Ahmed Al-Musalmi, CEO, National Bank of Oman shares his thoughts on the bank’s performance, initiatives and what lies in store for 2015 with Mayank Singh.
Ahmed Al-Musalmi, CEO, National Bank of Oman (NBO) is in a cool mood. As we settle down for the interview, he jokes about how we are in a hurry to fire the first salvo right after pleasantries. Well, he has more than ample reason to be pleased. In the first three quarters of 2014, NBO turned in a solid performance – the bank’s profit touched RO37.1mn – a 19 per cent increase over last year. “This has been very impressive given the fact that there has been a gradual erosion of margins in the banking business and tough competition. Another reason for our good performance has been the diversification of our income streams across businesses and products.”
For example, the government banking division has done extremely well, and it is looking at capitalising on that success, given the primacy of the government’s role in the economy. NBO has also established dedicated SME centres, and it sees this as another potential area of growth. The bank is putting in place a strong foundation for future growth with people, system and resources.
While in the past the foreign operations of NBO had been a challenge, currently this seems to be managed well, says Al-Musalmi, “Our UAE business has done well and has positively contributed to our overall performance. Oman and UAE are very close trade partners and we are the only Omani bank in the UAE. This gives us a competitive edge in that market. Our branches in the UAE will also complement our SME strategy, as there are a number of medium sized Omani companies trading in the UAE.” Wholesale banking in the UAE has also been an important contributor to the numbers.
Cross country linkages
NBO is an alliance of four banks from Oman, UAE, Turkey and Qatar – Commercial Bank of Qatar, Alternative Bank in Turkey, United Arab Bank from UAE and NBO from Oman. This has proved to be a source of strength, while scouting for new business opportunities and developing product expertise. The combined wisdom at the board level helps in developing a more pervasive strategy giving the bank an edge.
“Our Muzn Islamic Banking has done very well, at the operating level, we have already broken even, so this is another area for growth and diversification of our business lines to reduce our dependence on a few areas of income generation,” adds Al-Musalmi.
Enhancing the level of staff engagement has been a big focus area for NBO. Says Al-Musalmi, “During the year, we noticed a tremendous level of staff engagement and excitement. This was the result of very clear plans and concerted efforts to see that employees are engaged. The team came up with a bank-wide staff engagement programme and initiatives and everyone participated in them with a lot of energy and enthusiasm. We have seen a good response from our staff and this has helped in the overall financial performance of the bank, particularly after the second quarter of 2014.”
Al-Musalmi added, “In October 2014, we successfully concluded a $500mn Reg S bond issuance under the Euro Medium Term Notes (EMTN) programme. The issuance is a key element of our robust growth strategy and the funds raised will be used to repay the Bank’s existing dollar liabilities, diversify our funding base and support the growth of our USD loan portfolio.”
The Bank has also continued to invest in many talent development initiatives and training and development programmes, says Al Musalmi “This year, we collaborated with the prestigious London Business School of Management to deliver a comprehensive leadership development programme for our employees. More broadly, training and development are areas where the Bank invests heavily and I say with pride that our Academy of Excellence sets the standard for training excellence in the Sultanate.”
While the bank has exceeded expectations on various counts, the year has not been without its share of challenges. For example, the retail banking business came under a lot of pressure as a result of regulatory changes. This has hampered growth, but the bank is confident about retail banking’s future potential.
Five year strategy
NBO has developed a five year strategy, a first for the bank and remarkably, this has been done without the help of an external consultant. The strategy includes a detailed operating plan for each of the bank’s businesses. “We have identified areas of growth and businesses that need to be prioritised and at the centre of all this lies the customer. We aspire to become the bank of choice for the target segments that we have identified. The five year plan will be effective from January 2015, although a number of strategic initiatives have already been under implementation over the last six months. The strategy will be refined every year,” avers Al-Musalmi.
As the competition in the market intensifies, the CEO believes that service differentiation is going to be the biggest differentiator for Banks. Al-Musalmi says, “Going forward in the competitive market, the winners will be those who are the leanest and lowest in cost, leaders in technological advancement or the ones who have a niche, as one cannot be everything to everyone. Our aim is not just to acquire market share but to add value to customers through our service. If we can successfully make a difference and add value to our customers, they will see us as the bank of choice.” This underscores the adage, ‘Make meaning and then make money.’
The bank has also been working on improving its efficiency parameters. Traditionally, NBO’s cost-income ratio has been on the higher side both in terms of breakeven cost and the cost of funds. The bank has managed to successfully reduce its cost of funds and other operating expenses. Any increase in costs during the year were correlated to infrastructure upgradation for future growth and profitability. NBO is working on bringing down its costs to market levels or even below.
While some financial institutions are wary about lending to SME’s, Al-Musalmi allays such fears. He feels that with SME’s it all boils down to the business model, sectors being targeted and what value one can deliver to them. “The good news is that SME’s give you a lot of floating deposits. Yes, it is a risky sector in terms of lending and we need to be mindful of the risks. As a bank we are conscious of those risks and we know how to manage them effectively. Traditionally, institutions have only been lending to SMEs, but more than providing financial support it is important to understand their business model and to advise them.”
Looking ahead
Al-Musalmi gives a resounding vote of confidence to the prospects of Oman’s economy. “I am very confident about Oman’s economy and its bright future.” He goes on to list the reasons for his upbeat appraisal. One, there are oil and gas reserves in the country and that will be there for years to come. Second, demographically we are a young nation and if we are able to unlock the potential of this segment then we are well positioned compared to others. Third, Oman has a robust and stable regulatory framework. The Sultanate has been extremely stable and successful in what it has achieved over the years. Parallely, its regulatory framework and corporate governance should be a big draw for foreign direct investment, though this story needs to be exposed to a wider audience of global investors. Fourth, the infrastructure spending taking place in the country is good news and these developments will be key to generating future revenues, delivering value and sustaining overall economic growth, whether it is to do with manufacturing, tourism or logistics. The upcoming Oman railway project is crucial for developing transportation and logistics in the country. The Convention Centre will add a lot of value, attracting audiences from across the region, once it is up and running. Fifth, Oman’s public debt as a proportion of GDP is among the lowest not just in the region but indeed across the world and its success has been achieved with its own money, without borrowing. This is a strength and a great opportunity. Given its robust track record, there is ample opportunity for the country to grow the economy focusing on strategic projects by borrowing given the favourable global interest rate regime. “All these investments will significantly contribute to the country’s economic diversification, and we need to maintain that focus. The country’s natural beauty is a big advantage as it is completely different from and complements other neighboring countries in the region. Anyone coming to Dubai, for instance, can visit Oman, to have a complementary experience and fly back home. Oman provides that distinctive experience. All of this is good news and when we put this all together, it makes me very hopeful about Oman’s future.”