Investor Presentation Mar 2019 - Bank Muscat · Bank Muscat Introduction Operating environment Bank Muscat business - Overview Financial Performance Annexure 2. Bank Muscat Introduction

Investor Presentation Mar 2019

1

Contents

Note: The financial information is updated as of 31 Mar 2019, unless stated otherwise.

Bank Muscat Introduction

Operating environment

Bank Muscat business - Overview

Financial Performance

Annexure

2

Bank Muscat Introduction

3

Bank Muscat at a glance

Overview

#1 Bank in Oman with a significant active customer base with ~2 millionclients and a workforce of 3,771 employees as of 31st Mar 2019.

Established in 1982, headquartered in Muscat with 169 branches acrossOman, 2 branches overseas, and 3 representative offices Fully diversified commercial bank offering corporate and retail banking

services Primarily domestic dominated operations with over 95% of operating

income generated in Oman Meethaq – pioneer of Islamic Banking services in Oman, officially

launched in January 2013 with full fledged product and servicesoffering

Listed on the Muscat Securities Market (with a market cap of USD 3,231million as of 31st Mar 2019), London Stock Exchange & Bahrain StockExchange

Ownership as of Mar 2019

Key Financials Bank Muscat Footsteps

4

In US$ Millions, unless otherwise stated Q1 2019 2018 2017 2016

Tota l Asse ts 31,112 31,917 28,959 28,104Gross Loans 24,675 24,073 22,484 21,483Deposits 20,888 21,981 19,268 19,369Ope ra ting Inc ome 302 1,160 1132 1081Net P rofit 119 466 460 459Tie r 1 17.35% 18.14% 16.87% 14.75%Tota l CAR 18.45% 19.38% 18.56% 16.90%Loa ns to De posit Ra tio 113.88% 105.63% 112.26% 106.69%

NPL Ra tio 3.10% 3.09% 2.94% 2.91%Cost/ Inc ome 41.76% 42.61% 42.22% 41.83%ROA 1.51% 1.53% 1.61% 1.64%ROE 10.68% 10.83% 11.44% 12.50%

Royal Court Affairs, 23.63

Dubai Financial Group LLC, 11.77

ONIC, 9.90

Civil Service Pension Fund,

7.55

Ministry of Defence Pension

Fund, 6.49

Public Authority for Social

Insurance, 5.13

Others, 35.53

Bank Muscat – Key Highlights

Management

Largest Bank in Oman by total assets of 35.1%, as of 28th

Feb 2019, around the size of next 3 Omani banks combined. Market Capitalisation of USD 3,231 million as at 31st Mar

2019 Largest branch network with 169 domestic branches The only bank in Oman to be designated a “D-SIB”

Strong Financial Metrics

Stable Operating Environment

Highest Government Ownership

Dominant Franchise in Oman

Highest Government Ownership among Omani Banks Royal Court Affairs: 23.63%

Significant direct and indirect Government ownership through various entities.

Stable and consistent financial performance Solid topline income growth Stable cost-to-income ratio

despite business and infrastructure expansion

Strong and sustainable profitability metrics: Operating profit 2014-2018 CAGR

of 3.9% Net profit 2014-2018 CAGR of

2.4%

Stable banking sector Prudential regulatory environment

Stable political system in the Oman with excellent diplomatic relationship in the region

Economic growth in Oman supported by increase in hydrocarbon production, strengthening and growing local demand, and discipline fiscal policy measures

Stable and experienced management with proven track record of successful organic and inorganic growth

Good corporate governance

Solid Capital Position

Strong capitalization levels offering room for substantial growth

CAR of 18.45% as of 31st Mar 2019

Stable Asset Quality

Conservative lending approach Strong risk architecture and policies Adequate asset quality metrics

5

Operating Environment

6

Sultanate of Oman – OverviewOverview

GDP Growth GDP Composition

(1) Source: National Center for Statistics (Nov ‘18), Rating Reports: Moody’s and S&P as of Apr 2019

Source: National Center for Statistics and Information, figure as of Sep 20177

Oman

SaudiArabia

UAEQatarBahrainKuwait

Source: IMF data as of Apr 2019, & National Centre for Statistics & Information as of Dec 2018

2nd Largest country in the GCC with an area covering approx. 309.5 thousand km2,strategically located, sharing borders with Saudi Arabia, & UAE.

