Investor Presentation Mar 2019 1 Contents Bank Muscat Introduction - - PDF document

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Investor Presentation Mar 2019

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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

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Bank Muscat Introduction

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Bank Muscat at a glance

Overview

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

clients and a workforce of 3,771 employees as of 31st Mar 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

• ffering
• Listed on the Muscat Securities Market (with a market cap of USD 3,231

million as of 31st Mar 2019), London Stock Exchange & Bahrain Stock Exchange

Ownership as of Mar 2019 Key Financials Bank Muscat Footsteps

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I n US$ Millions, unless

• therwise stated

Q1 2019 2018 2017 2016

Total Assets 31,112 31,917 28,959 28,104 Gross Loans 24,675 24,073 22,484 21,483 Deposits 20,888 21,981 19,268 19,369 Operating Income 302 1,160 1132 1081 Net Profit 119 466 460 459 Tier 1 17.35% 18.14% 16.87% 14.75% Total CAR 18.45% 19.38% 18.56% 16.90% Loans to Deposit Ratio 113.88% 105.63% 112.26% 106.69% NPL Ratio 3.10% 3.09% 2.94% 2.91% Cost/Income 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

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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
• 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 18.45% as of 31st Mar 2019

Stable Asset Quality

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

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Operating Environment

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Sultanate of Oman – Overview

Overview 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 2017

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Oman Saudi Arabia UAE Qatar Bahrain Kuwait

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

• n

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

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

• 1.9 Bn (Nov '18)

Est '-2.8 Bn Surplus\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 %

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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 36.6% of total

sector assets. bank muscat represents 35.1%

• f total banking sector

assets 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 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)

(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.

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793 625 390 219 88 64 433 791 193 138 81 40 183% 79% 202% 159% 109% 160% 0% 50% 100% 150% 200% 250% 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

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Bank Muscat – Unrivalled Leading Market Position in Oman

Total Assets Gross Loans Deposits Net Profit

Amounts in USD mn. 9

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Bank Muscat – Dominant Domestic Franchise in the Region

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

Assets 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%

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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 ENBD

NPL/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 CBQ

Tier 1 Tier 2

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Bank Muscat Business Overview

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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 I slamic 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

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Bank Muscat – Business Lines

Key Highlights Asset Contribution Profit Contribution Wholesale Banking Corporate Banking

• Leading

Corporate Bank Franchise

• ffering

the full array

• f

corporate banking services

• ~

6,500 corporate customers in Oman

• Strong

expertise in project finance

• US$ 11.8bn
• 36.7% of

total assets

• US$ 50.5mn
• 42.3% of

total profit

Global I nstitutions, I nvestment Banking & Treasury

• Comprise
• f

treasury, corporate finance, and asset management

• Financial Institutions
• US$ 6.7bn
• 20.7% of

total assets

• US$ 36.4mn
• 30.5% of

total profit

Personal Banking

• Leading Retail Bank platform

in Oman

• ~ 2 million retail customers in

Oman

• Largest distribution network
• US$ 8.5bn
• 26.5% of

total assets

• US$ 40.3mn
• 33.8% of

total profit

Meethaq – I slamic Banking

• OMR

65mn (c.US$167mn) capital assigned to this business

• Officially launched in January

2013. Currently

• perating

through 20 full fledged Islamic branches.

• US$ 3.7bn
• 11.6% of

total assets

• US$ 6.3mn
• 5.3% of

total profit

I nternational Operations

• Presence

in GCC, Iran and Singapore through

• verseas

branches, rep

• ffices

and subsidiary

• US$ 1.4bn
• 4.5% of

total assets

• US$ (14.2)mn
• 11.9% of

total profit

Deposits Loans & Advances

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Ministries & Other Gov Orginisation 29% Private Commercial 24% Financial Institutions 2% Individual & Others 45%

Import Trade 4.1% Export Trade 0.2% Wholesale & Retail Trade 2.4% Mining & Quarrying 3.6% Construction 4.0% Real Estate 3.3% Manufacturing 6.9% Electricity, gas and water 5.9% Transport and Communication 9.2% Financial Institutions 5.6% Services 13.1% Personal Loans 39.2% Agriculture and Allied Activities 0.4% Government 0.4% Others 1.8%

