Q2 2026 Sohar International Bank SAOG Earnings Call
Speaker #1: بسم الله الرحمن الرحيم. Our esteemed shareholders, analysts, dear colleagues. السلام عليكم ورحمة الله وبركاته. And welcome for our investors' presentation. For June 2026. After the disclaimers, we'd like to present our economical, the economical and sectorial outlook for Oman, in which as you know that Omani economy continue to have stable growth, and the expected growth in 2026 is around 3.5% despite all the issues happening in the region.
Speaker #1: The government continue their efforts to reduce their debt to GDP, which show a drop by 47% from 61 from 61% or 62% in 32% or 32.7% in 2026.
Speaker #1: A further drop of 3% expected between 2025 to 2026, which show the government and the economy commitment to control the the debt. The government revenues show stable growth in revenue despite the volatility in the oil prices, and that's clear from the growth, the stable growth in the oil non-oil or non-hydrocarbon revenue, which reached 9.7 billion Omani dollar, sorry, as compared to 7.7 billion dollar in 2021.
Speaker #1: That's 2 billion dollar growth is not easy in this environment right now. Putting in mind the current volatility which we face in the in the region and in the world from 2021 until 2026.
Speaker #1: MSX show very stable growth, one of the best performing market in the world, not only in the region. Despite all the volatility happening in the other stock exchange, which show the investors' trust in the Omani economy and in the Omani company and also the attractive valuation for MSX companies.
Speaker #1: Including the banking sector and the and the other service and industrial company. Also the new IBOs, which was presented or was offered in the in the market since 2023 till 2026 in different sectors add more liquidity, trust, and also insight to the market.
Speaker #1: We need to add here also there is growing global interest in the Oman as economy and and in MSX. And that's result of the good economical growth, the diversification of the economy, and the stable credit rating of the countries by all the three rating agencies.
Speaker #1: Sohar International, established in 2007, one of the youngest bank in Oman and maybe in the region. With a total asset currently of around 27 billion dollar.
Speaker #1: We had merged or with HSBC operation in Oman in August 2023. And we have more than 1,750 staff and more than 650,000 customers. We operate and.
Speaker #1: All of those customers through 76 branches between conventional and Islamic. In addition to our branch in Saudi Arabia, and our expected our expected rep office in Hong Kong.
Speaker #1: We are the fastest growing bank in Oman and maybe in the region. And the second largest bank in Oman. We have we are the third highest market cap in MSX after OQEB and Bank Mascat.
Speaker #1: Through our operation in Oman and Saudi, we have four main streams. One, the wholesale banking which represents 67%. Of course, the Saudi operation of 8% also part of the wholesale banking if we consolidate the financial.
Speaker #1: And we have the retail operation or retail banking which represents 14% of the total asset and Islamic banking which is also the 11% which is mainly a retail operation.
Speaker #1: And.
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Speaker #1: And wholesale banking. Our market share is the total asset is 21%, but our marginal growth of the market share or the market share of the marginal growth is the highest in the market.
Speaker #1: And our market cap is 3.6 billion dollar as on 3rd of August. We have diversified shareholders. In which more than 50% of the shares are diversified across more than 6,000 shareholders.
Speaker #1: Our performance, we continue to grow our return on equity. from 10.9% in last year June last year to 11.1%. Pushed by the grow in asset.
Speaker #1: High quality asset. Maybe we earn lower return on that. However, the all of those asset with lower risk weighted capital allocation. And that's help us to enhance our return on equity.
Speaker #1: Cost to income ratios increase from 44% to 46%. And that reflect our vision to invest more in people and technology to continue our growth.
Speaker #1: Our loan to deposit ratio increase from 84% to 87% or 88%. And that's for a better utilization of our liquidity and optimize the utilization of our deposit and liquidity.
Speaker #1: For the last 5 years, or 6 years, we show very stable growth in all lines, either total asset or loans or deposits. Between 21% to 28%.
Speaker #1: So it is not only one year growth. However, that's growth which is above 20% is a sustainable growth for the last 6 years. We have the financial overview in which I will ask my colleague Rick to present it.
Speaker #2: Great. Thank you, Abdu Wad. Thank you very much. Just leading off on the comments from Abdu Wad around the compounded annual growth rate, you can see these growth rates are translated into the banks growth and operating income, operating profit.
Speaker #2: And also the continued growth, accelerated growth in our net loans matched by growth also in total deposits, which I'll discuss shortly. And likewise the key ratios I'll dig into those in some substance.
Speaker #2: If we look at the profit and loss account, referring to the net interest income, the growth in the balance sheet is driven the volume variance creating that positive 14.6 million there is a slightly negative price variance within that as the banks NIM is stubbornly around 2% compared to where similar levels back in December.
Speaker #2: And down from where we were a year before. We do see a drop in our cost of funds but also we see a lower yields.
Speaker #2: There's two sides to that. One is we're also using the balance sheet to grow quality credits. But on the positive side, the operating income has continued to accelerate the ancillary income we're generating from our relationships.
Speaker #2: We're seeing positive growth in the foreign exchange as well as some significant fees through our business advisory services and growth and trade. In fact, we see growth across all our operating income streams.
Speaker #2: Abdu Wad alluded to the investment we have in technology people. This is driving the operating expense base but also important to note that within that operating expense base 5 million is related to people, 10 million is related to other operating expenses.
Speaker #2: But significant part of the operating expense growth is related to volume. So as we see the increase in our volumes, we're seeing increases in transaction cost, withholding tax, VAT.
