Assalamu Alaikum, good afternoon everyone, and welcome to NBO's Interactive Session. This is Aisha Al Moosa, Investor Relations Officer. In today's session, we will discuss our half-yearly financial results for June 2025. I will now introduce you to our management. We have Mr. Abdullah Hinai, our CEO, Mr. Giridhar , our Chief Financial Officer, Mr. Rashad Alta, Head of Regulatory Reporting, Mr. Swaminathan, Head of Business Performance, and Mr. Palaji , who is joining us remotely. He's Head of Capital Management and IR. Mr. Abdullah, please welcome.
Thank you very much. Pleasure to have you all on this call. Basically, our agenda is to present the macroeconomic picture, operating environment, NBO, and its strategy, an d that Giri would take over with the specific financial performance, including the performance of the bank in the first half of this year. Please feel free to ask interruptions and ask any particular question, and if you need us to speed up o r slow down, do let us know. The first key slide is the key messages that we would like to give you in this presentation. The bank has a long pedigree. It says the first locally incorporated bank es tablished in the Sultanate of Oman with more than 50 years of experience.
This means that over the decades, we've garnered a long-term relationship with different segments of the market, be it sovereign, be it government-related entities, be it local business houses as well as entities as well. The bank is run with well-established senior management teams that the majority of them have actually been inducted in the bank at the end of 2020 and early 2021. It was significant expertise in the banking management of the bank. Myself, I've been close to 28 years in banking.
That's a long time.
28 years in banking, working at local banks. The bank's embarked on a transformation journey which started in early 2021 with a five-year strategic roadmap that was approved in the fourth quarter of 2020. Alhamdulillah, with the grace of God, we've achieved a lot of what we've set ourselves and committed to different stakeholders over the past five years. This strategy is coming to a conclusion by the end of this year, and we are in discussion with our new three-year strategy. Like I mentioned, the existing strategy has clearly shown its results through either quantitative or qualitative aspects of the bank's performance from profitability matrices, from cost-to-income ratio metrics, ROE metrics. There's been substantial improvements over the past five years with a consistent performance quarter- on- quarter. Another key aspect is the sound macroeconomic picture in the country that is definitely helping us.
A key aspect is that through different government programs, the government has been very successful in leading issues that have struggled in the past. This has resulted in rating agencies, and I see some of the rating agencies here on the call, have upgraded our bank back to the investment rate ratings. We, as NBO, we've just been recently upgraded by one of the rating agencies that rates us as well to investment rates. This particular slide, I will talk or summarize it. In particular, on the macroeconomic picture, growth is very clear and visible across oil and non-oil sectors of the market. Public debt, which was an issue, has been clearly managed extremely well by the government. Today, the debt to GDP is basically around 33%, down from as high as 70%+ years ago. The government also has focused on the social aspect.
Two years ago, they launched a new entity called the Social Protection Fund. Basically, the aim of this fund is, other than managing and establishing strong and robust retirement packages for either private sector, public sector, or even military personnel, but also started launching a number of interesting and key social protection benefits that are improving the social protection umbrella for the population as well as the expatriate workforce. Some of these programs include benefits for disability, elderly persons, for youngsters below the age of 18, etc., maternity insurance, and there are more coming in the future. On the technological side, the country has clearly embarked on transforming itself, and in particular in the banking sector. Open banking and BPI have been there for some time now, but this year, a new guideline has been released by the Central Bank of Oman, including accessing the chief for digital banks.
On more of these aspects, NBO is on the forefront of the curve here. On the environmental side, we are at the start of one, and we see that in some of the upcoming slides has committed to net zero. We've embarked on our ESG. 2025 was the first year where listed companies had to publish a full ESG report and disclosures. We are also being tasked with also launching a number of products and services in the market. This is a summary again about Oman for people who are not familiar with Oman. Like I said, rating agencies have looked at Oman very positively over the past at least 12 months or 18 months, with rating agencies upgrading Oman to a path to investment rate.
Key aspect that I want to present on this slide is the bottom right-hand side of the slide, particularly on Oman's effort to diversify its economy away from direct oil exploration and production, which was about 51% in 2023. Today, it's around 85% with more contribution from sectors like tourism, hospitality, and other segments of the economy. The Omani banking sector has definitely positioned itself as a robust and well-managed and well-supervised sector. There's a very strong regulatory regime supervised by the Central Bank and enforced by the Central Bank of Oman on the local banks. As a result, Omani banks have weathered the storms of the past, in particular the COVID situation, and continues to perform reasonably well. I've seen growth year on year either on the assets or the deposit and improved liquidity and reduction in overall maintenance of a recent level of NPI.
