that. As you embark on the next phase, if you could just give us some sort of key milestone in terms of what's an aspirational ROE? What are some of the sort of key metrics you've spoken so often about JAWS? If you could just give us some sort of qualitative and quantitive sort of metrics, if we could sort of get some guidance over there?

So I'll take -- this is Abdullah, first of all, thank you very much for your words. You've witnessed our journey, so I hope you are quite satisfied in terms of what has happened over the past 4 years. Like I mentioned in my introduction, we are working on the new 5-year strategy. We started this process earlier this year, we moved fast-forward broadly after the [ order books ] of [ Ramaco ] and [ Shanda ]. And of course, it will have to be presented to the Board. But in terms of broad ideas or concepts, like I mentioned, our first 5 years is return to [ performance ]. We have 3 key strategic objective, which is safeguarding value creation and sustainability of that performance. This is based on the history of the organization where we were coming out of COVID. We had issues, for example, in UAE and in [indiscernible] in terms of NPA. The capital had issues in certain elements of liquidity. And we're not serving that business and cost-to-income ratio was more than 55% in end of 2020. And as you are aware, historically, the bank has gone through a cycle of 3 years of performance and then a drop for another 2 years and that works great for time. So the priorities were based on the conversation we have with the Board, the [ EPUs ] and key shareholders of the bank and what they wanted to see in the bank. Going forward, we want to position the bank in terms of preferred, and this was part of the version of the 5-year strategy. We said specific phase of the strategy is to position the bank as the preferred bank in the market. We're not saying the largest, necessarily being in size, but in terms of key efficiencies and key return on equity expectations. We are touching the 9% ROE, for example. We are working and beginning our outreach of hopefully bringing this up to double digits, hopefully not high, but on the lower end of the double-digit range. In terms of our cost-to-income ratio, our investments in technology, both on the retail banking side as well as in the corporate banking side in addition to operational back office will hopefully enable us to maintain a very strong cost-to-income ratio vis-a-vis the market here. As you are aware, the market operates on a cost-to-income ratio that ranges in the high 30%, 60%, [ 39% to 45% ]. So we always want to be in the top quartile. We're still crunching the numbers. But again, my personal wish is to be around the [ 14% ] range. There are systematic issues in their mind that will not enable us to continuously bring it -- that down. Also we are very cognizant that technology is changing quite fast, rapid changes, so we always want to maintain a leadership position there. So we want to maintain our investment piece. As long as we don't -- there's a clear business [ rush ] now behind the commercial reduction and behind it. That's broadly. In terms of market segments, we are now, we believe, that with a strong macroeconomic picture, the private sector should now increase its activities. We have seen pockets of opportunities within oil and gas, on the construction side, on the supplier side, et cetera. So we are gearing and ensuring ourselves well positioned to those segment with GRE and government to continue to be also an important segment. And as a result of the CapEx that is happening in the country, and we believe that there are more expected in the near future. The ETF side was also a little bit contributed. So again, developing our retail demand proposition and enhancing that the regulatory framework that is changing and moving quite fast. I don't know if you are aware that towards the end of January or early February, there was a new circular on the Central Bank of Oman. There's a meeting about a sector as priority sectors for banks -- for banking and basically putting minimum thresholds in terms of allocation to these sectors. We are studying that and putting appropriate strategies for those segments. There's a bit of incentive that the Central Bank has given the banks with lower risk weight allocation for different set which ranges are on 70% to 90% compared to 100% under normal [ sanctions ]. I hope that gives you a bit of flavor. I know I cannot go into detail. It's still working progress and a very early stage of that, but we are happy to engage with the community to have a conversation. And then basically, we would also want to get a feedback from the market of what's their expectation on the banking sector in general and in particular, our country.

Just one clarification. You mentioned about ROE and sort of double-digit aspiration ROE. That's adjusted ROE that you're talking about, right?

No, I look at it at the gross level itself, with the [ popular well ]. Yes, so gross level. So currently, now Oman has inched up into the investment grade. Despite that, as return, I would think cost of capital, I would have if you'd ask me 2 years ago, which you did, you did in terms of the cost of capital, I would have said it's around 13%. I'd say now it's reaching towards a 12% mark. Our first goal in the next 5 years should be returns exceeding the cost of capital. right? So that's how I look at it, [ in terms of ] [indiscernible] level. And that's it.

The only reason I ask or I mentioned the word adjusted ROE is because a seasoned banker and the team like yourselves would use the terminology of adjusted ROE in respect to what the number is or what the aspiration number is. When I, as an analyst look at ROE, I always want it to be on an adjusted basis because the perpetual interest is explicit. It has to be serviced, barring dire circumstances, which would not be ideal. So when the bank raises that money, they obviously earn some interest or some returns on that. So it only be better to report adjusted ROE in respect to what that number is. That's what. It's in a just a point

So it's quite not what the market [ should now be ]. I don't want to -- we recently [ already commented ] was regarding to the terminology in the market in particular regarding to making sure that people understand the terminology that we use, we are very conscious of that. [ not that ] we exclude it from that. But we can use that going forward vision. Thank you once again for all your support.

