Oman Arab Bank SAOG (OAB) Earnings Call Transcript & Summary

All right. So welcome you all to this investor presentation for the -- for the investor presentation of 2024. Thank you very much. Thank you all for attending this presentation. I will just open up and then Mr. Ahmed El Damaty will give you a presentation on our financial -- on our financials, and then we will take the questions later on. I think we'll just go to the -- because you have heard from other banks about the current economic situation and the bank's performances, and so there have been enough discussion on that. I think we'll just go to the financial statements, and then we will take the questions later on. Is that fine with everybody?

We are fine. Thanks, Sulaiman. We are fine.

Thank you very much.

Thank you.

[Foreign Language] Good afternoon, everyone, and thank you for joining today's session. Firstly, I would like to remind you that today's session is recorded and a copy of this recording will be made available in our website.

Check everybody is able to see the screen?

I think -- can you see my screen? Can you see the presentation?

Yes. If you can make it full screen, it will be good. No, it's showing -- if it's a full screen, it's fine because we can also see the agenda next slide.

I think it's full screen. Can you see -- can you not see the full screen?

Yes, it's fine. I think we are okay, then you can go ahead.

So today's session is split in 2 parts, as [ Abu-san ] mentioned, the first one, it will be the presentation and the second part of the session will be dedicated to Q&A. And the presentation -- today's presentation will cover 3 items. But just before we start, as always, I would like to draw your attention to the disclaimer in front of you, on the screen, this presentation and the following discussion are to discuss the performance of Oman Arab Bank. It's not an invitation to buy or sell any of our securities, product or services. Also, the discussion may contain some forward-looking statements, and these are based on the current available information. We'll start the presentation with a view of the operating environment. Of course, you have been through many sessions where Oman economy has been discussed, but maybe the highlights of the year of 2024 was the upgrade of Oman's rating to investment grade. For the first time after 7 years, the upgrade, of course, was led by different positive factors, but most notably the prudent fiscal management and the reduction of debt to GDP ratio. Also, the country recorded a fiscal surplus in 2024. This is for the third consecutive year, and we continue to maintain very low inflation rates, which reached 0.6% in '24, a bit down compared to '23 when it was 0.9%. On the banking sector, both credit and deposits continued to show strong momentum. On the credit side, we have seen a record growth in 2024. Total loans went up by around OMR 2 billion or [ growth of ] 6.7%. This is the highest growth in absolute terms. Around 24% of the net increase went to government and public sector, while 75% of the growth went to the private sector. We've also seen the growth in both conventional and Islamic banking. Conventional loans were up OMR 1.2 billion or 4.8%, while Islamic loans were up OMR 860 million or 14%. On deposits, following the record yields or the record growth that we have seen in 2023 when deposits went up by OMR 3.2 billion, they continued this strong growth, and we have seen OMR 2.6 billion increase in 2024 or 8.3%. Private sector deposits contributed to roughly 60% of that increase, around OMR 1.6 billion increase in the private sector deposits. Conventional deposits increased by around OMR 1.5 billion, while Islamic deposits increased by around OMR 1.2 billion. On the interest rates front, we have seen 3 rate reduction by the Fed in 2024, which appeared to be ending the tightening cycle, although the situation has changed a little bit now in 2025. The CBO policy rate, the rate stood at 5% at the end of 2024 and continued to be 5% in 2025. Now I'll move to an overview of the bank. As all of you are aware, we are supported by 2 major shareholders. The first one is Arab Bank that own 49% of the bank and 31% owned by OMINVEST. The Board has 9 members that represent all of the shareholders, and they have vast experience across business and financial fields. And on our branch number or total footprint, we have reached 68 branches as of 2024. This is 3 branches higher than what we have seen in June 2024. So we have increased our number of branches by 2 in Islamic and 1 in conventional. Of course, you are aware that we were the second locally incorporated bank in 1973. Now we move to the main agenda item, our financial performance for 2024. Our operating profit saw a very healthy growth of 11% and reached OMR 54 million in 2024. We have also seen net profit increasing to OMR 30 million in '24, and it has -- it had the highest growth of 48% across the peers. We have also seen a good growth on the loans and deposits where both of them increased by 5% year-on-year. On the cost side, we continue to maintain our approach to have a cost discipline in place, given our high cost-to-income ratio. So our total costs were only up by 1%. We are aware that our cost-to-income is a bit higher than the industry average of roughly 43%, but our cost-to-income ratio over the past years has been trending down. Also on the ROE, it increased marginally from 4.1% to 5.6% or 8% on adjusted basis if we account for the impact of the perpetual bonds. So over the last 3 years, if you have been following our performance, you will see that there is a good story around the return on equity where it increased roughly from the lowest point that we reached in 2021 around 1.5%. Now we're at 5.6%. It's lagging behind the market average, but it's trending also in the right direction. On loans and deposits, as I mentioned earlier, we saw a good growth on loans and deposits. Gross loans increased by 5% or OMR 188 million. We have seen the growth in both Islamic and conventional. Islamic financing increased by OMR 110 million, while conventional loans increased by OMR 78 million. On deposits, they were higher by 5% year-on-year, and we have seen a very healthy and good increase in CASA and now our total CASA accounts represent around 52% of total deposits. We also continue to enjoy good liquidity position where our LCR stood at 174%, while our NSFR long-term liquidity measure stood at 110%. On capital, total capital adequacy ratio stood at 16.8%, comfortably above the minimum regulatory ratio of 13.5%. We also saw our CET1 reaching 10.5%, also at a good level above the 9.5% minimum regulatory requirement. With that, I will stop here, and we'll open the session for the Q&A. Please feel free to raise your hand and submit your question.

