Andrew Long, CEO, HSBC Bank Oman says the bank has outperformed its peers on various metrics despite its conservative approach

What is your assessment of HSBC Bank Oman’s performance on various metrics during 2018?

If you look at our trends, it comfortably beat our opposition. Whether it is cost management or cost efficiency. We chose to have a higher cost to income ratio because as a bank we deliberately don’t lend 100 per cent of our balance sheet. We are liquid and that is our strength and not a weakness. People say if you have a high cost to income ratio then your cost base is too high and you are inefficient. This is simplistic and a potentially incorrect assumption. In reality, it is cost divided by revenue and you can drive the ratio in either direction based on how you derive your cost base. We have brought down our cost base over the last five years, while in 2018 there was a marginal increase. We were No. 2 amongst banks in 2018 and the No.1 by a mile in 2017.

On the revenue growth side, we were high. If we were to lend at 105 per cent of our deposits as other banks do, we would have several tens of millions of dollars of rials, which would drive up the rate of return, which would then bring down the cost to income ratio further. So you have to look at the strategy of the organisation. As a bank has chosen to be liquid they should not be penalised for it, just because it reflects a high cost to revenue ratio. That’s the sort of analysis that is too often missed by too many people.

How was HSBC Bank Oman’s financial performance in FY2018?

We saw a 64 per cent growth, comfortably ahead of everybody. People will look at our numbers and say, you were lucky with something. I always think that one of the underlying indicators of an organisation is whether you are increasing your revenues faster than your costs and that difference is called the jaws ratio. The jaws ratio for HSBC Bank Oman in 2018 was 12 per cent, which meant that we grew our revenues 12 per cent faster than we grew our costs. If your revenues are growing faster than your costs, it reflects the underlying strength of your business. On top of that, you have to look at your provisioning lines, as you are losing too much money. As all banks moved to IFRS 9 last year globally, there has been a lot of volatility in the expected credit loss lines (ECL). Banks use different models and it has created a lot of volatility and it will take a couple of years for that to settle down. Our ECL line was pretty good last year. We see no underlying problem in our credit book.

How was your retail and corporate lending during the year?

On the personal loan side it has been stable and on the mortgage side it has been growing comfortably. Mortgage borrowing is a bit lower than personal loan borrowing, because you have the security of the property behind the mortgage for the home loan. Our focus on mortgages in the last couple of years is paying off and we have done pretty well in that. We don’t break down our numbers. On the wholesale side, our focus is on the government and government-related lending, international and multinational businesses and the large local corporates. All of those sectors are either stable or have grown. One of our strengths as a group is trade finance. We have a lot of revolving trade finance facilities which partly explains the year-end reductions in December, as some of the working capital facilities were rolled over and some were not rolled over as people did not need the money. Overall, across the wholesale spectrum we were broadly up.

Most of the bank’s balance sheets have grown, where is this growth coming from?

Credit for the economy last year grew by around 6-7 per cent, so people are still borrowing. On the retail side, there is still a lot of borrowing going on and we are ourselves quite cautious about that, as we do not want to lend into sectors where job security is questionable. So we are quite careful as to whom we lend to, but we have no concerns as we are quite conservatively provisioned and that is our strategy.

Can you talk about the measures to enhance retailing, ATM and CDM networks of the bank?

As customers demands change we need to look at servicing them through our ATM and CDM network. There are areas where there is suddenly significant population growth and we have to open a new branch. You can never call a halt to your repositioning or rationalisation of the network of branches. The banking population is getting younger and young people love technology. We have seen transaction on our counters and deposits drop quite dramatically over the last three years as people move towards ATM, mobile phone apps, internet banking and touch pay. We are investing in technology as that is what young people want to use and they do not want to go into a branch as it is slow and does not feel trendy.

What are the future plans to enhance operational efficiency and technological deployment?

HSBC Group as a whole is spending billions of dollars on technology and we can leverage it. Some of the areas where this investment is being made is biometrics, facial recognition and touch recognition which is much more convenient than passwords. The Central Bank of Oman has approved touch recognition for logging in for apps, but it has not approved it for transacting, as many other countries have and we are ready to implement such solutions whenever it is permissible. We have invested in HSBC net plus, which is a feature for our corporate customers. Oman’s government is driving the digital story and we want to be part of that story.

What were the major HR initiatives that were taken by the bank in 2018?

When it comes to Omanisation, we are in excess of 90 per cent. In terms of senior management, we are in excess of 80 per cent and that number is growing every year. In terms of gender balance, we are getting more and more Omani women at the senior level. In terms of the national recruitment agenda last year, we took on 54 new graduates. All of them whom I have met are really good and we are delighted to have taken them on board. In terms of training and development, we have continued working closely with the College of Banking Studies to develop our own courses as well as to use their courses. We continue to send a small number of our staff overseas and that is one of the attractions of working with HSBC as our staff have the ability to go to a different part of the HSBC Group either for training programmes, short term or long term training assignments. We also fly in trainers periodically from the HSBC Group for training our local staff.

What are your thoughts on Oman’s economy in 2019?

We plan to grow in 2019. In terms of the economy, the government has budgeted a smaller deficit in 2019 than 2018, which is a piece of good news. The oil price has been budgeted at $58 per barrel which is quite conservative. However, when you look at 2019 the consensus on oil prices is $65 per barrel. The IMF has forecast a growth of 5 per cent for Oman in 2019, and that would be good for us all. Oman’s budget has forecast a 3 per cent growth. Overall, Oman is expected to experience a 3-5 per cent growth and banking is a leveraged player on GDP growth so you would expect banks to grow with the economy or slightly better in some cases.