This is Abbas Muslemi from Vision Capital. I was wondering, Abdullah, if I can get your views on spreads. Obviously, the company's cost of funds went up in line with interest rates, and you could not pass on a large portion of that, right? So your NIMs compressed, your spreads came down. How do you see that behaving in 2025? That's my first question.

So you are right. And the cost of fund, in particular, on the dollar side has increased substantially, affecting maybe even regional markets [ not necessarily like ] [indiscernible]. But if you compare the situation in Q1 of 2024 and compare it to the year-end situation, there is a substantial improvement that has happened for 2 reasons. One, like Giri had mentioned, our asset liability management approach, and we've mentioned this a number of times in the past, we do weekly review of all [ arco ] matters because situation changes virtually on a weekly basis. For example, if we had discussion in Q4, we would have -- of 2024, we would have said there would be multiple rate cuts for 2025. But standing today, I think there is a bit of market consensus that potentially, at best, there would be only 1 rate cut. Who knows reality could be very different. We would be certainly surprised. But again, the situation changed, and we have to react to each of these kind of discussions that happen [ promptly ]. But our approach was only reduce all of our cost of fund. We've raised, on strategic and opportunistic basis, new sources of funding for us being from deposits and being from syndication and bilaterals with our counterparts on [indiscernible] -- if you see, we've reduced actually our bilateral and syndication loans to about $500 million approximately per year-end is using costs of fund there. We've taken market leadership in the loan market on the cost of fund as well. And we've reduced kind of the course or the participation in any fundraising with an open market. So we've been quite aggressively focused on the cost of fund piece. The question of passing this increased cost to customers, there were multiple opportunities to do so, but it's also, as a critical and responsible participant in this society, we didn't see it -- we didn't deem it as fit, as healthy costs because it would have been a struggle. So we've been successful in areas that we needed to do so, but we also spend on certain elements. So we make sure that, again, we do not lose market share and no affect the borrower by additional costs. But on the cost of funds, we've been quite successfully in reducing [ that piece ].

Yes, sorry, are -- you're adding something.

I think we're happy we've answered most of this point. Your point was how we expect to manage it going forward. Listen, the key question is, I think it's about effective management, something that are outside of our control. But what we are with this [ now in ] control, we manage more effectively to keep it stable, would be my view. Great question. Thank you.

And next -- the second question is aspirationally, Abdullah mentioned that cost-to-income aspiration is late 30s. So obviously, for that to happen, you need like a wider JAW ratio, right? It's happening, but I feel like the change in...

High 30s. I said the market range leans between high 30s. Our estimation is around 40%.

Yes. Okay. Got it. So for that to happen, maybe you need a bit of push from fee income, right? You already out -- because your net interest income actually came down last year, but you did very well in the fee income. So I was trying to relate it to that in terms of aspirations on the fee income side, not funded.

No, exactly. That's exactly how our escalation in fact element. We've demonstrated that last year with quite a strong growth on the nonfunded income side of the income side. And again, not simply by raising fees and charges but focusing on certain business segments like the trade side, trade finance, which is a focus area. There's a lot that we are doing there, participation in different -- taking leadership role in certain syndications, et cetera, that adds a layer of fees there. Investment banking and asset management activity is another focus area. Wealth Management and remittance is more on the retail side is also focus area. So these are kind of business lines that we want to enhance. We've achieved about 30% of total income from fees. We would want to see that inching up in the next 5 years.

Got it. Clear. I don't know if any of my colleagues asked you, I mean, NBO is top-quartile or top-decile, in fact, when it comes to adjusted ROEs. But on your coverage ratios, you're lagging your sort of bigger peers. Is your cost of risk is one of the most stable ones for the last many years? And I appreciate that. The book has moved on the cost of -- at least from the risk point of view has been consistent, your restructured loans are proof of that, the lowest in the sector. But your coverage ratio is still -- haven't inched up, they are close to the 85% level, 86% level. So what's going on? I mean, is the devil in the details? Am I missing something? Am I giving a very simplistic -- I'm taking a very simplistic view of this. I'm just understanding what's happening on the coverage side? Are you -- yes.

We touched upon that piece and as we said, we are very confident that our approach is very good. And in terms of staging of our book, we think we are maybe ahead of many of our peers in terms of how we look at we look at the asset quality piece and how we stage some of the needs. So your denominator sometimes becomes larger, and it's very difficult to then compare it to a basis with others. Maybe Giri can add?

Yes, sir. Thank you once again. We addressed this question a minute ago, but I will repeat what I said. As you look at our with the 2023 coverage ratio, it was 100%, 99.5% to be very precise. During 2024, particularly in Q4, we had to downgrade a big exposure. We clearly don't discuss customer names. It comes Stage 2 to Stage 3, but, of course, impacts coverage ratio. Having said that to [ 89% ]. It's not [ 85% ], it's [ 88.9% ], to also to add. Coverage ratio is 1 metric, a very important metric for sure, but that's not the only metric, right? So as the CEO and I mentioned, we are very comfortable and deliberate in terms of the [ coverage ]. 2/3 of our credit [ floor ] was in the GRE segment, number one. Number two, we are very prudent in terms of our staging. We've had feedback from various agencies, [indiscernible] about our staging and how insulated we are. Well, we are -- and we are both bankers [indiscernible] to bankers. Now we want to make sure that we have well-capitalized, liquid and the asset quality is robust. Then you can play around with fee income., margins, et cetera, where comfortable. The basic fundamentals need to be robust, and that's what we've achieved over the previous plan vehicles.