Stable Political System, excellent diplomatic relations in the region Oman explicitly aims to create a neo-liberal free market economy, where the private sector

is the driver of the economy as opposed to the state Population of 4.66mn as of Feb 2019 - predominantly represented by Omani Nationals who

account for 56.3% of the total population The economy will continue to grow with the following drivers: The increase in hydrocarbon production The Government’s balanced support for the economy with disciplined fiscal policy

measures Strengthening and growing local demand; increasing services and activities contribution

to GDP Govt. initiated a dedicated program called “Tanfeedh” to focus on economic

diversification through focus on key sectors in phase 1 viz. manufacturing, logistics andtourism

7

Key Indicators (1) 2018 2019Sovereign Ratings Moody's\S&P Baa3/BB Ba1/BBBudget Surplus\Deficit in OMR -1.9 Bn (Nov '18) Est '-2.8 BnSurplus\Deficit % of total revenue Est -19% Est -28%Net Public Debt (% GDP) Est 50% Est 53%-55%

Petroleum Activities, 34.94%

Manufacturing & Mining, 10.26%Const., Elec. &

Water supply, 8.24%

Wholesale & retail trade, 7.25%

Hotels & Restaurants,

0.94%

Transport, storage &

communication, 5.32%

Financial Intermediation,

5.99%

Real Estate Services, 4.74%

Public admin & defence, 11.53%

Other services, 10.79%

2.8%

4.7%5.0%

‐0.9%

1.9%

1.1%

‐2.0%

‐1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2014 2015 2016 2017 Est. 2018 Est. 2019

GDP Growth %

Oman Banking Sector – OverviewOverview

The Omani banking sector comprises of 7 local banks, 2 specialized banks,9 foreign commercial banks and two full fledged Islamic Banks

The top 3 banks after bank muscat contribute around 36.6% of totalsector assets. bank muscat represents 35.1% of total banking sectorassets as of Feb 2019

Conservative and Prudent Regulator

A number of regulations and caps in place to support the growth,stability and sustainability of the Omani banking sector

Adequate asset quality with relatively low impaired assets and soundcapitalization

Implemented Basel 3 regulation with effect from Jan 2014

Loans and Deposit Growth

Gross Loan: +10.5%Deposits: +7.1%

US$ billion

Oman in the GCC banking sector context(1) Asset Quality(2)

(1) GDP data is estimated for FY 2019 (Source: World Bank, National Central Banks) Oman, KSA, UAE & Kuwait as of Feb 2019, Bahrain as of Jan 2019, & Qatar as of Dec 2018.

(2) Source: Central Banks: Oman, UAE, KSA, Qatar & Kuwait as of Mar 2019, Bahrain as of Apr 2019.

8

793

625

390

219

88 64

433

791

193138

8140

183%

79%

202%

159%

109%

160%

0%

50%

100%

150%

200%

250%

0

100

200

300

400

500

600

700

800

900

UAE Saudi Arabia Qatar Kuwait Oman Bahrain

Assets as a % of GDP

Total Assets in $ Bn GDP in $ Bn Assets as a % of GDP

Bank Muscat – Unrivalled Leading Market Position in Oman

Total Assets Gross Loans

Deposits Net Profit

Amounts in USD mn.

9

Bank Muscat – Dominant Domestic Franchise in the Region

Market Share ‐ Assets Market Share – Deposits

Asset Quality Strong CapitalizationAssets as % of Total Sector Assets Deposits as % of Total Sector Deposits

Source: GCC Central Banks. Banks’ financial Statements. (1) Information for all banks as of Dec 2017, except for NCB as of Sep 2017 & BBK as of June 2017.

18.5% 22.0% 16.0% 19.3% 18.45% 16.9% 16.1%

10

5.6%

1.9% 1.8%3.1% 3.3%

1.5%

5.9%

80.3%

106.0%145.0%

129.6%

106.0%

207.0%

123.9%

0.0%

50.0%

100.0%

150.0%

200.0%

250.0%

CBQ QNB NCB BM FAB NBK ENBDNPL/GL LLR/NPL

17.6%

20.9%14.9%

18.4% 17.4% 14.9% 14.5%

0.9%

1.1%

1.1%0.9% 1.1%

2.0% 1.6%

QNB ENBD FAB NCB BM NBK CBQTier 1 Tier 2

Bank Muscat Business Overview

11

Bank Muscat Strategy – Key Pillars

Consolidate Leading Position in Oman

Capitalize on growth opportunities in Oman

Infrastructure development projects and Government focus on economic diversification and developing tourism Omanis entering the workforce; over 45% of the population is less than 19 years old

Leverage large network of branches and other delivery channels

Platform to focus on the growth potential Cross sell opportunities among business lines and customer segments Continue to focus on customer acquisitions and retention