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Corporate Banking

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/

I ndustrial projects in the pipeline

• Privatisation and diversification drive

by Government

• I ncreasing 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 I ncome

US$ billion

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15.06 4.95 3.92 4.25 2.24 3.41 2.76 BankMuscat Bank Dhofar NBO Bank Sohar HSBC Oman Ahli Bank Oman Arab Bank

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Wholesale Banking – Global Financial I nstitutions, I nvestment 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
• ther 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 I ncome

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Personal Banking

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
• ver 72% by volume as of Mar 2019 and

leading ecommerce business in Oman

• Government spending resulting in

job creation

• I ncrease 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 I ncome

US$ billion

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9.63 3.50 3.63 1.78 1.89 2.05 1.28 BankMuscat Bank Dhofar NBO Ahli Bank Oman Arab Bank Bank Sohar HSBC Oman

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Meethaq – Islamic Banking

Overview Opportunities Strategy

• One of the most successful I slamic

banking operation in Oman since 2013

• 20 dedicated branches become
• perative throughout the Sultanate
• Innovation in product offering and

services to create niche

• Established Sharia Board comprising
• f 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
• fferings
• I ncrease 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

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1,677 2,259 2,566 2,940 3,081 1,000 2,000 3,000 4,000 2015 2016 2017 2018 Q1 2019 52 66 70 79 20 ‐ 20 40 60 80 100 2015 2016 2017 2018 Q1 2019

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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
• pportunities for business and trade

synergies

• I ncreasing trade/ business
• pportunities 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 I ran

• 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 I ncome

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Financial Performance

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Operating performance & Profitability

Overview Net I nterest 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

• ver 90% of total operating income
• Increasing focus on top line commission and fee

income generation

• Stable net interest margin in spite of increasing cost
• f funding.

Operating I ncome & Cost to I ncome Profitability

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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 %

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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 I mpaired assets & Provisioning

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Import Trade 4.1% Export Trade 0.2% Wholesale & Retail Trade 2.4% Mining & Quarrying 3.6% Construction 4.0% Real Estate 3.3% Manufacturing 6.9% Electricity, gas and water 5.9% Transport and Communication 9.2% Financial Institutions 5.6% Services 13.1% Personal Loans 39.2% Agriculture and Allied Activities 0.4% Government 0.4% 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)

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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 regulatory levels of 13.575% and 11.575% respectively.

Liquid Assets Capital Adequacy Ratio

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Annexures

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Balance sheet

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Amounts in USD 31‐Mar‐19 31‐Dec‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15 Cash and bal. with Central Bank 1,868 3,394 2,428 2,705 6,265 Due from banks 1,418 1,236 1,538 1,368 2,575 Loans and Advances 20,766 20,334 19,113 18,447 17,391 Islamic financing receivables 3,021 2,884 2,520 2,221 1,649 Non trading investments 3,283 3,298 2,668 2,748 3,944 Tangible fixed assets 205 181 187 194 199 Other assets (incl. invt in associates) 551 590 505 422 560 Total assets 31,112 31,917 28,959 28,104 32,583 Bank deposits/FRNs /Bonds 4,086 3,701 3,478 3,157 7,924 Customer deposits (incl. CDs) 18,327 19,491 16,778 17,389 17,502 Islamic Customer's Deposit 2,561 2,490 2,493 1,982 1,624 Other liabilities 1,193 1,126 975 962 1,034 Subordinated debt 102 102 315 430 625 Convertible bonds 84 167 246 Total liabilities 26,269 26,909 24,236 24,086 28,954 Share capital and premium 2,184 2,159 2,027 1,911 1,803 Total reserves 1,277 1,262 1,266 1,162 1,057 Cumulative changes in fair value ‐29 ‐13 44 50 50 Retained profits 1,073 1,261 1,092 945 769 Shareholders' equity 4,505 4,669 4,385 4,068 3,678 Perpetual Tier I Capital 338 338 338 Total liabilities + shareholders' equity 31,112 31,917 28,959 28,104 32,583 Key ratios Loans 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%

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Profit & Loss Statement

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Amounts in USD 31‐Mar‐19 31‐Dec‐18 31‐Dec‐17 31‐Dec‐16 31‐Dec‐15 Net 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 ratios Cost/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$) 0.038 0.062 0.062 0.442 0.442 Share price (US$) 1.044 1.049 0.956 1.221 1.216

SLIDE 26