On the key ratios, I would like to just highlight that the cost-to-income ratio here averages around 23.4%. It might seem to be slightly higher than our peers in the region, but Oman has historically been having a high cost-to-income ratio given the large geography and the need for distribution channels in particular branch network to serve the population that spread across the country. Oman is the second largest country in the GCC Oman area respectively. I've talked about the sustainability, and again, in particular, Central Bank of Oman in October 2024 issued a circular promoting sustainable and green financial practices, which basically provided regulatory requirements for climate risk management, the governance strategy, and disclosures respectively. Like I've mentioned as well, that in this year and next year, banks are to launch green products that improve sustainability practices.
This is definitely in tandem and in line with the overall vision of the country and the economy in general, where Oman's vision for the country and the national commitment by the country by 2020. Now, to NBO in particular, we're zooming in into NBO , National Bank of Oman is the first incorporated bank in the Sultanate established in 1978. We are listed as the LPP on the Muscat Stock Exchange. Currently, our main operating business is in Oman with two branch presence in the UAE, both in Dubai and Abu Dhabi, while we are in the final and direct closure of our Egyptian branch operation which started sometime around 2024. The shareholding has been very stable with the commercial arm of the bank owning approximately 35%.
This is a very long-term relationship that the commercial bank of the bank came in about 20 years ago. Share today is silent in Oman, also a little bit less than 15%. Again, a very historical long-term relationship and shareholding to the bank. Below that, from a rating perspective, we are rated on a good instant rate. In particular, these have upgraded us to a recent. This is a slide that we always present to investors. This summarizes our strategic priorities and the key pillars of our strategy. There are three priorities: safeguard, basically ensuring that we have a strong and robust both balancing and financials, ensure that we are able to weather all uncertain conditions, and ensure that we maintain healthy levels of liquidity, capital, and ensuring the highest quality of underwriting, credit underwriting processes.
Value creation, building on safeguarding, creation of value to enhancing revenues, so ensuring that we have the right operating models, ensuring that we have enough business lines that will generate us the revenues required, as well as managing and optimizing costs, spending in the right places, and ensuring that we reduce waste and expenditures in the wrong places. Partnership is part and parcel of our business standards. Building on the value creation is to ensure that the performance is sustained and we invest in the long term, ensuring that there are lasting capabilities through ensuring we have very strong brand policies, digital and best-in-time technology providing places, and enhancing and improving skill sets around. These are particular items that explain the different pillars of our strategies. I'll not go through each one of these, but I have to say any questions that you might have.
It's just clear to our steps. Like I mentioned, our current strategy, the one you see in front of you, will end by the end of this year, and we are in the process of discussion with our board for our new strategic direction. We've talked about the ESG piece, and we've also committed in line with the commitments of the country, be it through the Oman Vision 2030 and the net zero commitments, and across different elements of the ESG. This is the first half Financial Snapshot. I would request GIri , our CFO, to take us through this and the historical performance.
Thank you, Abdullah. Assalamu Alaikum and good afternoon to all of you on the call. With your permission, I'm just going to straight away jump to the next slide, which talks about the financial performance and gives you an overview of where we are for the first half, as well as a little bit of historical context. On the right side of the slide, you see the profitability metrics that we've achieved over the last from the period 2022 onwards, and likewise the operating income composition and the impairment numbers. You can see that we've executed well on our strategy. As we've committed, actually, we've not put out, and even a number of you on the call have been with us through the journey, we've not put out the starting point.
We started off, the CEO and myself and the management team started their journey when the cost-to-income ratio was north of 50% and the return on equity below around the 5% mark. You can see that for the first half of this year, our cost-to-income ratio is 40.76%, better than the industry cost-to-income ratio of approximately 43%. Similarly, the ROE, you know, around the 8.88%, 9% is what I would sort of round it off. Then the improvement in the ROA as well. The NIMs here is compressed, obviously. I'll cover that in a little more detail now. Clearly, cost of funds in Oman have gone up. A number of you are aware that the currency spec, the U.S. dollar, but the rates don't translate, any increases or decreases in the rate don't translate in the local economy immediately, unlike some of the other economies in the region.
There's a bit of a delayed drag, and as I explained in the call for the full year results, we were impacted through an increase in the cost of funds. That's being addressed. Our cost of funds in the second half of 2025 is lower than where we ended 2024 with, you know, from 3.96% to around 3.78%. We've done well there, but further work remains. Our CASA ratio, which I'll cover when I cover the balance sheet, but these are linked again, is now above 50% again. That's been a good story. You see the ROB, which is the impairment piece. I don't want you to think that our impairment number is low. That's because we had a better recovery during the first half of 2025, much better than what we had in the previous year.