Yes, [ Sundar ].

Sulaiman, I think it's been a while, I think I've been out of the market, but still tracking the bank closely, very much closely as a banking sector. And just want to understand because you have been relatively -- congratulations, because I saw your presentation yesterday also, it was impressed, I think, with the way the detail and it's an impressive one and great work you have been doing in terms of the performance also started improving and catching up, catching up, all the best for you. I have a couple of queries on the performance side because OAB always had its own legacy challenges. Do you see how you are cushioning in the next couple of years? Because like [ Mohammad ] was also saying your cost-to-income is way above the market, your ROE is lower than the market. Do you have any time frame or any kind of target to achieve the market reaching levels? Because we also like the stock and the stock is trading at a considerable discount to the peer group, but there is a valid reason on it, correct? Because there is some kind of performance is lacking. We want to understand how this -- because eventually, the stock will react once the performance -- we want to understand, do you have any kind of time frame? What is your targeted ROE by 2027 or something you have in your mind, which -- I know the outlook can't be shared as a CMA guidance. We would like to understand where it's heading and just to kind of high level, because here, another consideration, what we are seeing in your overall perspective is the Tier 1 capital, which is still -- you can say [ 10.5% ] is fine, but still lower on a -- when you go below closer to [ 10% ], your CBO will ask you to raise more capital. And that's also another question, which -- are you comfortable with this level of capital? Or you -- do you have any plans to do it? And how this ROE can be enhanced? One way is to lower the expenses and the other way is to grow the business. Just want to understand how are you going to tackle this to start my first question. It's a long one, but still, I just want to understand the overall perspective.

Thank you, Sundar. So see, Sundar, you say -- you mentioned about our share price. And you mentioned about our performance being very good in 2024. So probably you should start taking some actions with -- I wouldn't tell you to buy or not to buy, but you understand what I mean. So if you look at 2024's performance, if you look at the growth from top line, we have grown very, very well despite the challenges that are there in the market, despite the very big banks having bigger muscles, but we have been very, very aggressive there. So that's a very good story to tell in terms of top line performance. In terms of efficiency of our performance and if it -- if we have to do with the cost, if we have to do with -- everything in 2024 was quite good and quite efficient. So -- and you mentioned about the legacy issues. So there is a lot of things that go on into actually making the bank efficient. And the numbers demonstrate the good actions that we are taking during the last period. So apart from the current market conditions of the world economy, we are very, very optimistic and very bullish. We are in the process of relooking at our strategy for the next 3 years so that we can look at -- but if you ask me the basic questions in the next economy -- in the next strategy, we are looking at growth, aggressive growth at the top line. We are looking at being more and more efficient in the way we operate and the way we do our business. And we are looking at a very good sustainable bottom line growth. So our cost-to-income ratio will improve. Hopefully, we will have a good position to be able to give some dividends in the years to come. You mentioned about our CET1 capital. I think at the group level, we are comfortable now. The bottom line suggests that we have been efficient utilization of our capital so far. If we grow to the extent that we will have a bit of tightness in the CET1, we have very strong shareholders and I believe that at that time, they will be able to come with additional capital. But at the moment, at the group level, we are quite comfortable.

Okay. And...

Does that answer all your question or there is something...

No, just to follow up -- just to follow up because you said about the 3-year strategy. This is already approved or it's in progress to be approved for the next year?

