Investor Presentation June 2019 Contents o Bank Muscat Introduction - - PDF document

Investor Presentation June 2019

• Bank Muscat Introduction
• Operating Environment
• Bank Muscat Business – Overview
• Financial Performance
• Annexure

4-Sep-19 2

Contents

Note: The financial information is updated as of 30th June 2019, unless stated otherwise.

4-Sep-19 3

Bank Muscat Introduction

4-Sep-19 4

Bank Muscat at a glance

Overview

• #1 Bank in Oman with a significant active customer base with ~2 million

clients and a workforce of 3,778 employees as of 30th June 2019.

• Established in 1982, headquartered in Muscat with 169 branches across

Oman, 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 services offering

• Listed on the Muscat Securities Market (with a market cap of USD 3,279

million as of 30th June 2019), London Stock Exchange & Bahrain Stock Exchange

Ownership as of June 2019 Key Financials Bank Muscat Footsteps

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

I n US$ Millions, unless

• therwise stated

Jun-19 2018 2017 2016

Total Assets 31,180 31,917 28,959 28,104 Gross Loans 24,501 24,073 22,484 21,483 Deposits 20,722 21,981 19,268 19,369 Operating Income 608 1,160 1132 1081 Net Profit 243 466 460 459 Tier 1 17.77% 18.14% 16.87% 14.75% Total CAR 18.86% 19.38% 18.56% 16.90% Loans to Deposit Ratio 113.79% 105.63% 112.26% 106.69% NPL Ratio 3.09% 3.09% 2.94% 2.91% Cost/Income 41.50% 42.61% 42.22% 41.83% ROA 1.54% 1.53% 1.61% 1.64% ROE 10.78% 10.83% 11.44% 12.50%

4-Sep-19 5

Bank Muscat – Key Highlights

Management

• Largest Bank in Oman by total assets of 35%, as of 30th

June 2019, around the size of next 3 Omani banks combined.

• Market Capitalisation of USD 3,279 million as at 30th June

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
• f 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

• rganic and inorganic growth
• Good corporate governance

Solid Capital Position

• Strong capitalization levels offering

room for substantial growth

• CAR of 18.86% as of 30th June 2019

Stable Asset Quality

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

4-Sep-19 6

Operating Environment

4-Sep-19 7

Sultanate of Oman - Overview

Overview GDP Growth GDP Composition as of Dec 2018

(1) Source: National Center for Statistics (July ’19), Rating Reports: Moody’s and S&P as of Apr 2019

Oman Saudi Arabia UAE Qatar Bahrain Kuwait

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

• 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 Aug 2019 - predominantly represented by Omani Nationals who

account for 56.6% 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

• n

economic diversification through focus on key sectors in phase 1 viz. manufacturing, logistics and tourism

Key Indicators ( 1 ) 2018 2019 Sovereign Ratings Moody's\S&P Baa3/BB Ba1/BB Budget Surplus\Deficit in OMR

• 1.9 Bn (Dec '18)
• 0.35 Bn (May '19)

Surplus\Deficit % of total revenue

• 19%
• 7.6% (May '19)

Net Public Debt (% GDP) 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 %

4-Sep-19 8

Oman Banking Sector - Overview

Overview

• 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 36.3% of total

sector assets. bank muscat represents 35%

• f total banking sector

assets as of June 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 sound capitalization

• 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)

793 625 390 219 88 64 433 791 193 138 81 40 183% 79% 202% 159% 109% 160% 0% 50% 100% 150% 200% 250% 200 400 600 800 1000 UAE Saudi Arabia Qatar Kuwait Oman Bahrain

Assets as a % of GDP

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

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

2019, Bahrain as of Apr 2019.

(1) GDP data is estimated for FY 2019 (Source:

World Bank, National Central Banks)

4-Sep-19 9

Bank Muscat – Unrivalled leading Market Position in Oman

Total Assets (USD Mn) Gross Loans (USD Mn) Deposits (USD Mn) Net Profit (USD Mn)

4-Sep-19 10

Bank Muscat – Dominant domestic franchise in the region

Market Share ‐ Assets Market Share – Deposits Asset Quality Strong Capitalization

17.5% 20.4% 14.6% 17.8% 17.8% 14.6% 14.5% 0.9% 1.1% 2.3% 0.9% 1.1% 2.0% 1.8% QNB ENBD FAB NCB BM NBK CBQ

Tier 1 Tier 2

4.9% 1.9% 1.8% 3.1% 3.1% 1.4% 5.9% 96.2% 106.0% 145.0% 135.5% 111.0% 234.3% 125.8%

