Sohar International Bank SAOG ($BKSB)

Good morning, everybody. We'd like to welcome all the shareholders and the analysts and different stakeholders for their time and interest. I would like to introduce ourselves, my name is Abdul Wahid Al Murshidi. I'm the CEO of Sohar International Bank, and I have my colleague, Majid Al Busaidi, the Chief Risk Officer; and Fahad Al Zadjali, the Chief Islamic Banking Officer and our colleague, [indiscernible] the Chief Economist. We'd like to thank first, we'd like to thank all the stakeholders from the regulators, shareholders, employees and mostly the customer for their support in our mission and to achieve those results in 2025. While we are witnessing dramatic change in the geopolitical power and balances, which affect the global economy in a way which we didn't witness before, we believe that we are here in Sohar International, have the -- we are confident that our operations, balance sheet are stable and our vision and mission will be on the right track. If you allow me, we can start the presentation with Oman economic overview, which will be presented by sale. Thank you.

Thank you. Oman's GDP stands at OMR 40.5 billion or at current prices with real GDP growth of 2.9% and inflation of 0.9%, second lowest in the GCC and 9th globally. The global environment has not been without its pressures regional geopolitical dynamics have introduced a degree of uncertainty to energy markets and trade flows and the situation remains fluid with visible effects on commodity prices, supply chains and investor sentiments throughout the region. These are conditions no economy outside the Gulf [indiscernible] economy operates outside of completely in the Gulf region. Oman, however, has maintained stable fundamentals throughout. Stability is the product of the reform agenda anchored in Vision 2040, Oman's long-term national blueprints for a diversified and sustainable economy and one that has been consistently applied throughout the years. The reform is visible in the sovereign credit profile, all 3 major rating agencies, Fitch, Moody's and S&P, currently hold Oman as investment grade with a stable outlook. Debt to GDP has declined from 67.9% to 35.7% in 2025, and overall fiscal balance now stands at a positive 0.4% of GDP. The consolidation work of recent years is reflected in those numbers. Improved sovereign standing has translated directly into investor confidence. FDI net inflows are running at 11.6% of GDP against the world average of 1.3. Oman has become increasingly compelling as a destination for international capital and that is reflected in the market. The MSX 30 Index has closed up close 2025, up 28.2% year-on-year, a performance consistent with an economy that continues to attract and retain investor interest. Moving on to GDP composition. Petroleum activities account for 33.6% of GDP, while the non-hydrocarbon economy already accounts for a majority of output and broadening that base further is precisely with the 2026 budget is trying to do. Revenues are projected at OMR 11.4 billion, up 2.4% with an expenditure of OMR 12 billion , up 1.5%, producing a projected deficit of OMR 0.5 billion against the planning oil price of $60 per barrel. Within that revenue figure, net oil contributes 50% non-hydrocarbon 33 and gas 17, a composition that continues to shift in favor of the non-oil economy. Nevertheless, there still remains volatility due to the stated geopolitical uncertainty. The 11th 5-year plan covering 2026 to 2030 is the current operational framework through which Vision2040 is being delivered. Its 3 strategic sectors, digital economy, manufacturing and tourism are backed by committed capital, the 2026 investment allocations to reflect this directly. OMR 4.5 billion in government allocations, OMR 1.7 billion through OIA, OMR 1.3 billion through development and OMR 1.5 billion through Energy Development Oman. Sohar's International strategies aligned with those same pillars and sectors as Oman continues to diversify and develop our role is to be a financial partner to that growth. Thank you.

