National Finance Company SAOG (NFCI) Earnings Call Transcript & Summary

Good afternoon, everyone. [Foreign Language]. On behalf of the Board and executive management, I'd like to welcome you to National Finance Company's Midyear Investors Meeting. My name is Wissam Al Said. I am the Chief Marketing, Communications and Sustainability Officer. I also overlook Sustainability and Investor Relations. Thank you for joining us today. We value the continued trust you place in our company. And this biannual platform is a reflection of our commitment to transparency, performance, clarity and open dialogue with you, our respective stakeholders. Today's session will provide an opportunity to discuss the financial results for the 6 months period ended 30th June 2025. These results have been disclosed on the MSX platform as well as other communication channels. This session will be conducted entirely in English. However, we are happy to do any translations if they arise. If you need any translations, please let us know. We will allocate time at the end of the session to hear your questions and inquiries. Before we proceed, let me introduce the esteemed members of the National Finance team who are present with us today. I will start with Mr. Tariq Al Farsi, our Chief Executive Officer; Mr. Rakesh Makkar, Deputy Chief Executive Officer; Mr. Bikram Monga, who's our Chief Risk Officer; Mr. Saam Al Habsi, our Chief Operations Officer; Mr. Ramkumar, our Head of Finance; and Mr. Nirosh, our Deputy Head of Finance. Our agenda will go as follows. We will start with our company overview, the industry overview and company track record, and we'll move on to key financial updates. We would like to emphasize that the main purpose of this session is to highlight the company's performance for the 6 months period ended 30th June 2025, and we do not intend to promote the company's products and/or investments in this platform. I will now hand over to our CEO, Mr. Tariq Al Farsi, to begin the session and provide his insights.

Thank you, Al Said, Wissam. I warmly welcome all of you connected online to the investor presentation for the first half of this year. National Finance -- Slide 5, National Finance continued to deliver strong results, reassuring all of our stakeholders to our commitment of growth with integrity. Our market share now stands at about 49.6% of the FLC sector and a profit of OMR 700 million in the first 6 months of 2025 this year, accounted for about 53% of the profit after tax in this sector. We continue to grow prudently, leveraging the strength of our 23-branch network, once again, the highest in the sector. Our net NPL continued to improve and now has reduced to 6%. Backed by our strong main shareholders, we will continue to -- our commitment to our stakeholders as a responsible corporate citizen of Oman. Slide 6, please. We continue to diversify our portfolio, and also supported by our 5-year strategic plan, we are well set to diversify thus further. NFC Resilience has received a global trust. We were able to arrange funding line from the International Financial Corporation, IFC, our first in Oman since many years. We were [indiscernible] in terms of credit risk, and our liquidity position remains strong to support our growth aspirations. Slide 7. In this slide, as you can see, our Chairman, Mr. Hani Zubair, continues to function as our Chairman, and Mr. Abdul Aziz Al Balushi as the Deputy Chairman of the Board. During the quarter 2, we welcomed Mr. Badar Al Shanfari to the Board, and he steps in to fill the Board position created on the resignation of our ex-Board of Director, Dr. Badar Al Shanfari. And I'm directly supported by very strong management committee, which consists of my Deputy CEO, Mr. Rakesh Makkar; the Chief Operations Officer, Mr. Saam Al Habsi; the Chief Risk Control and Strategy Officer, Mr. Bikram Monga; the Chief People Officer, of course, Ms. Marwa Al Kharusi; and Her Highness -- Chief Marketing Officer and Communication and Sustainability Officer, Her Highness Sayyida Wissam Al Said. We continue to be recognized for our good work -- next slide, please. We continue to be recognized for our good work in 2025, and we continue to deliver on the trust placed in us by our customers spread all over Oman, our investors, the regulators and all other stakeholders. With that note, I will let the team take you forward from here. Thank you very much.

