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

Good afternoon, everyone, and welcome to NBO's interactive session. This is Aisha Al Moosa, Investor Relations Officer. In today's session, we will discuss our half yearly financial results for June 2025. I will now introduce you to our management. We have Mr. Abdullah Al Hinai, our CEO; Mr. Giri, our Chief Financial Officer; Mr. [ Rashad Alta ], Head of regulatory reporting; and Mr. Swamy, Head of Business Performance; and Mr. Balaji, who's joining us remotely is Head of Capital Management and IR. Mr. Abdullah, you can start now.

Thank you very much. Pleasure to have you all on this call. Basically, our agenda is to present macroeconomic picture, operating environment, NBO and its strategy, and then Giri would take over with the specific financial performance, including the performance of the bank in the first half of this year. Please feel free to ask -- interrupt us and ask any particular question, and if you need us to speed up or slow down, do let us know please. The first key slide is the key messages that I would like to give you on this presentation. The bank has a long pedigree. It is the first locally incorporated bank established in the Sultanate of Oman with more than 50 years of experience. This means that with -- over the decades we've garnered long term relationship with different segments of the market, be it sovereign, be it government-related entities, be it local business houses as well. The bank is run with well established senior management team that the majority of them have actually been inducted in the backend of 2020 and 2021 with significant expertise in banking and knowledge of the bank. Myself, I've completed close to 28 years in banking working with local banks. The bank has embarked on a transformation journey, which started in early 2021 with a 5-year strategic road map that was approved in the fourth quarter of 2020, we come to lay down the bricks of blood, we've achieved a lot of what we've set ourselves and committed to different stakeholders over the past 5 years. This strategy is coming to conclusions by end of this year, and we are in discussion will our new 3-year strategy. Like I mentioned, the existing strategy has clearly shown it's result through either quantitative or qualitative aspect of our bank's performance from a profitability matrices, from cost-to-income ratio metrics, ROE metric is in substantial improvements over the past 5 years with a consistent performance quarter-over-quarter. Another key aspect is the sound macroeconomic picture in the country that is definitely helping us. Key aspect is that through different government programs that the government has been very successful in reining in issues that has struggled in the past. This has resulted that rating agencies cases and I see some of the rating agencies appear on the call have upgraded the Oman Bank to the investment grade ratings. We, as NBOB, we've just been recently upgraded by one of the rating agencies that brings us as well to investment grade. This particular slide, I will talk and summarize it, in particular, on the macroeconomic picture, growth is very clear and visible across oil and non-oil sectors of the market. Public debt, which was an issue has been clearly managed extremely well by the government. Today, the debt to GDP is basically around 32% down from as high as 70-plus percent years ago. The government also has focused on the social aspect, 2 years ago, they launched a new entity called the Social Protection Fund. Basically, the aim of this fund is other than managing and establishing a strong and robust retirement packages for either private sector, or public sector or even military personnel, but also started launching a number of interesting and key social protection benefits that is improving the social protection umbrella over the population as well as the salaried workforce. Some of these programs include benefits for disability, elderly persons, for youngsters below the age of 18, et cetera, maternity insurance and there are more coming there in the future. On the technological side, the country has clearly embarked on transforming itself and particularly in the banking sector, open banking and APIs have been there for some time now. But this year, a new draft -- new guidelines has been released by the Central Bank of Oman including accessing digital banks on both these aspects and we were consulted forefront of the curve here. On the environmental side, we are at the start in Oman, and we see that in some of the coming slides, has committed to net zero. We've embarked on our ESG, 2025, was the first year where listed companies had to publish full ESG report and disclosures. We are also been tasked with also launching a number of products and services in the market in the coming weeks. Next slide, this is a summary again about Oman for people who are not familiar with Oman, like I said, rating agencies have looked at Oman very positively over the past at least 12 months or to 18 months with the rating agencies upgrading Oman back to investment grade rating. Key aspect that I want to present on this slide is at the bottom right-hand side of the slide, particularly on our Oman's effort to diversify its economy away from direct oil exploration and production, which was about 51% in 2023 -- sorry 2013, today it's around 35% with more contribution from sectors like tourism, hospitality and other segments of the economy. The Omani banking sector has definitely positioned itself as a robust and well managed and well supervised sector. There is a very strong regulatory regime, supervised -- enforced by Central Bank of Oman on the local banks. As a result, Omani banks have weathered the storms of the past, in particular, the corporate situation and continues to perform reasonably well and seeing growth year-on-year on the assets, on the deposits, and improved liquidity, and reduction in overall or maintenance of recent level of NPL. On the key ratios, I would like to just highlight that the cost-to-income ratio, the average is around 43%, 44%. It might seem to be slightly higher than our peers in the region. But Oman has historically been having high cost-to-income ratio given the large geography and the need for distribution channels, in particular, branch network to serve the population that's spread across the country, Oman is the second largest country in the GCC in area perspective. I talked about the sustainability, again, in particular, CBO in October 2024 issued a circular promoting sustainable and green financial practices which basically provided regulatory requirements for climate risk management, the governance strategy and disclosures that are expected. Like I've mentioned as well, that in this year and next year, banks are to launch green products that improve sustainability in practice. This is definitely done deal and in line with the overall vision of the country and the economy in general, where Oman Vision 2040 and the net zero commitment by the country by 2050. Now look to NBO in particular, we are zooming into NBO, National Bank of Oman is the first incorporated bank in the Sultanate established in 1973, we are a listed entity on the Muscat Stock Exchange. Currently, our main operating business is in Oman with 2 branch presence in the UAE, both in Dubai and Abu Dhabi, while we are in the final leg of closure of our Egyptian branch operation, we started sometime around 30 September 2014. The shareholding has been very stable with The Commercial Bank of Qatar owning approximately 35%. This is a very long relationship that The Commercial Bank of Qatar came in about 20 years ago Suhail Salim Bahwan owns a little bit less than 15%. Again, a very historical and long-term relationship in shareholding the bank. From a rating perspective, we are rated by Moody's and Fitch, in particular Moody's have upgraded us. This is a slide that we always presented to investors. This summarizes our strategic priorities and the key pillars of our strategy. There are 3 priorities: safeguard, basically ensuring that we have a strong and robust both balance sheet and financials to ensure that we are able to weather all uncertain conditions and ensure that we maintain healthy levels of liquidity, capital and ensuring the highest quality of underwriting credit, underwriting processes. Then value creation, building on safeguarding, creation of value to enhancing revenues. So ensuring that we have the right operating model, ensuring that we have enough business lines that will generate revenues required as well as managing and optimizing costs, spending in the right places and ensuring that will reduce waste and expenditures in the wrong places, partnership is part and parcel of our business lines. And then building on the value creation is to ensure that the performance is sustained, and we invest in the long term, ensuring that it builds lasting banking capabilities through ensuring we have a very strong brand policies, digital and investing in technology in the right places and enhancing and improving skill sets for now. These are particular items that explains the different feathers of our strategies. I will not go through each one of these, but happy to take any questions that you might have, just [indiscernible]. Like I mentioned, our current strategy, the one you see in front of you will end by end of this year, and we are in the process and in discussion with our Board to our new strategic direction group. Again, we talked about ESG piece and we are committed in line with vision of the country be it through one Vision 2040 and the net zero commitments across different elements of the ESG. This is the first half financial snapshot. I'll request Giri, our CFO, to take us through this end, the historical performance of the bank.