Focus on fee based income Scale up fee driven businesses both in the wholesale banking (transaction banking, investment banking, treasury) and personal

banking (credit card, bancassurance, private banking)

Leverage on technology and infrastructure investments

Pioneering investments in technology supporting growth plans Multiple digital banking channels for sales and services Technology driven banking to enhance customer experience and improve internal efficiency

Customer Convenience and Service Quality Innovative products and services offering Customer centric approach through “To Serve you better, everyday” philosophy

Regional Expansion Strengthen regional presence through focused and controlled expansion in GCC Leverage existing regional presence to scale up business growth Focus on opportunities for controlled expansion in GCC and the region

Focus on Islamic Banking Developments in Oman

Meethaq – Islamic banking platform Be the market leader in Islamic Banking Business Endeavor to offer full fledged products and services Expansion of branch and channel network

Financial strength

Further enhance financial strength Strong capitalization and stable returns Further enhance the diversified funding mix and large CASA deposit base. Efficient management of operating costs

12

Bank Muscat – Business Lines

Key Highlights Asset Contribution

Profit Contribution

WholesaleBanking

Corporate Banking

Leading Corporate BankFranchise offering the fullarray of corporate bankingservices

~ 6,500 corporate customersin Oman

Strong expertise in projectfinance

US$ 11.8bn

36.7% of total assets

US$ 50.5mn

42.3% of total profit

GlobalInstitutions,InvestmentBanking & Treasury

Comprise of treasury,corporate finance, and assetmanagement

Financial Institutions

US$ 6.7bn


US$ 36.4mn


PersonalBanking

Leading Retail Bank platformin Oman

~ 2 million retail customers inOman

Largest distribution network

US$ 8.5bn


US$ 40.3mn


Meethaq – Islamic Banking

OMR 65mn (c.US$167mn)capital assigned to thisbusiness

Officially launched in January2013. Currently operatingthrough 20 full fledged Islamicbranches.

US$ 3.7bn


US$ 6.3mn


International Operations

Presence in GCC, Iran andSingapore through overseasbranches, rep offices andsubsidiary

US$ 1.4bn


US$ (14.2)mn

-11.9% of total profit

Deposits

Loans & Advances

13

Ministries & Other Gov Orginisation 29%

Private Commercial24%Financial Institutions

2%

Individual & Others45%

Import Trade4.1% Export Trade

0.2%

Wholesale & Retail Trade

2.4%

Mining & Quarrying 3.6%

Construction4.0%

Real Estate 3.3%

Manufacturing6.9%

Electricity, gas and water 5.9%

Transport and Communication

9.2%


5.6%Services 13.1%

Personal Loans39.2%

Agriculture and Allied Activities

0.4%

Government0.4%

Others 1.8%

Corporate BankingOverview Opportunities Strategy

Leading Corporate Banking Franchise

Extensive and expanding range of products and services

Strong project finance capabilities

Large corporate client portfolio with c.7,200 customers and lead bank for top tier Omani corporate entities

High level of sophistication differentiated through technology led investments

Commitment to maintain strong control over asset quality

Large number of infrastructure/ Industrial projects in the pipeline

Privatisation and diversification drive by Government

Increasing business flows between Oman and regional countries

Leverage on leading position and expertise

Reinforce presence in Oman across all segments in the value chain

Benefit from large infrastructure and industrial projects in Oman

Focus fee income generating business

Transaction banking business to enhance fee income

Explore cross sell opportunities among business lines

Utilize presence in regional markets

Grow GCC trade flows share

Amounts in USD mn.

Corporate Loans- Peer comparison Asset Growth Operating Income

US$ billion

14

15.06

4.953.92 4.25

2.243.41 2.76

BankMuscat

Bank

Dho

far

NBO

Bank

Soh

ar

HSBC Oman

Ahli Bank

Oman

Arab

Bank

Wholesale Banking – Global Financial Institutions, Investment Banking & Treasury

Overview Opportunities Strategy Treasury: funding, asset and liability

management requirements, offer structured solutions to corporate clients

Corporate Finance: Leader in corporate advisory: series of successful transactions and track record outside Oman

Financial Institutions: trade, DCM and correspondent banking services

Asset Management: Largest Omani mutual fund manager with potential for growth and expanding outside Oman. Investment solutions for high net worth individuals

Significant cross-sell opportunities to other wholesale banking clients

Leverage transaction experience in attracting new corporate finance mandates

Leverage regional expansion to introduce new products

Strong growth potential in the high net worth market segment

Strengthen Bank Muscat’s leading position in specialised areas

Utilize the presence in regional markets to expand business

Leverage specialised product expertise in other markets

Leverage on expertise built to further grow the market share and increase the market potential

Amounts in USD mn.