I'll quickly give you a few more slides on the asset quality capital and person, and then we can open up for questions. Given a number of you are familiar with the numbers, and these numbers have been out in the public domain since 29th, I think, of July. The asset quality, you know, is very important to us. I keep repeating in the call that we look for, we don't run the bank for a quarter. We had a five-year strategy that we were delivering to, and as the CEO mentioned, that includes safeguarding of our asset base. We've been very conservative in our loan growth in terms of the composition of the loan growth. 2/3 of our loan growth over the last three years has been primarily in the GRE segment. Here in this slide, you can see that, you know, the exposure or staging is given.
We have a very diversified book. On the left side, you see the pie chart gives you the breakdown between retail, wholesale, and the financial institution group and the provisioning levels over the years. All of this is being addressed. I said, we don't take a short-term view of this. The CEO, myself, and the CRO have a view around executing on the fight and the rest of the management team, executing on the five-year strategy, being prudently provided. Slowly but surely, we built in a reputation in the market for no surprises, a steady performer, improving year on year, improving our coverage ratios, reducing the NPLs, etc., has been our strategy, coupled by focusing on the right areas of the group. That's what the summary of these slides really. I have two more slides to cover, and then we can open up for questions.
I keep telling you all that we believe in a fortress balance sheet. We believe that we need it to be well capitalized and liquid. That is what we achieve, which we continue to achieve. Right? You look at the comments there, you know, the stable funding ratio, the CASA ratio at 52.8%. You know, liquid assets really well. LCR at 161%. Similarly, the capitalization levels at 16.6%. We are well above the central bank norms. We are well capitalized and liquid. This is a key strength of ours, and we want to make sure that this is always the case. Similarly, when I talk about the cost and commission, and I'm sure you'll have some questions for me, we generally try and ensure that our income is growing faster than the expenses. Likewise here, well capitalized, liquid.
We continue to be well capitalized and liquid, ready to seize any opportunities that come our way. Lastly, we've added a slide on Muzn as ever. This is just to give you a view. For some of us, there is demand for Islamic assets in the region. I would say the region as well. You see that our Islamic banking performance, which is a window, Muzn is a window of the bank, has grown impressively. I do acknowledge that the base is smaller, but this continues to be an area of focus for us. Albeit the base being small, we are focused on that. To sum up, we had a good first half delivering on our strategy that we set out to achieve. Clearly, continuing to execute on the strategy, well-defined strategy during Q3 and Q4 is our priority.
As the CEO mentioned, we are working on the strategy for the next three years. That will be approved by the board in the last quarter of this year. We hope to be able to sit down with you, post the full year results to present that to yourselves, and obviously, take any questions that we may have. Let me open up for questions and comments from yourselves. There is more detail on the balance sheet in the subsequent slides, and these numbers are in U.S. dollar millions, but we don't go through them as ever. Let's open up for y our questions, and thank you once again for your time. Ma nish, please go ah ead.
Yeah, thanks. Am I audible? How are you? Hello?
Yes, you're loud and clear.
Thank you. Thank you for the opportunity and then good set of numbers and conversations for the track which the bank is having for the last two to three years. I have two questions, one on the business side and one small on the accounting side. On the business side, I'd just like to have a commentary or outlook on the stage two loans. We have seen the stage two loans coming down from the 20% zone to around 12%. The next stage two, and if you look at the period, say 2014, 2016, the good period, which was around 6% - 8% range. Do you see any trend that they should fall down to around 10% in the next two years because of the high-frequency data points you will be monitoring on the credit portfolio? Second was on the equity capital.
I'll have that question later on on the equity capital.
You want to look at more details? You've been on the calls for now a few times as well, and you always heard us that our underwriting, critical underwriting procedures have been strengthened over the past five years now. Our focus has been predominantly on high-quality book, and that's the real driver of the growth in our book. That is basically building our stage one. On the staging overall, we've adopted a very prudent, a little bit on the conservative side. We hear overall kind of views by different stakeholders that they use NBO as a benchmark for how they deal with the staging and NPA in general and provisioning coverage.
It goes back to our key strategy, ensuring that our robust underwriting policies over the past five years now will be a high-quality, high-tenure book, be it here in Oman, or even in the UAE, or even through the MUSIN.
Thank you, Aisha. I think that answers most of it. Our view to provisioning and staging is being more conservative than some of the other players in the industry. Obviously, you cannot share customer information, but we are aware that, for example, an exposure which is classified as, you know, stage one in some of the banks would be as a stage two in our numbers. We want to manage this portfolio conservatively and prudently. That dictates some of it. As I mentioned, 2/3 of our growth is in the GRE segment. That also has a bearing on it. The other piece that I'd cover is the fact that these also are dependent upon overrides and what the CRO has for us to do. We've again looked at it from a very conservative perspective. That's the reason why it is we don't, you know, should it be 10%?
That was part of your question as well. You know, should it be 10% or so? No, we don't put out forward-looking guidance. Once again, to reiterate, we will continue to manage the growth in a very conservative manner in line with the risk appetite statem ent.
