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

Good afternoon, ladies and gentlemen. We hope you're able to hear us clearly. So with your permission, we will start. Welcome to this first investor submission for the year 2025. We'll take you through this brief presentation, which will be by our CFO, Mr. Ahmed El Damaty. Thereafter, we'll be happy to take your questions. So with your permission, we will start the presentation, and we'll go through that. Yes, Damaty?

Thank you, Sulaiman. Assalamu alaikum, good afternoon, everyone. I'm sorry for the delay in sharing the presentation. Firstly, I would like to remind you that this session is recorded and a copy of this recording and the presentation as well will be made available on our website after our presentation. Today's session is split in 2 parts. The first one is a presentation of our performance for the first half 2025 and it will be followed by a session dedicated for your questions for the Q&A session. The presentation will cover 3 items, which is in front of you on the screen. But as always, before we start our presentation for today, I would like to draw your attention to the disclaimer in front of you on the screen. This presentation and the following Q&A are to discuss the performance of Oman Arab Bank for the first half of 2025. It's not an invitation to buy or selling any of our product or service or securities. Also, the discussion may contain some forward-looking statements, and these are based on the currently available information. We'll start our presentation with an overview of our operating environment. And as you all know, maybe the highlight of this half, it's the upgrade of the Oman credit rating to the investment grade by Moody's which makes it the second rating agency that did so after S&P last year. On the banking sector, both credit and deposits continue to show very strong momentum, actually, especially on the credit side in the first 6 months of the year. Total credit went up by 4.8% or OMR 1.6 billion, one of the strongest growth that we have seen in the 6 months period. 62% of this increase went to the private sector. And we have also seen a strong growth in the nonresident loans, which accounted to almost 9% of this increase of OMR 143 million. The growth was noted in both conventional and the Islamic business. So conventional loans went up by almost 5% or OMR 1.3 billion, while Islamic loans went up by OMR 290 million or 4.1%. On deposits, they were up OMR 1.2 billion or 3.8% in June '25 versus December '24. The private sector deposits contributed almost 90% of this increase. They went up by OMR 1.1 billion in the first 6 months. While we have also seen a good growth in non-resident deposits of roughly OMR 200 million. Conventional deposits increased by OMR 780 million, while Islamic deposits were up by OMR 460 million. On interest rate, we saw the CBO repo remaining at 5%. It's the same level that we are seeing in December '24 and of course, all the market is waiting to see what will be the outcome of the Fed decision for the remainder of 2025. Now I will move on to Oman Arab Bank, and as you are aware, we are supported by 2 major shareholders, the first one, it's Arab Bank, which has a stake of 49%. And the second shareholder is OMINVEST, which is 51%. Our Board has 9 members, all of them have very strong experience in both the business and financial fields. We were also the second bank to be -- second oldest bank to be incorporated in Oman in 1973. And today, we are providing our activities through 68 branches, 50 of them are offering conventional banking services while 18 branches are offering Islamic banking products through our fully owned subsidiary Alizz Islamic Bank. Moving on to our financial performance. In the first half of this year, our operating profits saw a healthy growth of 12% year-on-year. We reached OMR 31 million in June 2025. Net profit reached OMR 15 million in the first half of the year, 15% up year-on-year. Our loans and service were up by 2% and 3% June '25 versus June '24, respectively. On operating expenses, it went up by 5%, mainly on staff costs and our cost-to-income ratio margin decreased from roughly 57% in June '24, to 55% in June '25. On the other side, our return on equity increased to reach 7.6% on June '25 versus 6.8% in the first half of 2024. On loans, gross loans, they were up by 2% year-on-year as I was just mentioning, of OMR 65 million. And also they were up against December '24 by roughly OMR 110 million or 3%. On deposits, we have seen also similar marginal growth of around 3% year-on-year and 2% versus December '24. And as of June 25, 54% of our deposits were in CASA accounts, which is higher than the level that we have seen in December '24, which is around 51%. We continue to enjoy good liquidity position. And our LCR was 163% as of June, and our NSFR was 109% and also on the capital side, our total capital adequacy ratio reached 16.4% in June '25 versus 15.5%. The main regulatory requirement while our CET1 ratio reached 10.5% in the same period. With that, I will stop here, and we will open the session for Q&A. And please feel free to raise your hands or unmute yourself and submit your questions.

So I'll start my questions with the decline in other income reported during the second quarter of the year. We have seen the decline. Is this something normal? Or should we see these numbers back up to the first quarter number of OMR 35 million going forward? What is your view on other income other than NOI?