No, it's in the progress because we will present our 3-year strategy by the end of this year. This is when our existing strategy comes to end. So if you look [Technical Difficulty] in the next -- in the third quarter of this year. Yes.

And how is the progress of the existing strategy? You have achieved your targets in terms of your KPIs? Or how is the existing strategy? Is it you achieved? Because I know I think the numbers have shown some improvement in the last 2 years. Have you achieved your previous strategy or still there is some lag, especially on the return to the shareholders, especially like whatever, there are parameters you have done well, but the parameters of the shareholders in terms of dividend, ROE still, there is not much progress has happened in the last 3, 4 years. And any updates on that?

So we have -- broadly, we have achieved our targets, Sundar. The major issue all the banks face at different levels is the after shocks of the COVID. And we are -- because of who we are, the shareholders we are representing, I think we are a little bit more aggressive in terms of taking provisions so that we can live a better life after this. So we have taken significant amount of provisions in the last 3 years. Apart from this, I just think we are talking here, if we just -- yes, I don't know -- if we stagger some of this provisioning for the next 5 years, we would be making a very, very handsome net profit. But that is not what we want. We want to be able to clean our balance sheet and we want to become a much more stronger bank that will have sustainable performance over the next few years.

If I take one last question before I give it to the others. Just if you look at the banking system also has gone through different changes in the last 4 years. And you also as part of you and the group as part of the acquisition for some time. And if you look at the current trend, you see 2 large banks, especially Bank Muscat is always the leader. Now the #2 bank has also have done a couple of acquisitions and mergers to grow up their book. And you see a bit -- with the system banking, you do see large -- couple of large banks and then you have your second tier banks with 8% to 12% market share, 3 banks in the different strategies. How do you see -- because you are in the middle of this and you see 2 giants and you're in the middle, how do you strategize? Because the market is also not -- it's growing, but still not growing. And do you see -- and also regulators is also a bit more pressure on in terms of the adequacy and all these ratios are under pressure for all the banks. Do you see how do you manage the situation? Because you have a situation of Catch-22, where you are in the middle between a larger and -- how you want to differentiate? Do you have any specific kind of approach you want to go through in the next strategy, where you will have some USP for the consumers? And how do you want to differentiate yourself in this competitive scenario?

Yes. So a number of answers, Sundar. One is that the government is -- I mean, the government, I think, from the top from his majesty himself is going around the world trying to improve the business relations with Oman. The government is looking at the banks to be partner in this, this focus that the government is doing. And we have seen that by actually the changes in the Central Bank by giving one who was our colleague who understands the banks very, very well, the top position in the Central Bank and giving him even more powers and more funds. And we have seen a lot of changes since he came in, so which are very, very positive changes. And personally, I think the merger is very, very good for the economy. Probably the 2 largest banks should be talking together about how can we double the size of this economy or how can we help the government in its ambitious vision. Also one of the things that we think while the 2 giants will -- while one bank will be busy with the merger and the bigger bank will be wondering what are they going to do with the merger and the other banks will be figuring out what -- how are they going to compete. We will be actually competing. So that's one of the things that we do. I think all the banks really put together, they are really thinking about how this landscape is going to be. And if I tell you that we have one single USP that solves all our problems, all our -- I don't think we have. But we actually have to use all the contacts that we have, all the skills that we have, all the skills of the employees we have, all the -- the connection that our employees we have, and try to be there in the market before the others and really, really be aggressive in our products and improve our service, whether it is in retail or in wholesale nonfamily. And this is what we talk about every single day here in the bank. We do not underestimate any bank. I think all the banks have got a lot of good people, a lot of good products, a lot of good systems. So we just have to try harder and harder to be there with the customer before else. And I think in the last few years, we have proven that, particularly in our -- acquiring new business and competing in corporate lending. So our growth has been quite good really. And I think we will continue to be there.

Congratulations. I think I'm with you on that. I think it's like all -- everybody has their own market and we should compete, I think. Thank you. And I leave it now, I think, thank you, and we'll meet up separately and have a long discussion. All the best for you and all the best for the team. See you then.

Come over, come over if you have more detailed questions and we can discuss.

Sure. Sure.

Not from you [Technical Difficulty]. Something we will do, you know.

Sure.

Yes. I presume all the others are on mute, so you have to unmute if you want to communicate because -- yes, anybody have questions? If there are no other questions, we will end the session for today. Thank you so much for joining.

Thank you. Yes. Thank you.

Okay. Thanks, Ahmed. Thank you, Sundar.

Thank you. Bye-bye.

Bye.