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

Good afternoon, everyone, and welcome to NBO's interactive session. Today, we will be discussing the half year financial results for the period ended 30th of June 2026. [Operator Instructions] It is now my pleasure to introduce our esteemed management. We have Mr. Abdullah Al Hinai, our Chief Executive Officer; Mr. Giridhar Varadachari, our Chief Financial Officer; along with members from the finance team. Mr. Abdullah, the floor is yours.

Thank you very much. My name is Abdullah Al Hinai. I'm the Chief Executive Officer of National Bank of Oman. Thank you very much for taking time and meeting us virtually. We're going to present mainly our financial performance for the first half of 2026. I'll start with some basic slides that we always present in such forums, and then we'll be happy to take any of your questions, be it in English or in Arabic. Slide 4. A lot of the attendees who have met us or saw us would have seen this slide, but I'll not dwell on every aspect, but I'll select key elements of this slide. National Bank of Oman is the first locally incorporated bank set up in 1973. After a successful 5-year strategy that started in January of 2021, we've concluded the 5-year strategy in December of 2025. This is the first half of the first-year performance of our new 3-year strategy. Our 3-year strategy, which I have a separate slide on is basically to leverage and build up on the success of our 5-year strategy. The performance of the first half clearly indicates that we are on the right trajectory. Another Oman is the strong shareholder base. We continue to have similar as in the past, Commercial Bank of Oman continues to own approximately 5%. The owns around the 15% and then the rest are disputed amongst different shareholders. Over the past many years, we've been focusing on technology and being efficient through digital offering. We've been investing in technology, and we continue to do so. We believe that our offering through the technology space is market leading. Strong financial metrics, and we're going to talk about that in more details in the next few slides. Slide 6 and 7. Again, I'll not take you through each and every aspect of this, but I think most people would be interested in terms of how did the overall economy fared under the regional situation. Oman has been blessed with both the political and fiscal policies that it has adopted over decades and decades to help navigate the current situation. We strongly believe that Oman is well positioned to weather the storm and rather leverage and build on the opportunities that might arise. Overall, the market has been very positive. The liquidity situation continues to be ample and strong. The opportunities continues to be building while we actually see visibility -- and stronger visibility in terms of new opportunities that have been emerging for local banks to participate and build the business case. From a banking sector perspective, that's Slide #7. Again, a very strong growth. Unfortunately, we did not have the full information for the second quarter. So a lot of this information is regarding the first quarter for the banking sector, but I have some key details of Q2 as well or H1. The banking sector grew by about 13.8% in terms of loans and advances and saw a very similar growth in customer deposits by 13.6%. This clearly indicates that there is a balanced growth between loans and the liabilities, the asset side and the liability side. And the loans are funded predominantly through customer deposits. Most of the banks have -- all the banks have posted very strong performance in the mid-teens levels. Again, demonstrating a very strong and robust performance by the banking sector. Definitely, like I mentioned about the macroeconomic picture, the banking sector is well managed through a robust and supportive regulatory environment, which has been set up by the Central Bank of Oman. And we continue to benefit from those regulatory -- positive regulatory environment. The sustainability piece continues to be also a focus area for the country and for the banking sector. The government had announced the commitment of net zero by 2050. There are a number of initiatives that the government has announced and continues to announce to lead the country towards a net zero emission by the 2050. It's also part of Oman Vision of 2040, where multiple pillars of that vision directly links with the overall sustainability of development aspect. Ministry of Finance continues also to support such initiatives and the Central Bank had come up with a number of circulars since 2024 to promote sustainable and green financial practices in addition to other aspects such as financial inclusions, et cetera. Slide 9. This is, in particular, the slide about our new 3-year strategy that started in January of 2026. We call it PRIME for short. P is for profitable and sustainable growth. This is a very important aspect for us. People who have witnessed our performance since January of 2021 would have seen that we are clearly focused on profitable growth, a very disciplined approach in terms of that and ensuring that any steps that we take forward has to be a sustainable step. We continue to do that, and it's well emphasized in our 3-year strategy. How do we achieve this? Through strengthening our customer relationship. Being the oldest locally incorporated bank, we do carry a long history of relationship with different segments of the market, be it government, be it the corporate and individual. We continue to build on those and build and strengthen and deepen relationship with our customer base. Innovation and technology are key aspects, which covers the I and E of PRIME. We are accelerating our digital transformation. We are shifting and diverting a lot of our businesses away from the traditional distribution channels to more digital and technology-based channels, and this is a key focus for management in the next 3 years. The requirements of our -- the market that we operate in and specifically our customer base has been changing and emerging. The technologies that we operate with has also been changing and becoming more complex, thus ensuring that the organization does have a future-ready workforce is very key. And we're continuously looking at upskilling our talent, bringing in the right skill sets that are required for today's and tomorrow's requirements and demands. I've talked also about the technology piece, and we don't shy away from partnering. We are happy to partner. We've created a number of different ecosystems that has been well accepted by the market. We are the first bank to actually create an open API environment through the Central Bank of Oman's regulatory framework -- the framework of Sandbox. We've also launched a number of initiatives and collaborative services. On Commercial Bank of Oman, in particular, I've repeated this that we are the first Omani Commercial Bank. So we carry quite a bit of important history and legacy, and we continue to make sure that every step that we take is actually one, leveraging on that history, but ensuring that it is continuously defended and we build on it. Today, National Bank of Oman has presence in -- predominantly in Oman, but we do have a small operation in UAE, in particular, Dubai and Abu Dhabi. The Egyptian operation has completely ceased. We're in the final stages of exit formalities with the authorities in Egypt. Slide 13. This is my last slide, and then I would request Giri to take us through the financial. Just key aspect of our performance in the first half of 2026. Net profit grew by close to 15% to around QAR 39 million compared to 20 -- first half of 2025. Both our loan book as well as our deposit book has grown in a very similar fashion, about 9%. So again, clearly demonstrating ample liquidity in the market and our keenness to ensure that our funding is customer-based or customer-driven funding sources. One of the things that we are very proud about is on the net interest income side, we've been able to improve that matrix by about 12%, growing to close to QAR 60 million in the first half. Our capital adequacy continues to be quite robust. A lot of people who have been tracking us are aware that we've successfully concluded a transaction in Q4 of 2025. We carried 2 of these capital instruments for a while, and we repaid the maturing or the -- at the first call for one of the AT1s in the early part of Q2 of 2026. Impairments, although it has increased -- it looks like an increase of 38%. But again, it's just our prudency. We continue to carry slightly additional provisions from Q1. We continuously assess the situation on a continuous basis, and we take the right steps whenever it is required. In the last 5 years, there were no new names that were added to our stressed accounts. Everything continues to be moving in the right direction, and we're continuously building up ECL to ensure that we have enough margin and cushion there. With that, I will end my slide and request Giri to take us through the detailed financials.