The other piece we've been in different form, including the annual [ MSX ] discussion is also under recovery. So it's one thing in terms of provisioning but then efforts in terms of recovering the old NPS. We've been going through old accounts et cetera, making sure that every avenue of the recovery. This has resulted, again, in the highest recovery levels in the recent past, at least will ensure that at least the bank will be very [ suppressed ], at least close to at OMR 9 million, we call it OMR 9 million. This includes accounts that have both in the UAE and Egypt, including Oman as well. And we have a team that is quite frequently visit with different geographies that we operate, ensure that every [ OEs ] and deals are [indiscernible].

And the last question, I mean, I understand that this is a Board decision and you get this all the time, that when you took over, you had a clear mandate, right? And you have executed most of that. I remember when you first took as a CEO, you had laid down a sort of path for the bank ahead. Now the question is, of course, NBO stands out from the rest of the sector when it comes to the low payout ratio. And the reason is that you wanted to sort of build up your CAR. But of course, at the same time, you're growing. Now this year, it wasn't really profitable growth from a funded income point of view, but you're still growing. Now where do you see being comfortable at CET1 going forward where you feel like you could become a little more generous with payout ratios and more in line with where the sector is right now?

We feel that we are very generous this year as well. So I was going to still be on -- so again, we want to pick the important. You see our history, we will try to reach the high dividend payout ratios of the past, right? We used to be maybe on the other side, just pre pandemic limits. It's very important for us to maintain a robust high-quality capital as well to ensure that we are able to fuel [ cash and growth ]. Our loan book has grown faster than the rest of the sector. So that requires a bit of capital there. A few elements that potentially might change, like I mentioned, the RFW, the risk weightage of certain sectors, like better fee income coming -- going forwards. And the focus on fee income will also alleviate that as well. But again, we want to make sure that the growth in the payout would be comparable to the growth of the profit numbers. So we want to match those 2 and make sure we steadily grow and move forward [ rather than ] set back on this indication problems.

Okay. Okay, I hear you. And I think one thing that you have shown is your retention ratio into ROE is effectively the long-term sort of growth rate that you can see in earnings. And at least that's keeping up pace. So you're retaining 75% of your profit. And if I multiply by that by your ROE, you seem to be growing net profits by that. So at least that's definitely a good sign. I just wanted to leave that on the table as well because, I mean, investors obviously like dividends, and I get that, but eventually, their retention is coming at the cost of growth for us, which is always good. So I just wanted to put that on the record as well. So I appreciate it.

In the past -- there was a past decision at the Board -- between us and the Board on an annual basis, a lot of challenges on both sides, et cetera. And it will be, again, a key philosophy of prudency and long-term view of the organization. And again, we want to make sure that we always reward shareholders in line with the profitability goals that we [ use ].

I mean -- this, I promise, is the last question because I don't see anyone else raising their hand. In terms of size, I've asked you this before now, this bank [ must give us ] this sort of industry behemoth with 35%. So how is it, I think asset share of 18% and who knows what's going to happen in the sector with regards to further consolidation. You as your management and this 12% market share, are you comfortable that you can play with the big boys when it comes to, let's say, if there's another consolidation and there's another large player comes in? So your value that you provide, are you comfortable that will allow you to generate profitable sort of margins, ROE or aspiration? Or is that going to become a challenge as the sector consolidates further? Because I remember your mandate you had set specifically was increase ROE, focus internally and you weren't too interested in mergers is what the sense I got talking to you over the last 3, 4 years.

[indiscernible] but for me, but we only look at opportunities that are the value-accretive for our shareholders. So we shy away, say, from kind of bidding wars, et cetera, et cetera. So there's a clear mandate from the Board that as long as it adds value to shareholders, then we can look at it. So if it is a potential destroyer, so we don't chase and grow simply for the growth sake there. For the question whether there is an opportunity, I think we believe that there is an opportunity. The last 3 years or 4 years has proven that. If you remember, when we started the journey, we were a #4 bank. If it wasn't for the M&A transaction that happened, potentially we would have been #2 bank with the market share that we have. We are -- I had a [ this is your question, I believe ] we are considered a quasi #2 in terms of a lot of aspects and especially on the corporate side and GRE side. So we do get [ pent up ] or priorities in terms of a lot of our discussions. We have been able to play a major role, [ lead ] transactions, that wasn't the case 3 or 4 years. So we believe that we are in a strong position to continue to be of relevance and prominence in the open market, regardless of size.

[Foreign Language]

[Foreign Language]

[Foreign Language]

Thank you so much, everyone, for joining us today and see you in the upcoming sessions.

Thank you, everyone, for joining.