Profits on the high
National Bank of Oman capitalises on business efficiency and emphasis on customers satisfaction

National Bank of Oman has continued its impressive performance for the second year in a row to retain its position in the Top 10. With BankMuscat doing well at the top and OIB improving its performance remarkably, NBO still has to do some more work. However, it is worth noting that the bank’s chief executive, Andrew Duff, has successfully put the bank in the high growth lane in 2006. Capitalising on its strategic partnership with the Commercial Bank of Qatar, the bank’s net worth increased to RO185 million during the year based on the profit recorded for the year.

NBO also achieved a record in terms of net profit and strong growth in its business and services. The net profit for 2006 at RO30.4 million was 50 per cent higher than RO20.3 million profit it reported in 2005.

Growth in total assets during the year saw these cross the RO1 billion mark for the first time in its 32-year history. This growth was linked to the growth in deposits by RO200 million (32 per cent) and growth in net advances by RO162 million (30 per cent). These reflect a good trend and are consistent with the bank’s strategy to grow quality loans and deposits.

More importantly, the bank’s profit from core operations increased by 40 per cent (from RO20 million to RO29 million) as compared to the 17 per cent growth this segment recorded in 2005. Clearly, this demonstrates the changing emphasis from preservation to growth within the bank, with the ultimate aim being ensuring sustainable returns to the shareholders.

Other growth and business efficiency ratios also showed all-round improvement, with the cost to income ratio declining from 49.5 per cent to 44.6 per cent. The ration of other operating income in total income increased from 26 per cent to 33 per cent, reducing the reliance on net interest income, while the return on average equity increased from 15 per cent to 19 per cent in 2006.

The record net profit, overall growth and business efficiency combined with the emphasis on customer satisfaction saw the NBO being awarded The Banker’s Magazine award for the Best Bank in Oman for 2006. Also, the bank’s ratings were upgraded by Moody’s and Capital Intelligence.

The year 2006 saw consumer banking operations post robust growth, with operating profit increasing by over 33 per cent over the previous year. This was supported by a 13 per cent growth in advances and 15 per cent growth in deposits. The positive performance of the market had its effect on the performance of the bank’s investment banking division. Thus, brokerage turnover grew by 75 per cent in 2006, with assets under management showing healthy growth and client portfolios as well as the bank’s proprietary portfolio performing well.

The depth of existing relationships continued to expand and new relationships were entered into with a number of domestic and multinational business houses and government companies. The bank was also involved in prime infrastructure and project financing through both bilateral deals and syndications. Synergies in joint arrangement and co-financing with strategic partner, Commercial Bank of Qatar, proved fruitful in sharing of risk, structuring expertise, distribution and being able to originate larger more complex transactions. Operating profit during the year was up by 55 per cent, advances by 49 per cent and deposits by 46 per cent over the year ago levels.

As the bank entered the growth phase in 2006, it ensured that the risk management processes and systems were sufficiently robust to take care of future requirements.

During the year the major initiatives undertaken included Third party account transfer facility was added through Internet banking and improvements were made in introducing new alerts to customers on specific events. A browser-based user friendly system was implemented for processing bulk salaries and this browser-based platform will serve as the base for introducing further browser based applications.

Some of the major process improvement initiatives included the successful implementation of the Automated Clearing House (ACH) system which has significantly reduced turn around time, input errors and improve efficiency in clearing. Also the new SMS system rollout in DBS & branches has improved efficiency and processing time reduced.

Outlook
For 2007, the bank is focusing is on big-ticket deals, project financing and fee-based income by expanding the client base and increasing the share of business from existing clients. Specifically, the initiatives underway include setting up of the Sohar Strategic Business unit, consisting of a dedicated team of relationship managers, establishing a transaction banking team to focus on transaction banking, a dedicated unit to cater to the business needs of small and medium enterprises, and continued leveraging of the relationship with Commercial Bank of Qatar.

“The operations for 2006 have been significant as we have built a platform for sustainable growth in business and profits. Earlier, the focus was on resolving the problem of non-performing assets and preserving capital. This has changed with the focus on growth being successfully re-ignited during the year with the support of Commercial Bank of Qatar,” NBO Deputy Chairperson Rawan Ahmed Al Said said in the firm’s annual report.

The change is reflected with the bank’s profits from operations growing by 40 per cent. There is clear expectation of continued economic growth in both Oman and the UAE during 2007, sustained by a high energy prices. The recently announced Oman budget for 2007 has considerably increased spending in all areas, including education, health and infrastructure, while continuing to be fiscally prudent. This will ensure that opportunities continue to be available to banks.

NBO has established a clear strategy for growth in 2007 and beyond based on a balanced scorecard approach, where it has a clearly defined strategy with respect to financial performance, customers and products, process and service improvement and development of its employees.

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