Thank you, Abdullah. [Foreign Language] and good afternoon to all of you on the call. With your permission, I am just going straightaway down to the next slide, which talks about the financial performance and gives you the overview of where we are for the first half as well as a little bit of historic context. On the right side of the slide, you see the profitability matrices that we've achieved over the last -- from the period 2022 onwards. Likewise, the operating income contribution and the impairment numbers. You can see that we've executed well on our strategy. So as we committed. Actually, we have not put out and given, a number of you on the call have been with us through the journey, will not put out the starting point, we started off, the CEO and myself and the management team started their journey when the cost-to-income ratio is north of 55% and the written on equity below -- around the 5% mark. You can see that for the first half of this year, our cost-to-income ratio is 40.76% better than the industry cost-to-income ratio of 43%. Similarly, the ROE around the 8.8%, 9% is what I would sort of round it off yes and that improvement in the ROA as well. The NIMs here is compressed, obviously, I'll cover that in a little more detail now. Clearly, cost of funds in Oman has gone up, a number of you are aware that the currency with respect to the U.S. dollar, but the rates don't -- any increases or decreases in the rate don't translate the local economy immediately unlike some of the other economies in the region. So there's a bit of a delayed drag, and as I explained in the call for the full year results, we were impacted through an increase in the cost of funds, that's being addressed, our cost of funds in the second half of 2025 is lower than where we ended 2024 from 3.96% around 3.78%. So we've done well there, but further work remains. Our CASA issue, which I'll cover when I cover the balance sheet, but these are linked, is now above 50% again. So that's been a good story. Then you see the other piece, which is the impairment piece. I don't want you to think that our impairment number is low. That's because we have a better recovery during the first half of 2025 much better than what we had in the previous year. I'll quickly give you a few more slides on the asset quality, capital and Moosa then we can open up for questions. Given a number of you are familiar with the numbers and these numbers have been out in the public domain since 29th, I think, of June. The asset quality is very important to us. I keep repeating in the call that we look for -- we don't run the bank for a quarter. We had a 5-year strategy that we were delivering to, and as the CEO mentioned, that includes safeguarding of our asset base. So we've been very conservative in our loan growth in terms of the composition of the loan growth, 2/3 of our loan growth over the last 3 years has been primarily in the GRE segment. Here in this slide, you can see that the staging exposure or staging is given. We have a very diversified book on the left side. You see the pie chart, which is a breakdown between retail, wholesale and the financial institution group and the provisioning levels over the years. All of this is being addressed. And as I said, we don't take a short-term view of this, the CEO, myself and the CRO, have a view around executing on, and the rest of the management team, executing on the 5-year strategy, being prudently provided. And slowly but surely, we built in a reputation in the market for no surprises, steady pro forma improving year-on-year, improving our coverage ratios, reducing the NPLs, et cetera, has been our strategy coupled by focusing on the right areas of the group. That's what the summary of these slides really. I have two more slides to cover and then we can open up for questions. I keep telling you all that we believe in a fortress balance sheet. We believe that we needed to be well capitalized and liquid. That is what we've achieved, which we continue to achieve, right? You look at the comments there on the stable funding ratio, the CASA ratio at 52.8%, and our liquid assets really well. LCR at 161%, similarly the capitalization levels at 16.6%. So we are well above the Central Bank Norms. We are well capitalized and liquid. This is a key strength of ours, and we want to make sure that this is always the case. Similarly, when I talk about the cost-to-income ratio, and I'm sure you'll have some questions for me, we generally try and ensure that our income is growing faster than the expenses. So likewise, here well-capitalized liquid, we continue to be well capitalized and liquid, ready to seize any opportunities that come our way. Lastly, we have added a slide on Muzn as ever. This is just to give you a view. You know for some of us, there is demand for Islamic assets in the region, outside the region as well. So you see that our Islamic banking performance, which is a window, Muzn is a window of the bank has grown impressively. I can -- I do acknowledge that the base is smaller, but this continues to be an area of focus for us and albeit the base being small. We are focused on that. To sum up, we had a good first half, delivering on our strategy that we set out to achieve. Clearly, continuing to execute on the strategy, well-defined strategy during Q3 and Q4 is our priority. As the CEO mentioned, we are working on the strategy for the next 3 years. That will be approved by the Board in the last quarter of this year, and we hope to be able to sit down with you post the full year results to present that to yourselves and obviously take any questions that you may have. Let me open up for questions and comments from yourselves. Obviously, there's more detail on the balance sheet, in the subsequent slides, and these numbers are in U.S. dollar millions, but we don't go through them as ever. So let's open up for your questions, and thank you once again. Manish, please go ahead.

