Loan book is key
Cost management aligned to efficiency boosted operating profits for Oman International Bank

The year 2006 was another successful year for OIB, which stood in the 10th position in 2005, and was able to retain its position in the Top 10. This reflected the huge growth seen across the banking sector in Oman. The Bank attributed the success to its strategy of providing superior value to its customers.

The year that was
Key measures of performance and efficiency continued to show improvement. Net interest income increased by 6.6 per cent, from RO32.512 million in 2005 to RO34.666 million in 2006. Other Income of RO10.492 million, showed an increase of 21.5 per cent. “This improvement is the result of our efforts to increase the volume of fee-based activity. Our cost management and productivity improvement initiatives continue to yield positive results,” according the company’s annual report. Operating costs declined by 0.2 per cent and as a result, the cost to income ratio improved to 38.9 per cent for the current year as compared to 42.8 per cent for the previous year. Accordingly, the Bank’s operating profit increased from RO23.548 million in 2005 to RO27.599 million in 2006, a growth of 17.2 per cent.

The Bank had another successful year in recovering non-performing loans with the impact of recovery amounting to RO5.431 million. Accordingly, the bank achieved a net profit of RO26.195 million for the year 2006, compared to RO22.028 million for the year 2005, an increase of 18.9 per cent. In the light of these results, the Board of Directors has proposed a cash dividend of 21 per cent and a stock dividend of 10 per cent to be distributed in 2007.

The loans and advances stood at RO516.856 million as on December 31, 2006, compared to RO512.590 million on the same date previous year, recording a modest increase of 0.8 per cent. The focus during the year has been to increase the project finance loans in line with its strategy of growing low-risk assets. Total deposits stood at RO684.816 million as on December 31, 2006, compared to RO659.244 million on December 31, 2005, representing a growth of 3.9 per cent. Loans and advances continue to form a significant part of the total assets and represent 56.2 per cent of the total assets. The Bank’s loan book is primarily concentrated in Oman with 99 per cent of the loans in Oman and the balance represents exposure in India, Pakistan and other GCC countries.

Internationally, in India the Bank’s strategy of focusing on recovery of problem loans, limiting asset growth, improving cost of funds and reducing operating costs continues. The results continue to be encouraging with a strong improvement in the operating income. The company has also seen positive developments in recovering some NPAs. The operations in Pakistan continue to be closely managed. OIB has increased the capital base of its operations in Pakistan in line with the requirements of the State Bank of Pakistan.

Total banking credit increased by 20.5 per cent from RO3,896 million in December 2005 to RO4,695 million in December 2006. During the nine-month period ended September 2006 (latest data available), personal loans increased by 14.7 per cent and corporate and commercial lending increased by 13.4 per cent.

The total balance sheet of the Bank stood at RO919.504 million as on December 31, 2006, compared to RO820.835 million on December 31, 2005. The Bank maintains a judicious mix between loans and short-term liquid assets represented by cash and balance with central banks, bank placements and treasury bills/CDs. The Bank’s capital position continues to be very strong.

Cash and balances with central banks, treasury bills/CDs and bank placements, which are mainly of short-term maturity, are the key components of the Bank’s liquidity management activities. Treasury bills/CDs decreased by 26.5 per cent to RO60,000 million and bank placements increased by 77.5 per cent to RO246,063 million. These liquid assets constitute 37.6 per cent of the total assets. Placements with banks in Oman, OECD and GCC countries represented 93.5 per cent of the total placements.

Shareholders equity, including current year profit of RO26.195 million, increased to RO125.213 million as on December 31, 2006. The Bank’s capital adequacy ratio at the end of the year stood at 22.05 per cent.

The year ahead
The outlook for the year 2007 is positive as a result of a number of prudent macroeconomic initiatives undertaken by the Government of Oman. The fiscal budget for the 2007 has a strong emphasis on growth with a targeted real GDP growth rate of 6 per cent. Privatisation and infrastructure development continues to be a focus area to achieve economic progress and diversification.

The initiatives on the gas-based industrial projects are expected to achieve further progress during the year. Oman’s entry into World Trade Organisation, the GCC Customs Union with a unified external tariff and the Free Trade Agreement with the US, will help to achieve better market opportunities and encourage intra-Gulf trading. These initiatives should provide enough opportunities for the Bank to further improve its business.

The bank looks to the future with full confidence and optimism. The government policies continue to focus on strong

economic growth with the 2007 fiscal budget targeting a real GDP growth of 6%. This, together with the solid business franchise that the bank enjoys in Oman, and the market share gained over the past years, leads us to believe that Oman International Bank will be successful in expanding and developing its business, and thereby continuing to contribute to the progress of the nation.

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