Thank you, Abdullah. Salam Alaikum, and good afternoon to all of you. Good to see a number of familiar faces and names on the call. Before I jump into Slide #14, I will reiterate the message that we have been giving the investor community for the last 5 years. We run -- we have a clearly defined strategy. We execute on the strategy, aim to have no surprises. We aim to have a well-capitalized and liquid bank, meaning balance sheet being very strong, and that enables us to choose what we want to participate, what credits we want to participate in and drive the business in a profitable manner. So this Slide 14 talks about some of the metrics that the CEO talked about just now, which included the net interest income growing year-on-year. Clearly, in the market, cost of funds have been an issue. We are very disciplined in terms of what we pay for deposits. We have set out in the past how we manage liquidity in the bank through meeting with the businesses and the funding sources more than once a week. That's number one. The second thing I would talk about here in this slide on the left side is the cost-to-income ratio. We do invest in 3 areas, which are people, technology and the brand. We continue to do that on a regular basis. Vito, I see a question, allow me to complete these few slides, and we will take your question for sure. So you see that the cost/income ratio has been steadily improving. We see for the first half of this year, ending the year at a cost-income ratio of just around 39%. We have mentioned that we don't see this number going down further too much because of the need to continuously invest not only in sort of our people and technology, but also regulatory changes which are happening around us. Then on the return metrics, really ROA up 7 basis points. ROE slightly down because of what the CEO just talked about in terms of carrying 2 AT1s for -- there was overlap between the period of raising the AT1 in November and repaying it in -- on the first call date of 1st of April 2026. Then you see the net impairment ratio. Again, we told you that we will manage the bank to the approved strategy and execute on the approved strategy and even taking the prudent level of provisioning that is required. That broadly sums up the operating performance. A couple of more slides, and then I'll pause, maybe 4 slides and 3 slides and then I'll pause. Asset quality, again, some of the aspects that I touched about earlier. We are very conservative in terms of how we approach lending. The CEO mentioned that there were no new credit defaults during the -- or NPAs actually is the right word, during the last 5 years. That continues. Predominantly, we said we were growing in the GRE segment, but then that comes up with the challenge of the pricing, right? But we managed that well. Our loan book grew 7.1% this year and year-on-year basis, 9.3%. We have a very diversified portfolio. Clearly, we are building the provisions. The total provision as a percentage of loans is 4.2% NPL ratio, 4.4% if you remember us in the past, just hovering around the 5% mark. And then the Stage 2 loans as well in terms of number coming down, nothing major to flag out, new loans growth of loans causes that. You can see in the tables below in terms of the coverage ratio moving up from 91.7% in June 2025 to 97.1% in the first half of this year. Overall, good performance here in terms of the provisions and the growth of the loans as well. Then we go on to the standard slide around -- we may move to the next one, please. The liquidity and capital slides where we talk about how we fund the book. Our -- we talked about growing low-cost liabilities, which is primarily what we define as CASA. The CASA account for 54% of overall deposits, while term deposits account for 45%. The stable funding, we aim to have a customer deposit-led funding approach, right? Our reliance on wholesale funding remains limited. We have a very good CASA ratio of 54%, others time deposit of 45% and that ratio continues to improve. This stands us well in terms of -- in a good stead in terms of managing the cost of funds. So that's the key call out there really in terms of how we fund the book. In terms of liquid assets, we clearly set out here how the liquid asset ratio as well as the other metrics compare from a liquidity perspective. Last but not least and the most important in terms of capitalization, we have set out that we aim to be well capitalized and liquid. As you can see, in June, we were at 16.6% total CAR, we finished H1 at 17.5%. In between the 2 first halves, we raised 300 million of AT1 primarily to repay the existing or the previous AT1, which was issued in 2021 during the pandemic. This was issued at 8% at that level, a very competitive rate. The new one was issued at 6.625% issued in November -- the third week of November, used to repay the call on the first call date of April 1. That's why the movement you see and of course, the profit retention and dividend payment. So to sum up, we have a clearly defined strategy as we set out in the slide, the new 3-year program, we are a prime, which we call the strategy S is clearly defined. We are executing in the first 6 months. We are pleased with the pace of execution. We are good with our performance in terms of the improvements in profitability year-on-year and in terms of our liquidity, capital and provision coverage, et cetera. So that's really my summary, a clearly defined strategy, executing well, good set of numbers for the first half. We'll now open for comments and questions, please.