Thank you. Thank you for that question. If you -- I think we should read that in line with our loan growth, while we are able to maintain a nonfund, that is basically fees-based income, more or less intact. There was some reduction in the loan processing fee and all, which was mainly due to the -- a bit of a more conservative loan book, which you have seen in the first half. While the pipeline continues to be very strong on the loan growth -- loan side. We have seen in the first half a few aggressive package by some of the competition, especially on pricing trends, which has set in some of the prepayments for us. So while we were able to maintain a good gross loan disbursement, the net to some extent, affected by this, obviously, competition. And it is in a way is also reflected in the fee income. But as I mentioned, the pipeline is strong, and we expect in the second half of this to be grow in very healthy manner.

Great. My second question relates to your net interest income. Now obviously, you mentioned that all eyes are on Fed decision. And we obviously are packed with the dollar. So our monetary policy follows the Fed decisions. Now in the event that interest rates do come down, do you expect your yield on advances to get hit immediately? Or would there be a delay? And the delay -- would that delay be beneficial to you because I'm assuming that your cost of deposits would go down in line as well? So just if you could help us understand what would be the net impact on your investment yield?

Thank you. First of all, we're all -- like the rest of the world we're also waiting with our fingers crossed as to what is going to happen on the industry front and what will be the actions from the Fed in September. Without speculating on that part, assuming if there is any reduction, definitely it's going to help all of us and all the banks, number one. There will be definitely will be a bit of time lag by the time it gets really reflected in the loan yield side. While on deposits, again, I think it should be relatively quicker compared to loan book because as you know, the deposits still in Oman are basically short term and maximum of like 1 year and rarely 2-years deposits, unlike the rest of the world, where you can have -- see a lot of long-term deposits in banks book, here is not so. So to that extent, yes, rate reduction could benefit us a bit earlier than the benefit reduction in the loan yield.

Perfect. My last question is probably the one that you have to face. When -- what's stopping Oman Arab Bank from paying out dividends? I mean your coverage is good, your capital adequacy is there on par with the sector. Your NII is good, you're generating enough profits. When should we expect the bank to start paying dividends? And what's really the hindrance in the dividend payments?

We don't want to make any forward forecast in terms of dividend or other thing. But in terms of strategy on capital adequacy, as you are aware, we are already in the market, our right issue is opening on 14th of September, which will get closed on 18th September through which we will be raising OMR 15 million. And that is definitely going to improve our CET ratio and capital adequacy ratio. In terms of the growth, as I mentioned, we see a lot of positive things happening in the economy in Oman and the country's rating upgrade, et cetera. We can start -- I can tell you that almost every week, we meet with many big corporates who are coming on with the new projects or launching new projects, et cetera. It takes time to -- we have this huge complex projects, always takes time to come to reality. But these are all very positive news for the economy and for us as well and the pipeline continues to be very strong, which will help us in showing better growth in the second half of the year. So we are very well prepared in terms of capital and to take care of these growth opportunities to take benefit of these growth opportunities.

So would it be fair to assume that the management's focus now -- right now is towards -- 100% towards growth? And then once you achieve your desired growth then the management would think about paying of dividends with cash or benefits?

Sorry, we didn't catch that. [indiscernible] can you repeat please, your question?

Yes, so I was commenting that would it be fair to assume that currently the management's focus is 100% on growth with any cash at the company that the bank generates. And we don't know until when, but suddenly -- at some point in time in the future, the management is confident that it has achieved its growth potential, only then should we be considering or expecting dividends, but we don't see that happening in the near future. Is that correct?

See if you look at the last 3 years, we have been growing very -- in a very healthy manner, almost above the industrial average if you look at our loan book growth. So the growth has always been the main driver, has always been the focus. Of course, at the same time, we were actually last 3 years, if you can see, we were building our reserves, provisioning, et cetera, to strengthen our balance sheet so that you are well prepared for any future eventualities. So -- and that growth will continue even the current year, the focus is still on that. Along with that is also what we last 2, 3 years, we focused on 2, 3 things, one is recovery in terms of stress account and all that recovery, which is really has started yielding good results on the recovery side. And the other aspect was cost reduction because we are aware that ours is one of the highest cost to income ratio in the market. And we are working aggressively towards bringing it in line with the market, cost-to-income ratio.

Any more questions, please, from anyone on the call? Okay. If there are not any questions further, we are going to close the call. Thank you so much for joining our today's session. Thank you.

Thank you.