The company's performance and financial highlights for the period. Industry overview and track record, National Finance is the largest nonbanking finance company in Oman, holding a market share of 49.6% as of June 2025. We have built a strong track record of over 37 years, marked by consistent growth and value creations of our stakeholders. Over the years, NFC has successfully executed several strategic milestones that you can see in here, including multiple rights issues, bond issuances, the acquisitions of Oman ORIX Leasing in 2018 and the redemptions of perpetual bonds in 2024. These actions have been reinforced of our market leadership and the financial strength. Moving on to the financial highlights. For the first half of 2025, we have delivered the top line growth of 21.7% and the net profit growth of 19.8% compared to 2024. This was mainly contributed by increasing in finance lease income and well control of the finance cost. Other income also grew due to the high transaction volumes. Operating expenses were well controlled and growing in line with the business expansions. We continue to invest in technology and customer service improvements. This has caused a reduction in cost-to-income ratio even. We have maintained a prudent approach of provisioning with a stable provision coverage despite the slightly larger portfolio. As a result of all of these, our net profit has increased in H1 2025 by 19.8% compared to the same period in 2024, demonstrating the NFC's ability to convert top line growth into the bottom-line performance. In terms of the portfolio analysis, our gross loan book has grown by 5.8% for the 9 months period, maintaining a healthy cumulative average growth rate of 9.2% over the last 5 years. Our loan book remains of high quality, supported by disciplined underwriting standards and the strong recovery process. We continue to maintain one of the lowest net NPL ratio in the industry and a stable provision coverage ratio ensuring the prudent risk management. Similarly, our net profit has remained upward during the period, supported by top line growth, strong margin management and effective cost control. Moving on to the shareholders' return and the capital structure, NFC follows a prudent capital structure, currently maintaining a gearing ratio of 3.5x, well within the CBO regulatory cap of 5x. We have delivered consistent shareholders' returns supported by healthy dividend payout and strong retentions for the growth. Our ROE remains healthy in the Oman's finance and leasing sector supported by diversified funding mix across equity bonds, deposits and the bank loans. These are the channels where you can get in touch with our Investor Relations team via phone or e-mail. And thank you very much for this. And now we can move on to the questions if the audience has any questions.

Anybody has any questions?

Yes. Mr. [ Amar ], you can start.

This is [ Amar Raje ] from Bank Muscat. Just got a slight question over here. With the current market rates where they are at the moment, has the company evaluated the opportunity to tap into the bond market or any plans for any market outreach?

In terms of our funding cost, I mean, say, we are in the stable level, and we are expecting in the short term the rate will be at the stable level for next 3 months period. But maybe going forward, we are expecting the gradual reductions in the funding cost line. In terms of the questions which you had asked about the bond issuances, we don't have any plan for the next half of the year. Maybe as per our strategic plan, we will consider. Maybe in the coming years, if we're required to do so, we will go for that one or any other funding mix opportunities which we have. We are increasing -- maybe we will look at on the other funding sources also to manage our business, like focus on the foreign currency borrowing, and we are trying to diversify our funding mix.

Basically, just also to add on this, we are strong in our liquidity position, so we don't need any -- no plans for now. That's the answer.

I mean -- and those -- as per the latest issuance, for instance, it was a perpetual bond. So in case, let's say, the upcoming year, there was an issuance, is it also going to be a perpetual bond or a fixed one?

We haven't decided yet [ Amar ] on which type of bonds we're going to have. But as I mentioned in my answer, we are still -- we are very strong in our liquidity position, so we're going to basically have it as business as usual so far. So if we have any plans, definitely, we are going to announce.

We'll give a few minutes as well if anybody else wants to come forward. More questions? Okay.

My name is Manna. I'm from United Securities. I have a few questions, if I can continue.

Yes, please.

Go ahead, please. Yes.

Go ahead.

Yes. So regarding your loan book growth, so what portion of the loan book growth is coming from auto leasing or retail? Are you seeing any stronger demand in any specific consumer segments?

We -- during the -- if you compare the last year June 2024 and this year June 2024 (sic) [ 2025 ], there was an increase around OMR 85 million approximately in our loan book. We are mainly considering now -- our strategic approach is to focus more on the retail segment rather than focusing on the corporate segment. So the main growth has come from the retail segment.

Okay. So what are your net loan book and profit targets for the coming quarters?

Our -- auto is our main businesses. We are going to diversify, as I mentioned, and -- but the thing is that we also continue to finance more products -- I mean, different products. Previously, yes, it was auto, but now we have diversified. We have different products. We have into, I mean, CDF products. We have corporate different products. We don't concentrate in one product only.

Okay. Understood. Okay. And also regarding the provision coverage, it has increased. So it's up to 84% now. So are you targeting a specific provision coverage? Or is it because of the forward-looking stress provisioning?

The significant increase in the provision is primarily due to the growth in our portfolio, as I explained to you that OMR 85 million growth in year-to-year. And we are in a prudent strategy to gradually strengthen the provision coverage over the years. So these are the main factors that we are considering going forward. Yes, you can say we have already done 80% provision coverage. This year, we have -- we are already able to achieve the 84% of provision coverage. We are not looking for a specific number or something. But what we are doing, strengthening the coverage and increasing the coverage as much as we can.

It's basically a forward-looking approach. And I think we are very comfortable with our current position for now.

Do we see any more questions? Does anybody else have any questions?

So one last question, in terms of liquidity risk, how would you manage liquidity risk in such periods of market volatility?

In terms of the liquidity risk, if you see our presentations, we have a mix -- funding mix consisting of multiple areas, like we have a short-term borrowing, long-term borrowings and also deposits and the bonds. So what we are currently doing -- earlier, we much focused on the rates. Now since the rates is becoming more like in the manageable level, now we are focusing on more of the long-term loans. As our CEO explained to you, the IFC funds, which has come, it has been a long-term maturity with some grace period. So these options we have, and we are already exploring the other options also to manage this liquidity gap what's coming in the financials.