0.0% 50.0% 100.0% 150.0% 200.0% 250.0%

CBQ QNB NCB BM FAB NBK ENBD

NPL/GL LLR/NPL

4-Sep-19 11

Bank Muscat Business Overview

4-Sep-19 12

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

4-Sep-19 13

Bank Muscat – Business Lines

Key Highlights Asset Contribution Profit Contribution Corporate Banking

• Leading Corporate Bank Franchise
• ffering the full array of corporate

banking services

• ~

7,200 corporate customers in Oman

• Strong expertise in project finance
• US$ 11.6bn
• 36.4% of total

assets

• US$ 104.8mn
• 43.1% of total

profit

Global Institutions, Investment Banking & Treasury

• Comprise
• f

treasury, corporate finance, and asset management

• Financial Institutions
• US$ 5.8bn
• 20.6% of total

assets

• US$ 61.9mn
• 25.5% of total

profit

Personal Banking

• Leading Retail Bank

platform in Oman

• ~ 2 million retail customers in Oman
• Largest distribution network
• US$ 8.6bn
• 27.1% of total

assets

• US$ 79.0mn
• 32.5% of total

profit

Meethaq – Islamic Banking

• OMR 65mn (c.US$167mn) capital

assigned to this business

• Officially launched in January 2013.

Currently operating through 20 full fledged Islamic branches.

• US$ 3.6bn
• 11.5% of total

assets

• US$ 13.1mn
• 5.4% of total

profit

International Operations

• Presence

in GCC, Iran and Singapore through

• verseas

branches, rep

• ffices

and subsidiary

• US$ 1.4bn
• 4.4% of total

assets

• US$ (15.7)mn
• 6.5% of total

profit

Deposits Loans & Advances

2.42% 45.64% 28.81% 23.13% Financial Institutions Individual & Others Ministries & Other Gov Orginisations Private Commercial I mport Trade 3.6% Export Trade 0.2% Wholesale & Retail Trade 2.3% Mining & Quarrying 5.7% Construction 4.6% Real Estate 3.5% Manufacturing 8.2% Electricity, gas and water 7.3% Transport and Communication 8.6% Financial I nstitutions 5.2% Services 8.3% Personal Loans 40.0% Agriculture and Allied Activities 0.3% Government 0.4% Others 1.8%

4-Sep-19 14

Corporate Banking

Amounts in USD mn.

Overview 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
• ver 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

Corporate Loans- Peer comparison Asset Growth Operating Income

US$ billion

14.86 4.81 3.87 4.36 2.51 3.42 2.85 BankMuscat Bank Dhofar NBO Sohar International HSBC Oman Ahli Bank Oman Arab Bank

4-Sep-19 15

Wholesale Banking – Global Financial Institutions, Investment Banking & Treasury

Amounts in USD mn.

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
• ther 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
• ther markets
• Leverage on expertise built to further

grow the market share and increase the market potential

Securities Portfolio Asset Growth Operating Income

4-Sep-19 16

Personal Banking

Amounts in USD mn.

Overview 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 June 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

Personal Loans- Peer comparison Asset Growth Operating Income

9.64 3.44 3.79 1.83 1.88 2.16 1.29 BankMuscat Bank Dhofar NBO Ahli Bank Oman Arab Bank Sohar International HSBC Oman

4-Sep-19 17

Meethaq – Islamic Banking

Amounts in USD mn.

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 since the

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

Financing Portfolio Operating Income

1,677 2,259 2,566 2,940 3,601 1,000 2,000 3,000 4,000 2015 2016 2017 2018 Jun 2019 52 66 70 79 40 ‐ 20 40 60 80 100 2015 2016 2017 2018 Jun 2019

4-Sep-19 18

Financial Performance

4-Sep-19 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
• perating 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

4.03% 3.85% 4.05% 4.31% 4.54% 4.64% 1.30% 1.22% 1.45% 1.73% 2.04% 2.10% 2.73% 2.63% 2.60% 2.58% 2.50% 2.54% 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 Jun‐19 Yield % Cost % Spread % 66% 65% 68% 68% 68% 23% 21% 22% 22% 21% 11% 14% 10% 10% 12% 41.8% 42.2% 42.6% 42.6% 41.5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 2015 2016 2017 2018 Jun 2019 Net Interest Income Net Commission & fees Other Income Cost to income ratio