Thank you. So Sohar International being the youngest bank, commercial bank in Oman with a total asset of around $24 billion as on 31st December 2025. We completed the merger with HSBC operation in Oman in 2023. We have almost 1,700 employees, 560,000 customers, 78 branches between conventional and Islamic in addition to one branch in Saudi, and we are looking to open a office right now in Hong Kong. We are the fast-growing bank and the second largest bank in Oman. We are on the top 5 market capitalization on MSX. We have a stable Fitch ratings and Moody's which was appreciated by everybody. Our operation distributed between wholesale banking, which represents 66% and retail 15%. Our Islamic operation is 11% out of it almost 70% of the 11% in wholesale, and we have KSA branch, which represent 8% of our total assets. So with a market cap of USD 3.9 billion and authorized capital of OMR 1 billion, our share prices went to grow almost by 112% since the merger wood HSBC operation. Our major shareholders are the Royal Court Affairs, [indiscernible] and different institutions like the Second Moon and [indiscernible] investment. And the balance 50% is owned by different institutions. Next, for the financial performance, you will leave it to our colleague Craig, who were represented online. Unfortunately, he is on leave, although he will present it.

Excellent. Thank you, Abdul. Can you hear me?

Yes, it's very clear.

Excellent. Thank you very much. Good morning, ladies and gentlemen. Thank you very much for the introduction, Abdul and for the economic overview which is obviously very relevant to setting the platform and discussions going forward on the bank's performance. Maybe if we just take a moment to reflect on Page 7, the performance of the bank, noting that the HSBC merger occurred at the end of 2023. And therefore, when we're looking at balance sheet, that represents the consolidated balance sheet when we're talking about profit and loss and comparing '23, '24, '25. 2024 was the first full year recognition of the merger activities. What's important to note, too, is if we look at the compound annual growth rates the HSBC merger generated OMR 1.1 billion of loans, OMR 1.7 billion of deposits, which significantly supported the bank's liquidity and assets of OMR 2.3 billion. It's important to note, too, that the continued underlying organic growth of the bank generated additional $700 million of liabilities post the merger period in reflection of the strong liquidity and the ability of the bank to source funds. I'll move to Page 9, please. Thank you. The profit for the year of OMR 100 million was in line with last year's performance. However, the dynamics of the results are different. I'll reflect firstly, on the net interest income and the net interest income and the net profit income from Islamic, which is down $13.6 million. There are 2 drivers here. Clearly, with the increased balance sheet. We saw a positive impact from volume variance, noting our loans are up 35%. But we did see a negative impact on the rate variances, i.e., interest rate driven. The bank's cost of funds overall were slightly up. However, the story in our numbers was around the yield, which was significantly down overall due to the bank's U.S. dollar position, particularly around treasury bills, of around $1.5 billion. And as you're aware, rates sold off by about 125 basis points. There was the major driver of the reduction in the bank's yields noting also the bank has the lowest loan deposit ratio in the market, it should provide us with surplus liquidity, again, post merger. If we look at the other operating income, the increase of $21.1 million, there are 4 key components I wish to share. The first, as reflected in our financial statements was a one-off gain on the sale of Oman International sovereign bonds of $5.8 million and dividend income of $2 million. The balance of $13 million can be looked at in 2 component parts. The first is the successful story we have in terms of the growth of our asset management, global banking and market business, generating fee income across the Investment Banking, Treasury and advisory services. The remainder of the other operating income performance was in correlation with the increase in the size of the balance sheet through loan process and commitment fees, et cetera. If we move to the total operating expense base, the increase of OMR 13.1 million is reflected with an increase in our staff costs of OMR 3.2 million. There is an underlying increase in our headcount of 10%, which is supported by the recruitment of young Omani talent, creating a future platform to learn, develop within the -- so International entities. If we look at the balance of the other operating expenses, increase of OMR 10 million, I'll refer to 3 component parts in general terms. The first is IT related. The bank continues to invest in IT platforms. We saw increases in AMCs, annual maintenance contracts, license fees and communications. Another 1/3 of that increase are described as discretionary spending where the bank has