My question is specifically on your cost and ROE. So given ROE of around 8.5% to 8.7%, it's well below the cost of capital, cost of equity to be precise. So what are the initiatives taken by the management in order to bridge that gap? And how soon we can bridge that gap? That's my first question.

Where are you from? Sorry, if you can just -- maybe everyone can.

Bijoy Joy. I am from QIC Asset Management.

Yes, I'll go. So yes, good question. Yes, return on equity is below cost of capital. That is true for most banks operating here. You see if you followed our trajectory when the CEO and I started, we had a return -- 2021, our return on equity was close to 5%. Steadily, that's improved closer to the 8.9%, 8.7%. It should -- you see some more improvements. Over the medium term, we expect -- we don't issue forward-looking guidance and follow the local stock exchange requirements. Over the medium term, we see our return on equity improving to double digits. And as the sort of in a situation in terms of fiscal prudence, et cetera, the macroeconomic indicators improve, then we expect the cost of credit -- I mean, cost of equity also to hover around the 11% mark. So you should see some improvement in this space over the medium term. The cost-income ratio has come down from 55%, which is what we started to about 39.1%. We are second best in the industry. We clearly need to manage this prudently because we have a branch network here. Oman is a geographically bigger country relatively. And therefore, we don't expect the cost-income ratio in terms of -- to drop to mid or low 30s, et cetera. That's not prudent. So we are improving our income. We aim to grow. We have delivered over the last 22 quarters, delivered positive jaws, i.e., income growth surpassing expense growth. We will strive towards that in the medium term, probably reach double digits. That's my answer to your question, please.