4-Sep-19 20

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

I mport Trade 3.6% Export Trade 0.2% Wholesale & Retail Trade 2.3% Mining & Quarrying 5.7% Construction 4.6% Real Estate 3.5% Manufacturing 8.2% Electricity, gas and water 7.3% Transport and Communication 8.6% Financial I nstitutions 5.2% Services 8.3% Personal Loans 40.0% Agriculture and Allied Activities 0.3% Government 0.4% Others 1.8% 19,813 21,484 22,484 24,073 24,501 2.75% 2.91% 2.94% 3.09% 3.09% 8.3% 8.4% 4.7% 7.1% 1.8% 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 Jun‐19 Gross loans in USD (LHS) NPL% (RHS) Loan Growth % (RHS)

4-Sep-19 21

Funding & Liquidity

Overview Funding Mix

• Stable funding structure with a diversified funding base
• Largest deposit base in Oman with significant granularity
• Retail deposits comprise 41% 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 18.86% and

Tier 1 at 17.77%, above the minimum regulatory levels of 13.575% and 11.575% respectively.

Liquid Assets Capital Adequacy Ratio

4-Sep-19 22

Annexures

4-Sep-19 23

Balance Sheet

Amounts in USD 30-Jun-19 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15

Cash and bal. with Central Bank 1,768 3,394 2,428 2,705 6,265 Due from banks 1,643 1,236 1,538 1,368 2,575 Loans and Advances 20,569 20,334 19,113 18,447 17,391 I slamic financing receivables 3,010 2,884 2,520 2,221 1,649 Non trading investments 3,353 3,298 2,668 2,748 3,944 Tangible fixed assets 202 181 187 194 199 Other assets (incl. invt in associates) 634 590 505 422 560

Total assets 31,180 31,917 28,959 28,104 32,583

Bank deposits/ FRNs / Bonds 4,052 3,701 3,478 3,157 7,924 Customer deposits (incl. CDs) 18,283 19,491 16,778 17,389 17,502 I slamic Customer's Deposit 2,439 2,490 2,493 1,982 1,624 Other liabilities 1,358 1,126 975 962 1,034 Subordinated debt 86 102 315 430 625 Convertible bonds 84 167 246

Total liabilities 26,218 26,909 24,236 24,086 28,954

Share capital and premium 2,184 2,159 2,027 1,911 1,803 Total reserves 1,281 1,262 1,266 1,162 1,057 Cumulative changes in fair value

• 28
• 13

44 50 50 Retained profits 1,187 1,261 1,092 945 769 Shareholders' equity

4,625 4,669 4,385 4,068 3,678

Perpetual Tier I Capital

338 338 338 Total liabilities + shareholders' equity 31,181 31,917 28,959 28,104 32,583 Key ratios

Loans and advances/ customer deposits 113.8% 105.6% 112.3% 106.7% 99.4% Shareholders' equity/ total assets 14.83% 14.63% 15.14% 14.48% 11.29% Subordinated debt/ (debt + equity) 1.70% 2.00% 6.71% 9.55% 14.51% BI S total capital ratio 18.86% 19.38% 18.45% 16.90% 16.10%

4-Sep-19 24

Profit & Loss Statement

Amounts in USD 30-Jun-19 31-Dec-18 31-Dec-17 31-Dec-16 31-Dec-15

Net interest income 379 719 667 651 628 Net income from Islamic financing 34 72 64 61 48 Other operating income 195 370 402 369 382

Operating income

608 1,160 1,132 1,081 1,058 Operating costs (252) (494) (478) (452) (444) 356 666 654 629 614 Net impairment losses on financial assets (65) (112) (112) (102) (108) Gain/(loss) from associates

• - 6 4 5

Profit before Tax

291 554 548 531 511 Taxation (48) (88) (89) (72) (57)

Net Profit

243 467 459 459 454

Key ratios

Cost/income ratio 41.5% 42.6% 42.2% 41.8% 42.0% Return on average assets 1.54% 1.53% 1.61% 1.64% 1.72% Return on average equity 10.78% 10.83% 11.44% 12.50% 13.68% Basic EPS (US$) 0.078 0.062 0.062 0.442 0.442 Share price (US$) 1.060 1.049 0.956 1.221 1.216