Sure, sure. Thanks. That goes well, but not the guidance. I just wanted to have a view on the trend. We've got the last two years, three years have been very good in terms of the underwriting and the overall scenario. Considering the macro aspects, because beyond the macros, there's a limited hand at the management level to go beyond the macros. If the trend is supporting, then of course we can move back to the sub 10%. That was the whole idea. Thank you for that. The next question was on the one on the equity capital. We have been one of the few rare banks in Oman which have not been raising equity for the last 12 - 13 years. The CET1 has a buffer, 1.6 at around 11%, but the payout ratio gets reduced because of that.
Is the management having any plan or certain strategy in the next one year or so considering the great growth ahead for equity raise?
Manish, we were trying to stop you earlier on, but let me give the floor to the CEO for a bit, and then I'll come back.
Okay. I'll attempt to have more questions. Again, just back, I think very coldly in terms of where we see market and the risks in the market. I think we are more comfortable now in terms of the risks that are there in the market. Given the underwriting policies that we've adopted over the past five years, I think we are more comfortable now on the market from a risk appetite perspective. That gives you an indication. Like Giri had told you, we don't give forward-looking numbers today. On the question on the capital piece, we are again very disciplined in this part. Number one, we have a conversation on an annual basis with our audits, and then more frequently than once a year in terms of what is the capital required. It's very difficult to go back to the shareholders and say give me capital when ROEs were 5%.
I think it's very important to demonstrate that we have a strong and robust and sustainable ROE before we ask for capital. Again, we are very conservative approach.
Thank you, Abdullah. Manish, look, we've again chatted through this. We certainly were not going to be in the camp where we pay a dividend and then ask for rights, right? That didn't work for us. We don't do that. Having said that, your point was valid that we've not had a rights or a capital raise in 20 years or so, in a long period of time. We also told you that we're looking at the strategy for the next three years. As we look through the asset growth predictions, etc., we determine what's the optimal capital mix for the firm, for the bank, and say that, you know, this is what we need, taking into account the improvement that's been achieved in the ROE numbers.
Then, you know, some of this credibility is there with us now to be able to have those conversations, and we'll update you as we go along. Okay.
Thank you. Thank you. Just one question on the accounting side, a small question. If I look at the balance sheet of June 2025, on the face of it, the net asset per share is mentioned at around 483 levels. I'm not sure how that number is because you have an equity of 560 and 1.6 billion shares. It's on the financials which are uploaded on the MSX.
I'll answer that question. [Foreign language]
Yeah.
[Foreign language]
Sure. Thank you. Thank you and all the best for your future growth. Thank you.
Any other questions? More questions?
Any further questions we can add?
Just. [Foreign language]
Yes. Yeah.
Manish? Can you repeat your question on the accounting piece?
Yeah, yeah. Basically, the net asset per share, which is mentioned on the face of the balance sheet, on the balance sheet, mentions 4.83 or 4.84 per share. If I divide the 560 million by 1.6 billion shares, it comes to around 345.
Half a year or a year?
This is net asset per value, though. You've got to divide the total assets by the number of shares.
No, net assets.
Net asset per share, that's basically the shareholders' equity divided by the total outstanding shares, right? If you look at any other banks, normally they reduce the, they don't consider the perpetual instrument as a part of the shareholders' equity, or part of the total equity, but not part of the shareholders' equity.
Where is it?
Which slide are you looking at?
Which page are you looking at?
The balance sheet. The balance sheet?
The IRA statement is page number seven. Are you looking at that one?
Yeah, the balance sheet because we get it as a separate, distinct from the MSX. Let me open the...
adequacy. If there are any specific questions, we are happy to address them.
Can you maybe email it to us and we'll respond?
Can I share it now on the screen?
Sure. Let me share my screen. If someone else is sharing, I will... Is the screen visible?
Yeah, this is the 4.83 by the net asset per share.
The numerator would be this 560, right?
I think it was 88% capital. That's why it was being...
Yeah, so basically OMR 785 million, whic h includes the AT1 capitals.
Okay, that because normally, it's the shareholders' equity, right, excluding the perpetuals.
60 divided by the capital, 162.
6.25 to 6?
325.
Yeah, yeah, 325.
Yes, yes.
You're saying the rest of the banks are excluded?
We'll see what the industry percentage is on that.
We've been reporting always like this only. Yeah.
Sure, because the institutionalists will have their own working, but if a retail guy looks at this NBO person, compares the discount on the book value, it will give a wrong signal.
This is the way a retail person can check.
We can check more from the other presentations in the region as well.
Yeah.
Okay, thank you.
Thank you.
Thanks, Manish.
Thank you.
Any other questions or comments? If not, then we'll close.
Anyone else have any other questions?