invested in marketing, sponsorships and developing our international business. And the third, I'd refer to as transactional in nature which includes such costs as credit cards withholding tax, VAT or related to the significant increase in the bank's volumes. Functionally, we are to consider the OMR 13.1 million increase, OMR 3.6 million related to our continued investment in our branch in the Kingdom of Saudi Arabia, OMR 2 million in relation to the expansion of the Islamic business, OMR 5 million in relation to retail and OMR 2.5 million wholesale. If we move to the gain on bargain purchase, this is a one-off event, and it represents additional gains in relation to the HSBC merger, noting the bank had earlier reported in 2023, OMR 92 million, and this is a balance of OMR 9.2 million the bank has recognized. This is a one-off event, and as reported extensively in Note 40 of our annual financial statements. The loan impairment charges for the year were better by OMR 11.6 million, resulting in a cost of risk of 48 basis points Noting the market median for 25 was around 60 basis points. The tax benefit we see there is a one-off event. The OMR 3.5 million includes post-tax prior year post-tax return benefits as well as a deferred tax benefit we've realized on a life today basis for the Kingdom of Saudi Arabia. If I then move on to Page 10. The 2024 result is the first year of post merger, P&L. The ROE has declined due to a flat profit and an underlying OMR 130 million increase in our share capital that occurred at the end of 2024. The net interest margin for the bank has reduced to 2.0%, and I've explained the main driver for the underlying yields, noting, as I mentioned, the cost of funds remains fairly flat, although there are dynamics underlying the cost of funds as well as yields. Other operating income, I've discussed and the resulting cost income ratio has increased to 44.2%. We move to next page, please. If we consider the bank's our balance sheet, we have a reasonably simple story in terms of the mix, a OMR 1.5 billion increase in loans was significantly contributed by our growth in Kingdom, Saudi Arabia, OMR 0.5 billion. Retail was OMR 150 million. Our land was OMR 100 million. and corporate was the balance of OMR 850 million. In terms of the funding, this was funded again through OMR 1.1 billion of customer deposits and OMR 400 million of interbank Kingdom Saudi Arabia be matched its increase in assets, raising OMR 500 million as Lemek exceeded its loan growth and was able to fund OMR 200 million and our corporate book increased by OMR 400 million. The perpetual bond was the bank generated in Q4 '25 of OMR 200 million supported the bank's capital position as well as its liquidity, particularly coming into year-end. The significant increase in the interbank balance was really due to the year-end positioning for the bank to support our liquidity positions and funding loans to corporates in December in particular. Page 12, the bank has very strong capital ratios. Our common equity Tier 1 ratio of 13.5% into December compared with the market median of 12.1%. Our 16.7% Tier 1 ratio compares to a market meeting of 17.7%, and our total capital ratio of 17.3% compared to market meeting of 18.6%. The bank continues to have very strong shareholder support in terms of the bank's capital raising and the event we wish to move forward with faster or accelerated balance sheet growth. Page 13. Our funding and liquidity remains strong. Our CASA ratio of 65% compared with market median of 51 %. Our loan deposit ratio is well below the market, 84%, market media of around 103%. Net stable funding ratio of 115 is above market median of 13 and our finished the year at 186% compared to a market meeting of $158 million. On Page 14, the bank has seen rent in 2025 to OMR 64 million. And you'll note that our coverage ratio has dropped -- and that's really, as we -- as the bank has looked at its effective management overlays that it has available and looked also, therefore, at the levels of ECL that we need to book that will support our IFRS 9 modeling. Our sector concentrations are reducing over time, noting our construction sector was at a lot higher levels than what you see here today. And the bank continues to diversify across the sectors. That's all I have at this stage on the financial results, and we look forward to your questions. Thank you.

Thank you, Craig. So thank you all of you for listening to our presentation, and we'll be glad to receive your questions and inquiries.

Craig, there's a question which we will send to you about our strong loan growth while declining the margin. Maybe you can provide the details for later did, I think, in the presentation.

Yes. Sorry, I can't actually see the question. Could you maybe...

We will send it to you right now. For the second point about the 2026 and 2027, I think we don't provide any forecast for the analyst. So that's the answer it, but the details of the decline in margin and growth in loans, Craig will provide it to you.

I'm sorry, I can't receive the question.