And to add on this as well, we have an open funding lines. And as I said earlier, we remain -- we maintain reserve lines of funding, which basically takes us at least 1 year from now. So we're okay with the funding lines.

Congratulations on your results. I have one question from my side. What is your outlook for the second half of 2025? Do you expect the same momentum or a slowdown? How do you see the second half of 2025?

So in terms of business momentum, we are pretty confident that second half is going to be in the same line as first half. In fact, we are slightly more optimistic about the second half. And like our CEO explained that our focus is on diversified products for our consumer. And there's a lot of digitalization that we are doing in terms of our reach to the customers. We recently launched e-store where it's -- the customer can buy online mobile phones, and we'll be adding more products to that. And that's an instant approval, which is happening. So we are pretty optimistic that we will continue to grow our net to get more and more customers in the coming times.

So we are stable and will remain that way until the end of the year.

Sure. And is there any reasons for a very good quarter that you had in quarter 2? What was the main contributors?

So the reason for positive contribution, one is that we managed to hold the lending rates at which we thought it may drop, but the market is still taking the rates that we are offering. That was one positive. Second thing was we managed to bring down our cost of funds quite fast, and that has been one of the triggers. And I think that's a phenomenon which is across the industry as of today. And third thing is that like we spoke about, we have 23 branches, distribution network, and there's a lot of work which has gone into creating our brand awareness. There's a lot of campaigns that we do across the industry. So that's what is helping us in continuing the growth momentum and the better results that you see today. And of course, we kept a very tight leash on our cost. So cost to income dropped to 41% this year.

Can I know what is your current average cost of funds?

It's based on the funding mix actually. If I tell you that if it is a short-term loans, it's well below the -- whatever you have seen in the financial statement average. But I can say that the current average funding cost in between -- overall, considering all the funding availability, it will be around 6% to 6.25%.

There's one more question from [ Rahul ].

Congratulations on good set of numbers. I just had a couple of questions. Starting, you obviously mentioned that during this quarter, you have been able to lower your cost of funds and a slight improvement on the interest income side as well. I just wanted to know your outlook going forward. In case people expect the rates to come down in the future, would it help improve your net interest margins? Or would it shrink because obviously, your cost of funds would go down also in line with that? But, yes, the rates that you charge from your customers, I'm expecting that to go down as well. So just your outlook on the NIMs going forward, how would they react in relation to change in interest rates?

So we are pretty confident that we will be able to maintain the NIM that we put in as a plan for us. And like I was explaining, if the cost of funds go down, we will manage -- we will pass on some benefits to the customer. But end of it, for the full year, we expect that we'll maintain our NIMs at the current rates.

So we have -- yes, we do have the foreign currency borrowings. And then -- and it will come down, basically. It will come down. So we will charge competitive rates as per your question.

Right. So hoping that the NIMs would remain stable. My next question would be on the industry as a whole. How do you see the industry going forward? We have seen some stable growth in the banking sector given the very large base. Now, to compare, the FLC sector, it has a very smaller base relative to the banking sector. So how do you expect the loan book growth in the FLC sector as a whole going forward?

I think if you look at the overall Oman as a country, things are looking up for the country, and that is also getting reflected in the numbers that you see in terms of economic progress of the country. And that automatically translates into better sales for everybody, whether it's retail loans for the car or it's the SME customers coming and asking for loans to do some projects that they are getting from the market or they want to go and buy some machinery to expand their business. So we are pretty confident that this momentum will continue with the good economic conditions in the country.

Also, nearly about 50% of the industry. And that, of course, reflects that we are basically -- our growth will drive it. I hope we answered your question.

Yes. Yes. You've answered.

Yes. I've got a question over here. So looking at the great financials reported and current stock dividends, I mean, was that 6% is the dividend looking to be maybe revisited and maybe increased to 6.5%? Is that also considered or a point of, I think, to be discussed from your end?

I'm not sure 6% you are saying stock dividend.

Well, to be honest, we can't comment on year-end for now, but we will see how it goes.

Yes. It was just a question for the long term. I mean, looking at the current financials for the future, is the dividend looking to be revisited at some point?

Yes, of course. But for now, we can't comment on the year-end.

It's the Board to address it.

Yes. So we will wait. We will see how the circumstances basically comes at that time.

Of course, subject to all approvals, the shareholders and the regulators.

Any further questions from anyone? Okay. With that, I guess we will close the session. Thank you so much for your interactions and for your questions. On behalf of the team at National Finance Company, I would like to again thank you for all your presence here today and to the Muscat Stock Exchange for facilitating this session and fostering open dialogue and to our stakeholders. Keep in mind, this session was recorded and will be available for view on our YouTube channel. Should you have any further inquiries, please feel free to contact us through our Investor Relations contact that was shared earlier in the presentation, and we will be happy to accommodate. Thank you very much, and have a nice day.