Congratulations for the track which the bank is having for the last 2 to 3 years. I have 2 questions. One on the business side and one small on the accounting side. So on the business side, I just like to have a commentary or outlook on the Stage 2 loans. So we have seen the Stage 2 loans coming down from the 20% zone to around 12%. The net Stage 2. And if I look at the period, say, 2014, '16, the good period, which was around 6% to 8% range. So do you see any trend that this should fall down to around 10% in the next 2 years because of the high frequency data points you've been monitoring on the credit portfolio? And second was on the equity capital. So I'll have that question later on the equity capital.

To give you a little bit of more details. So like you've been on the calls for now a few times as well and you've always heard us that our underwriting -- critical underwriting procedures have been strengthened over the past 5 years now. Our focus has been predominantly on high-quality book, and that's a real driver of the growth in our book so that is basically building our Stage 1. On the staging overall, we've adopted a very prudent -- a little bit on the conservative side, we hear overall kind of views by different stakeholders that they use NBO as a benchmark for how they deal with the staging and be in general and provisioning the coverage. So again, it goes back to our key strategy ensuring that robust underwriting policies over the past 5 years now, building a high-quality, high-caliber book be it here in Oman or even in UAE or even through the Muzn business.

Thank you, Abdullah Al Hinai. I think that answers most of it. Our view to provisioning and staging being more conservative than some of the other players in the industry. Obviously, you cannot share customer information. But we are aware that, for example, an exposure, which is classified as Stage 1 and some of the banks would be at Stage 2 in our numbers. We want to manage this portfolio conservatively and prudently that dictates some of it. As I mentioned, 2/3 of our growth is in the GRE segment that also has a planning on it, then the other piece that I cover is the fact that these also are dependent upon overrides and what the CRO has powers to do. We've again looked at it from a very conservative perspective, that's the reason why it is, we don't -- should it be 10%, that was part of your question as well. Should it be 10% or so, now we don't put out forward-looking guidance. But once again, to reiterate, we will continue to manage the growth in a very conservative manner in line with the risk of exchange rate, Manish.