Securities Portfolio Asset Growth Operating Income

15

Personal BankingOverview Opportunities Strategy

Leading Personal Banking Franchise in Oman Over 1.90 million customers Front-runner across retail banking

segments including cards, bancassurance and remittances

Largest delivery channel network in Oman (169 branches, 452 ATMs, 247 CDMs and the best online platform in Oman)

Substantial low cost retail deposit base Merchant acquiring market share of

over 72% by volume as of Mar 2019 and leading ecommerce business in Oman

Government spending resulting in job creation

Increase in salaries through various government initiatives

Favorable demographics

Over 45% of the population less than 19 years old

Housing finance

Leveraging on leading presence in the retail segment

Increase penetration and cross sell

Explore new business and product lines

Technology-led product development and service offerings

Enhance process efficiency and customer convenience

Focus on development and utilization of e-delivery channels

Amounts in USD mn.

Personal Loans- Peer comparison Asset Growth Operating Income

US$ billion

16

9.63

3.50 3.63

1.78 1.89 2.051.28

BankMuscat

Bank Dhofar

NBO

Ahli Bank

Oman Arab

Bank

Bank Sohar

HSBC Oman

Meethaq – Islamic Banking Overview Opportunities Strategy

One of the most successful Islamic banking operation in Oman since 2013

20 dedicated branches become operative throughout the Sultanate

Innovation in product offering and services to create niche

Established Sharia Board comprising of experienced and reputable Sharia scholars

Growth momentum continued in the second year of launch indicating potential in the market

Shari’a governance structure ensures transparent banking

Large network at disposal to leverage business

Awareness drives on Shari’a compliant banking to increase customer base

To be the market leader by far

Full fledged product and service offerings

Increase Meethaq exclusive branch network to an optimum level

Customer Centric approach and transparency

Technology driven customer service delivery within the Shari’a compliance ambit

Amounts in USD mn.

Financing Portfolio Operating Profit

17

1,6772,259 2,566

2,940 3,081

0

1,000

2,000

3,000

4,000

2015 2016 2017 2018 Q1 2019

5266 70

79

20

‐

20

40

60

80

100

2015 2016 2017 2018 Q1 2019

International Operations Overview Opportunities Strategy

Presence in GCC and Singapore

Branches in Saudi Arabia and Kuwait

Rep offices in UAE, Iran and Singapore

100% stake in Muscat Capital LLC –Saudi based, CMA licensed entity

Large banking markets in Saudi Arabia and Kuwait

Pan GCC network offering opportunities for business and trade synergies

Increasing trade/business opportunities between GCC and Asia

Efficiency: rationalization of back-office costs – sharing of operational costs

Received all regulatory approvals to proceed with representative office (non-transactional) in Iran

Focus on existing GCC operations

Solidify position and increase profitability

Drive synergies within the group

Scale up business volumes to attain desired return

Capture trade / business flows between GCC and Asia

Amounts in USD mn.

Total Assets Operating Income

18

Financial Performance

19

Operating performance & Profitability

Overview Net Interest Margins

Resilient operating performance Stable top line income growth – 5 year CAGR of

3.9% Stable cost to income ratio with marginal growth in

operating costs Strong core revenue generation with net interest

income and commission and fees contributing to over 90% of total operating income Increasing focus on top line commission and fee

income generation Stable net interest margin in spite of increasing cost

of funding.

Operating Income & Cost to Income Profitability

20

66% 65%68% 68% 68%

23% 21% 22% 22% 20%

11% 14%10% 10% 13%

41.8% 42.2% 42.6% 42.6% 41.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015 2016 2017 2018 Q1 2019

Net Interest Income Net Commission & fees

Other Income Cost to income ratio

4.03%3.85%

4.05%4.31%

4.54% 4.61%

1.30% 1.22%1.45%

1.73%2.04%

2.06%

2.73% 2.63% 2.60% 2.58% 2.50% 2.55%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

2014 2015 2016 2017 2018 Q1 2019

Yield % Cost % Spread %

Asset Quality

Overview Loan Growth

Stable loan book growth Conservative lending approach Focus on high quality assets with access to top

tier borrowers Strong project finance capabilities Diversified loan portfolio across sectors Adequate provisioning of impaired asset Conservative approach on provisioning IFRS 9 fully implemented