I also at the macro level, Bijoy. Basically, that's the P in our PRIME strategy. Profitability is very key. Again, long-term trackers of National Bank of Oman would have seen the last 5.5, 6 years now, a very disciplined approach. Any steps, especially, say, on the M&A or inorganic side will only be driven by how accretive our -- that step is for shareholders. The Omani banking sector tends to hover around the 9% ROE approximately. Driven really by the largest bank in the country that is -- has a slightly higher ROE than the industry average. But most of the peers are maybe below our performance. So it is slightly a banking sector benchmark level, and we are aiming to exceed that. Like Giri mentioned, we are slowly moving towards the kind of cost of capital level. Definitely, it will not happen in a year or 2, but over the planned period is our aim. The cost-to-income ratio is, again, a focus area. Again, we are disciplined there, year-on-year improvement in the cost element. But also we need to continuously maintain adequate investments on -- especially on the technology side. There are quite a bit of upgrades that are required, regulatory mandated requirements plus the business requirements. So we continuously looking at such CapEx investment, which will maintain our leadership position on the digital side. So, in my view, probably we should be looking at around the 40%, 41% as kind of a benchmark. If we outperform that by reducing it, then great, but our aim is to ensure that we don't underinvest for the future of this organization. I hope we responded to your question.

Yes. But just a follow-up, like given the country's vision of being part of the EM and get upgraded to the EM basket, and the comparison will be with similar EM names. And they have been able to deliver on an average 12% return on equity. And there are countries which are large in geographical area. We are advancing on digitization, cross-selling and multiple levers of improving the profitability. So when compared to those peers, the return on equity is quite far, which should be -- I mean, I know within Oman, you are the second best, but for somebody who has to look at it and compare it's still -- there is a huge gap. I'm not sure what you can do to bridge that gap, but it can't be -- if that's the vision of the country, it can't be just compared to Oman.

Sure. Like you said, global investors do have options to look at different geographies, different banks for that matter. Again, my responsibility is limited to National Bank of Oman, benchmarking ourselves to -- are we very different from the market? I think we are ahead of the market, better than the market. Definitely, our aspiration is to move towards the cost of capital levels, but it will take time. We cannot overnight kind of increase and pull a lever to go to a double digit, even if it's low double-digit levels of ROE. We are inching. We are moving in the right direction, and we are quite happy in terms of the performance. In terms of net result, in terms of attracting attention, attracting investors, NBO has been quite successful, be it in its different instrument issuance -- we talked about the AT1, which has been quite widely subscribed for. We had a multiplex of a subscription there. On the share price, we've seen a substantial improvement on the share price. Again, when we started our journey, we were around 160, 170. Today, we are around the 400-plus something levels. So all in all, with better matrices, we hope that the performance will continue and the share price to continue to be better.

Anyone else has any other questions?

I think there's a question that came up in the chat box.

So from our perspective, yes, Joyce has got the next question. We'll come to you in a minute, Joyce. So guidance on important line items like, look, our ability to provide forward-looking guidance is limited. We don't necessarily put out forward-looking guidance as set out by the stock exchange here. But we've said to you that in our strategy, the prime strategy that the CEO talked about, we aim to improve the return on equity. That question just now to double digits. So -- and cost-to-income ratio, not too below this current number. Cost of risk, we are around the 30-basis points number, slightly higher because of prudency that we took in H1 took in some additional provisions. I think the current numbers are satisfactory, very satisfactory 30 basis points. And capital ratio, we put out this that we aim to work around the 16%, 16.5% total CAR and CET1 of around the 11% mark. So that's broadly where we leave this question, please.

I just add maybe a few cents. Thank you, Srikanth. Giri had mentioned in one of the slides that the focus has been predominantly on the GRE. This was a key driving -- business driver for us in the first 4 years of the journey. But slowly, we started to also pivot. Number one, the risk profile in the market has become more conducive for us to look at that, more comfortable levels. And it continues to improve year-on-year. Specifically this year, I think there is quite a high level of comfort even with the geopolitical situation in the local market. So we've been pivoting away from the GRE. GRE and sovereign tends to be the highest credit rating in any kind of country. So any model will might throw maybe slightly higher kind of ECL, plus/minus a few basis points here and there. So maybe as a result of our change in our approach as we build a business in the regular side of corporate in particular, you might see slight changes in our cost of credit there, but not to alarming level because we have a very kind of robust underwriting approach. But this should be more than compensated on improved margin, which is the NII piece that you've alluded to. Clear result of that is also reflective in the first half of 2026. And we believe this should continue. Margins on the non-GRE side tend to be much better than on the GRE side as well. And add to that, the more conducive risk profile in the market.

Srikant, I hope we've given you some flavor there. Let's go to the next question. Joyce, over to you, please. Good to see you.