That goes well, but not the guidance, but I just wanted to have a view on the trend with what we are, last 2 years, 3 years has been very good in terms of the underwriting and the overall scenario. Considering the macro aspects because beyond the macros, there is a limited hand at the management level to go beyond the macros. And if the trend is supporting, then, of course, we can move back to the sub 10%, that was the whole idea, thank you for that. Next question was on the equity capital. So we have been one of the few rare banks in Oman, which have not been raising equity for the last 12 to 13 years, and the CET1 has a buffer 1.6 kind of percent, but the payout ratio gets reduced because of that. So is the management having any plan or certain strategy in the next 1 year or so, considering the credit growth ahead for equity raise.

Manish, we were trying to stop you earlier on, but let me give the floor to the CEO for a bit and then I'll come back.

Yes. So I'll attempt both questions. Again, just back, I think very importantly in terms of where we see market and risks in the market, I think we are more comfortable now in terms of the risks that are there in the market, and given the underwriting policies that we've adopted over the first 5 years, I think we are more comfortable now on the market for our risk appetite perspective. So that's just that gives you an indication, but like Giridhar told you, we don't give forward-looking numbers a bit. On the question on the capital piece, we are, again, very disciplined in this part. Number one, we have a conversation on an annual basis with our Board, sometimes more frequently than once a year in terms of what is the capital required. It's very difficult to go back to the shareholders and say, give me capital when ROEs 5%, I think it's very important to demonstrate that we have a strong, robust, and sustainable ROE before we ask for capital, and again, we are very conservative on that approach.

Yes. Thank you, Abdullah. So Manish, look, we've again chatted through this. We certainly were not going to be in the camp where we pay dividends and then ask for money. So that didn't work for us. We don't do that. Having said that, yes, your point was valid that we've not had a rights or a capital raise in a long period of time. But we also told you that we are looking at the strategy for the next 3 years. As we look through the asset growth projections, et cetera, then we determine what's the optimal capital mix for the firm, for the bank and say that this is what we need, taking into account the improvement that we achieved in the ROE numbers, and some of this credibility is there with us now to be able to have those conversations, and we'll update you as we go along, okay?

Just one question on the accounting side, a small question. If I look at the balance sheet of the June 2025 on the face of it, the net asset per share is mentioned at around OMR 0.483 levels. I'm not sure how that number is because if you have equity of OMR 560 million and 1.6 billion shares, so it's not -- I think here it's on the financials which are uploaded on the MSX.

I am done with that question, we will check that number and update it in the call.

Any other questions?

No questions?

There are no further questions, you can end the call.

Manish, can you repeat your question again on the accounting piece.

Yes, yes. So we basically the net asset per share which is mentioned on the face of the balance sheet, on the balance sheet. So that mentions OMR 0.483 per share. But if I divide the OMR 560 million by 1.6 billion it comes to around OMR 0.345.

Half year or year?

This is asset per value, you got to divide the total assets by number of shares.

Net assets per share. So that's basically the shareholders' equity divided by the total outstanding shares, right? That's -- so if you look at any other banks, normally, they reduce, they don't consider the perpetual instrument as part of the shareholders equity, part of the total equity, but not part of the shareholders equity.

Which slide are you looking at? Which page are you looking at?

The balance sheet.

Balance sheet statement is on Page #7. Are you looking at that one?

Yes, the balance sheet because we get as a separate this thing on the -- from the MSX, so let me open.

Can you maybe e-mail it to us and then we'll respond to it.

Can I share it now the screen.

If you can.

Sure, let me share my screen, is the screen visible? Yes, this OMR 0.483 by the net asset per share, so the numerator would be this OMR 560 million right?

So basically OMR 785 million, which includes the PT1 capitals.

Yes. Okay. Because normally, it's the shareholders equity, right, excluding the perpetuals.

OMR 0.345.

Yes, yes.

So you are saying the rest of the banks are excluding it, we will see what the industry presentation is and then we will see, you will be getting the reporting always like this only, so, yes.

Sure. If we -- because the institutions will have their own working, but for retail looks like this NAV per share compares to the discount on the book value, it will give a wrong signal.

Okay. We can check the other presentations in the region as well, yes. Okay. Any other questions or comments? If not, then we'll close the conference.

Anyone else has any other questions? So I think that's it. We came an end to this session. I would like to thank you all for joining us today, and we would Inshallah see you on the upcoming session, Inshallah.

Thank you.

Thank you, everyone.