The question is why there is a decline in the margin while there is a strong growth in loans. Just to answer I think Craig he answered it. I think we have around OMR 1.3 billion and treasury bills, which used to earn north of 5% in 2024. And in 2025, the average rate of those TV declined to around 4% or below 4% yes. We believe that we need to keep adequate liquidity. We are one of the most liquid bank in the region, and that's growth our vision in this difficult time. So in such difficult times, you need liquidity to ensure you continue your growth, and that's what we are doing.

Adding to that, I think, it is worth also noting that the growth that you have referred to in your on. In relation to the loan book of 20% year-on-year has actually materialized in the second half of the year between Q3 and Q4. So we are yet to see the total impact of that, which is expected to be a lot more visible in 2026 than 2025.

Yes, I'm just -- so thank you, Jen. I've just seen the question. Look, there are 2 sides of this. Firstly, the volume -- the increase in the volume of our loan portfolio. We look at our RAROC returns, on the additional lending that the bank is doing to generate fee income, and that will therefore enhance the banks over return. Tender margins, we do see increasing pressures on the bank's cost of funds and we are actively looking to reprice our liabilities and in line with the market. Conversely, we're also looking to support the growth initiatives in Oman as well as KSA and therefore, we're having to ensure that we have sufficient funding, and we do need to compete at the market for the funding. Likewise, on the asset side, we have seen a drop in the yields on the treasuries that appears to have plateaued, which is, therefore, supporting our position. And where we have the opportunity to reprice assets, we are also looking to do so conscious also of the environment in which we're operating, where we still have a number of our corporates who are still under stress from COVID.

Yes. I think the other question is about comparing to other banks, our investment grew by 1.6%, while the other bank's investment books grow above 30%. I think we explained that we'll continue our investment on loans or to grow our loan books mainly, which supports the Oman Vision 2040. The investment, mainly there's 2 either investment in book, which include the equity portion. I think we are doing well there. And that was clear on the other comprehensive income while the investments in treasury bills does our liquidity tools, which we will manage it based on the forecast of the interest rate and our liquidity positions.

Yes, completely. May I also add up to word that in relation to forward-looking numbers, please be advised that our Q1 results will be announced shortly on the 15th and the Q1 detailed financial statements will be published by the end of April.

The second question about what would be the normalized loan growth for the banking ahead. Of course, we don't provide the forecast, how we are part of the economy, and we are part of the Oman Vision 2040 and there are so many opportunity in the economy where we can lend with support that vision, and we'll be very selective on those opportunities and selecting the bankable opportunities. The other question, 2025, you issued OMR 200 million virtual security, while the interest winters securities -- sorry, just not clear, OMR 3.7 million in 2024. Yes, they are referring to the coupon rate of...

Yes. What you'll be seeing there is the timing of the payments on the interest. The bank fully repaid its previous Tier 1 instrument. So in prior year, you would have only seen 1 coupon payment. And the current OMR 200 million. We've just had 1 coupon payment just recently. So it's really about the timing of the coupon payments. And of course, the volume we turn about OMR 100 million versus OMR 200 million that we now have issued having repaid the original 100 million.

The second question, when the KSA branch will reach the return on equity similar to the Omani operation. We don't provide any forecast for that, but I think that will be soon. I mean, I can say within 3 years or less. Majid, the last question about the cost of credit. I'll leave it to you.

So this is, again, a question that requires or seek a forward-looking view that we do not provide here. Nonetheless, what you could probably referred to is the trend that we have been maintaining over the past years since 2020, not just since 2024. The total amount of resilience built is in excess of $1 billion that provides adequate coverage over our stressed exposures, currently standing at 134% post the classification of around OMR 63 million in 2025 loan. So what you can reasonably expect is the same amount of products applied consistently.

Yes. Sure. We will note that in the future about having the conference call on the quarterly result. We'll note that in the future. I assume there is no more question. And we'd like to thank all the investors, the analysts for their questions, their participations and their interest. And our do always will be open to welcome any queries or any questions which we can help in the future. Thank you, and looking to see you soon.