Gross Loans by Sector Impaired assets & Provisioning

21

Import Trade4.1% Export Trade

0.2%

Wholesale & Retail Trade

2.4%

Mining & Quarrying 3.6%

Construction4.0%

Real Estate 3.3%

Manufacturing6.9%

Electricity, gas and water 5.9%

Transport and Communication

9.2%


5.6%Services 13.1%

Personal Loans39.2%

Agriculture and Allied Activities

0.4%

Government0.4%

Others 1.8%

19,813 21,484 22,484 24,073 24,675

2.75% 2.91% 2.94% 3.09% 3.10%

8.3% 8.4%

4.7%

7.1%

2.5%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

2015 2016 2017 2018 Q1 2019

Gross loans in USD (LHS) NPL% (RHS) Loan Growth % (RHS)

Funding & Liquidity

Overview Funding Mix

Stable funding structure with a diversified funding base Largest deposit base in Oman with significant granularity

Retail deposits comprise 40% of total deposits Top 20 depositors represent 26% of total deposits and

comprise of top tier Omani institutions Strong capitalization levels

Highest CAR among Omani peers and one of strongest among GCC peers

Adequately capitalised, with total capital ratio at 18.45% and Tier 1 at 17.35%, above the minimum regulatorylevels of 13.575% and 11.575% respectively.

Liquid Assets Capital Adequacy Ratio

22

Annexures

23

Balance sheet

24

Amounts in USD 31‐Mar‐19 31‐Dec‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15Cash and bal. with Central Bank 1,868 3,394 2,428 2,705 6,265Due from banks 1,418 1,236 1,538 1,368 2,575Loans and Advances 20,766 20,334 19,113 18,447 17,391Islamic financing receivables 3,021 2,884 2,520 2,221 1,649Non trading investments 3,283 3,298 2,668 2,748 3,944Tangible fixed assets 205 181 187 194 199Other assets (incl. invt in associates) 551 590 505 422 560Total assets 31,112 31,917 28,959 28,104 32,583

Bank deposits/FRNs /Bonds 4,086 3,701 3,478 3,157 7,924Customer deposits (incl. CDs) 18,327 19,491 16,778 17,389 17,502Islamic Customer's Deposit 2,561 2,490 2,493 1,982 1,624Other liabilities 1,193 1,126 975 962 1,034Subordinated debt 102 102 315 430 625Convertible bonds 0 0 84 167 246Total liabilities 26,269 26,909 24,236 24,086 28,954

Share capital and premium 2,184 2,159 2,027 1,911 1,803Total reserves 1,277 1,262 1,266 1,162 1,057Cumulative changes in fair value ‐29 ‐13 44 50 50Retained profits 1,073 1,261 1,092 945 769Shareholders' equity 4,505 4,669 4,385 4,068 3,678Perpetual Tier I Capital 338 338 338Total liabilities + shareholders' equity 31,112 31,917 28,959 28,104 32,583

Key ratiosLoans and advances/customer deposits 113.9% 105.6% 112.3% 106.7% 99.4%Shareholders' equity/total assets 14.48% 14.63% 15.14% 14.48% 11.29%Subordinated debt/(debt + equity) 2.06% 2.00% 6.71% 9.55% 14.51%BIS total capital ratio 18.45% 19.38% 18.45% 16.90% 16.10%

Profit & Loss Statement

25

Amounts in USD 31‐Mar‐19 31‐Dec‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15Net interest income 187 719 667 651 628 Net income from Islamic financing 18 72 64 61 48 Other operating income 97 370 402 369 382 Operating income 302 1,160 1,132 1,081 1,058 Operating costs (126) (494) (478) (452) (444)

176 666 654 629 614 Net impairment losses on financial assets (35) (112) (112) (102) (108)Gain/(loss) from associates ‐ ‐ 6 4 5 Profit before Tax 141 554 548 531 511 Taxation (22) (88) (89) (72) (57)Net Profit 119 467 459 459 454

Key ratiosCost/income ratio 41.8% 42.6% 42.2% 41.8% 42.0%Return on average assets 1.5% 1.5% 1.6% 1.6% 1.7%Return on average equity 10.7% 10.8% 11.4% 12.5% 13.7%Basic EPS (US$) 0.038 0.062 0.062 0.442 0.442Share price (US$) 1.044 1.049 0.956 1.221 1.216

Documents

Investor Presentation Mar 2019 - Bank Muscat · Bank Muscat Introduction Operating environment Bank Muscat business - Overview Financial Performance Annexure 2. Bank Muscat Introduction