Bank Nizwa marked a significant milestone in 2016 by achieving net profit in the fourth year of its operations. CEO, Khalid Al Kayed, talks to Muhammed Nafie about the bank’s financial achievements, operational excellence and the growth prospects for Oman’s Islamic banking industry
How was Bank Nizwa’s financial performance during the year 2016?
The year 2016 saw Bank Nizwa reinforce its leadership position in the Islamic banking sector. Not only were we able to maintain our status as Oman’s fastest-growing Islamic financial institution, but we also managed to grow the sector and secure major financial achievements.
Our financial performance demonstrated solid growth throughout the operation. Our assets grew by 49 per cent to reach RO 516mn, while customer deposits increased by 86 per cent to reach RO351mn, showing significant growth in the face of difficult economic circumstances. Our operating income for the year rose by 46 per cent, while our operating expenses increased only by 3 per cent, reflecting the success of our strategic cost management. As a result, cost-to-income ratio declined below 91 per cent, allowing us to achieve our first record net profit.
Bank Nizwa achieved net profit after provisions in 2016. What were the major milestones during the year?
Our customer financing portfolio, deposits, assets and operating income all reported substantial growth and as a result the bank achieved a historical milestone by recording net profit for the first time since its inception. We identified key opportunities, critical areas of improvement and subsequent tactical plans that helped retain our position as the largest full-fledged Islamic bank in the Sultanate. We have strengthened our position in wholesale and retail banking not only in terms of our leadership in key business segments, but also in terms of service excellence, franchise strength and business capabilities.
How did your retail and wholesale divisions fair during the year?
2016 was a year of consolidation for retail banking whereby a number of initiatives were launched to enhance the customer experience and consolidate our position as the leading Islamic bank. Adding to our existing product suite, we launched our commercial finance proposition, targeted towards the needs of salaried individuals, aspiring to have additional income by investing in commercials assets. To enrich the customer convenience, we introduced various new services across all our electronic platforms namely IVR/Phone banking, mobile banking, internet banking, ATM/CDM machines, SMS and Email. All these initiatives helped us increase our e-channel penetration and usage across all customer segments and has helped bring the bank closer to its customers. During 2016, the bank also took major steps to make card transactions more secure. We successfully managed to migrate all Bank Nizwa active cards to EMV-compliant chip by December 31, 2016. This ensured the protection of our customers against counterfeit frauds.
During the year, our retail banking customer deposits account increased to 69,000 accounts. All the 11 branches, located at geographically-strategic locations across Oman, continue to provide excellent service and the best possible financial solutions by analysing the customer need and profile. In 2017, we aim to further expand network and customer-base through value-added services and by offering a rewarding and enriching experience.
The wholesale banking group was restructured in 2016, to further enhance the commitment of providing dedicated, tailor-made services for our corporate clients. A dedicated team for corporate client services has been established to ensure speedy services, quick turnaround time and interdepartmental coordination. In addition, the project finance and syndication department merged with the team catering to large corporates to ensure synergy, efficient risk appraisals and coordination.
Our corporate banking department recorded a substantial increase in assets and net profit for the year 2016. During the year the team covered some of the main industry segments including construction, manufacturing, contracting, and automobile. The project finance has done tremendously well having closed a number of milestone transactions in oil and gas, building material, waste management and industrial sectors. We have several other transactions in the pipeline planned for 2017.
After four years, how is Islamic finance industry shaping up in Oman?
The Islamic finance sector in Oman has witnessed unparalleled growth over the last four years. With two full-fledged Islamic banks and six Islamic windows, Shari’a-compliant financing portfolio accounted for 11 per cent of Oman’s total banking financing as of December 2016 and are projected to reach 15 per cent by 2020. The financing assets of Islamic Banks have grown to RO2.4bn (36 per cent since December 2015) and deposit has grown to RO2.2bn, an increase of 41 per cent since December 2015. A key contributor to this unprecedented traction in the market has been the increased awareness on the benefits of Islamic banking amongst individuals and businesses alike; a responsibility Bank Nizwa has taken upon itself to continue to lead.
Can you elaborate on your recent initiatives for raising awareness on Islamic finance in the Sultanate?
Since its inception, Bank Nizwa has maintained a long-standing commitment to raising awareness on the concepts and principles of Islamic finance and sharing its multifaceted benefits with people across the Sultanate. Spearheaded by a wide variety of workshops, roadshows, forums and discussion groups, the bank’s efforts have reached thousands of people ranging from higher education students to public and private sector entities. In 2016, we were able to reach thousands of public sector employees and students to raise awareness.
Bank Nizwa has also earned a reputation for sharing its expertise with undergraduates from some of the most prestigious international universities. The bank welcomed dozens of visitors from the National University of Singapore, the University of Washington, and Paris Dauphin University in 2016 alone. In addition, the bank remained focused on bringing Islamic financial solutions to more local communities. Inspired by that drive, we introduced its first branch-on-wheels, which visited tens of cities across the country.
What is your outlook for Oman’s banking industry in 2017?
Despite dwindling oil prices and expanding budget deficit, the banking sector continued its trajectory of growth. Total credit of the banking sector crossed RO22.1bn by the end of 2016 thus registering a growth of RO2bn or 10 per cent during the year. On the other hand, due to the decline in deposits from government entities, the growth in total deposits held with banks slowed to 5.2 per cent. The credit-to-deposit ratio soared to 108 per cent at the end of December 2016 from 104 per cent a year earlier. The banking sector remained resilient supporting the economic diversification initiatives and credit needs. The stability of the banking system stayed intact as the banking sector remained well capitalised, profitable, and fairly liquid with low infection ratio. Overall banking sector NPL ratio of 2.1 per cent suggests satisfactory asset quality and a well contained credit exposure.
The government will cushion the impact of low oil prices on the economic growth by maintaining high levels of public spending despite its lower oil related revenues. Consequently, we expect real GDP growth to improve gradually to 2.5 per cent in 2017. This reflects the economy’s reliance on general government expenditure, which accounted for an estimated 49 per cent of GDP in 2017. Slower economic growth will subdue credit demand, thereby softening the lending growth to 8 per cent-10 per cent in 2017. Overall, the banking system is well-positioned for sustained growth in the future and will benefit from the Sultanate’s systematic shift towards a more diversified economy.