I am glad to share with you the resilient results achieved by the Bank during 2009 against the backdrop of stimulus and rescue strategies, which set in motion a global economic recovery. The key business lines of the Bank weathered the challenging situation.
Oman’s Economy
The 44 per cent decline in average oil prices from $ 101.1 per barrel in 2008 to $ 56.7 in 2009 posed serious challenges, but the national economy countered the repercussions, registering a positive growth of 3.7 per cent at constant prices in 2009. Proactive measures by the Central Bank of Oman (CBO) helped the banking and financial sectors to tide over the crisis situation. In a clear indication of the economic recovery, commercial banks availed only $300 million out of a $2 billion support fund facilitated by CBO to help local banks. The Muscat Securities Market index closed the year at 6368.80 points, recording a healthy 17.05 per cent growth over the previous year.
Financial Overview
The Bank achieved a net profit of RO 73.7 million as against a net profit of RO 93.7 million reported in 2008. The Bank achieved an operating profit of RO. 208.9 million for the year ended 31 December 2009 as against an operating profit of RO. 152.6 million for the year ended 31 December 2008, an increase of 36.9%. During the year 2009, the Bank disposed off its investment in HDFC Bank, India and recognized a pre-tax profit of RO 60.5 million. Operating profit excluding the gain on HDFC Bank investment was marginally lower by 2.7% in 2009. This demonstrates that the Bank’s core business income during the year 2009 was strong and stable in spite of global financial crisis.
Net interest income increased by 7.6% from RO 162.1 million in 2008 to RO 174.4 million in 2009 supported by combination of asset growth and improvement in net interest margin. Non-interest income grew from RO 74.7 million in 2008 to RO 116.7 million in 2009 mainly on account of gain on sale of HDFC Bank investment during the year 2009. However, non-interest income excluding the gain on HDFC Bank investment was lower by RO. 18.5 million due to realized losses on Available-for-Sale investment and lower non-funded business in 2009. Operating expenses at RO 82.1 million in 2009 were lower by 2.5% than RO 84.2 million incurred in 2008 due to cost containment measures carried out by the Bank in 2009. The Cost to Income ratio excluding the gain on HDFC Bank investment for the year was at 35.6%, comparable to the ratio in 2008.
Impairment for credit losses on loans portfolio was RO 98.2 million during the year compared to RO 24.6 million for the year ended 31 December 2008. The impairment charge of RO 98.2 million for the year 2009 was substantially higher as the Bank decided to consider full provision for certain large exposures in its overseas branch. During the year 2009, the Bank recovered RO 10.6 million from impairment for credit losses compared to RO 12.6 million in 2008. The Bank holds a non-specific loan loss provision of RO 53.6 million as at 31 December 2008 as per the requirements of Central Bank of Oman.
Share of loss from associates amounted to RO 10.4 million in 2009 as against share of loss of RO 3.2 million in 2008. Higher share of loss in 2009 was attributable to loss from BMI Bank in Bahrain due to higher impairment for credit losses, which included certain overseas credit exposures.
During the last quarter of 2009, the Bank advised non-participation in the rights issue of Silkbank, where it holds an approximate 35% stake. As a result of non-participation in the rights issue, the Bank’s stake in Silkbank is expected to be diluted to around 8.5% based on the proposed rights issue terms. As it is certain that the Bank is not participating in the rights issue and thereby substantially diluting its stake from an associate status to non-strategic available-for-sale investment, the Silkbank investment was marked-to-market in the Bank’s book as at 31 December 2009. This resulted in impairment losses of RO 20.3 million including the loss on depreciation of the Pakistan Rupee amounting to RO 9.6 million which was earlier adjusted in equity.
The Bank’s gross loans and advances portfolio grew by RO 199 million or 5.2% to RO 4,052 million as at 31 December 2009 compared to RO 3,853 million as at 31 December 2008. Customer deposits as at 31 December 2009 was RO 3,068 million as compared to RO 3,173 million as at 31 December 2008, reduced by RO 105 million due to decrease in term deposits as the Bank was mobilizing deposits through its Certificate of Deposits program. The Bank’s low cost deposits such as savings and demand deposits increased by 9.6% to reach RO 1,796 million as at 31 December 2009. Savings deposits had a growth of 6.1% from RO 768 million as at 31 December 2008 to RO 815 million as at 31 December 2009.
The return on average assets was at 1.2% in 2009 as compared to 1.8% in 2008. The return on average equity was 10.8% in 2009 as compared to 14.8% in 2008. The basic earnings per share was RO 0.068 in 2009 as against RO 0.087 in 2008. The Bank’s capital adequacy ratio stood at 15.2 per cent as on 31 December 2009 against the minimum required level of 10 per cent.
The Board of Directors recommended a dividend of 45%, 20% in the form of cash and 25% in the form of stock. Thus shareholders would receive cash dividend of RO 0.020 per ordinary share of RO 0.100 each aggregating to RO 21.54 million on Bank’s existing share capital and stock dividend in the proportion of one share for every 4 ordinary shares. The proposed cash dividend and issuance of bonus shares are subject to formal approval of the Annual General Meeting of the shareholders and regulatory authorities.
The Year Ahead
The year 2010 marks a momentous occasion for the nation celebrating the 40th anniversary of the Blessed Renaissance. Commemorating the landmark year, the Bank has launched year-long celebrations with a unique campaign titled ‘Oman Celebrates’.
The Sultanate’s strategic economic policies are designed to make constant adjustments to changing situations. The anticipated increase of oil prices and favourable financial, economic and monetary policies augur well for the national economy which is expected to record a growth rate of 6.1 per cent at constant prices and 18.4 per cent at current prices in 2010.
In Conclusion
On behalf of the Board of Directors, I take this opportunity to thank the banking community, both in Oman and overseas, for the confidence reposed in the Bank. I would also like to thank and appreciate the Management Team and all our employees for their dedication and commitment to press ahead amid the challenging situation to reach higher levels of excellence.
The Board of Directors welcomes and supports the measures taken by the Central Bank of Oman and the Capital Market Authority to strengthen the financial market in the Sultanate. The foresight and market-friendly policies adopted by His Majesty’s Government have helped the Bank to record encouraging results.
The Board of Directors is deeply grateful to His Majesty Sultan Qaboos Bin Said for his vision and guidance, which steered the country along the path of growth and prosperity during the last 40 years.
AbdulMalik bin Abdullah Al Khalili |