Speaker #2: And this is one of the drivers. We also see significant investment this year coming in from the back of last year in marketing. You'll see our profile is very prominent in the market and we are marketing expenses cut across multiple areas of the Amani sectors, supporting our businesses.
Speaker #2: If we look at the impairment charges, we'll see that is increased but the percentage is in line with last period. Commenting there, I mentioned the net interest margin.
Speaker #2: At 2% but also a reference to the other operating income growth which remains high, particularly as a percentage of our total income.
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Speaker #1: The balance sheet story is dominated by the growth in our loans, and from a funding perspective, with continued to fund that through our customer deposits, as well as interbank borrowing, as well as the support from the perpetual 81 of 200 million.
Speaker #1: Back in September. Our capital story posts the rights issue very successful rights issue with demonstrated here the pro forma post rights issue capital ratios using June 26 as the baseline.
Speaker #1: Showing a 14.4 set one ratio 17.8 tier one and 18.5 total capital ratio. Which places us very high in terms of the banking sector here in Amman.
Speaker #1: And more importantly, it positions the bank to continue with its growth story and its strategic investments including our branch in KSA. On the funding liquidity side, noting the increase in our customer deposits to support the majority of the funding of our growth and loan book.
Speaker #1: We maintain a strong liquidity coverage ratio. We have seen some pressure on the net stable funding ratio, which we continue to monitor. But noting the volatility of interest rates in the market and globally, we're looking at opportunities to how to how we will continue to manage that ratio noting as I say the increasing.
Speaker #1: Volatility in rates in determining how best to fund that. And finally, just a note on credit quality. The cost of risk for the bank is at a similar level to where we were at 31 December at 47 basis points.
Speaker #1: We have seen an increase in our non-performing loans. That has resulted in a reduction in our coverage ratio. Coverage ratio is well above 100.
Speaker #1: That is by design to continue to balance the use of some management overlays with our cost of risk. Our restructured loans as a percentage of the total loan book is reduced, but in absolute terms it has increased.
Speaker #1: And this is one of the reasons why we continue to maintain a strong coverage ratio for the bank. We'll now open the discussions up for Q&A.
Speaker #4: Hi. Good morning. And the CFO and the team. This is Sundar Iyer. Pleasure to be with you.
Speaker #1: I have a few questions. I'll start with a couple of questions and then come back to you. One thing on what is your views on the latest regulation which came from the board in terms of who regulation one is on the CBO for the Islamic Windows segregation.
Speaker #1: And what's your long-term views in terms of Islamic zone that's going on the sectors? What are your views in terms of the segregation of the Islamic banking as a separate entity?
Speaker #1: And also the Hindustan banking activity of which also has to be segregated as a separate this is an SFA one. And what are their thoughts and what kind of steps so far is looking at as a strategy in terms of going forward?
Speaker #1: This is my first question. And my second question is on the Saudi growth. I think congratulations. I think it's phenomenal growth. The bank has achieved this is one of the kind of fastest growth we have seen and we already made a good in terms of bottom line contribution is also pretty strong.
Speaker #1: This is to understand from the strategy perspective Saudi because this is one of the markets which has gone through different cycles because the previously the all the banks from Amman and including certain banks have faced issues.
Speaker #1: Do you see a different strategy which kind of factors you're looking at in terms of KSA or a bit more because we just don't understand from the perspective of how the risk management goes through certain banks is following a bit more different aggressive kind of strategy in terms of growth.
Speaker #1: That's my second question. I'll stop here and I'll have more questions but I'll ask I'll keep the others to participate and then come back to you.
Speaker #2: Thank you Sundar. I believe for regarding the regulation, I believe that both regulations and regulators looking for better governance and better stability and long-term for both regulation either about investment banking or Islamic will ensure a better governance and sustainability for both line of business.
Speaker #2: Of course we will continue investing in both of them until the segregation. What will happen in three years that will disclose about it at that time.
Speaker #2: About Saudi, myself I was 11 years in Saudi. Greg, you were 8 years. Three years. Three years. So we know the Saudi market very well.
Speaker #2: As an economy, I believe that Saudi was one of the most stable economy. All the banks in Saudi were performing very well at average return on equity I think about 15 to 18%.
Speaker #2: A lot of project, a lot of economical project and growth is there in Saudi. I don't we believe that if you apply the ABCD in banking and you apply the right risk management supervision what we do closely from Oman and in Saudi with our monthly visit myself and the CRO to the Saudi branch and having the right team you will achieve the right result.
Speaker #2: Which is our ultimate result is to enhance the return on equity from the Saudi operation to take up the return of equity of the consolidated balance sheet.
Speaker #2: I hope that's answer your question.
Speaker #1: Yes. One thing I want to step on the aspect of because the market share gain as the case was also seen pretty strong for the bank in the last one year the growth rate has been pretty high.
Speaker #1: But if you see the restoration on the margins it's not coming in. Though you're gaining market share the margins are under pressure. What is your kind of take on that because margin compression and your local deposit ratio is also moving to 80%.
Speaker #1: Previously you have that lower. How do you see that because the market is also going through a kind of phase where still the economy is like going through kind of set and sets because of the conflict.
Speaker #1: How do you see that whether this kind of growth will have a kind of I know you've been saying on the quality side just for understand from your strategy on market share gains and the margin compression a bit how do you see that and will this continue and you will take up the loan to deposit to more than 100% or what's the kind of growth you're looking at in terms of the next couple of years?
Speaker #2: Sure. Thank you. I think the answer is clearly our objective is to enhance and increase the return on equity. Return on asset is very critical for us but if we will have a lower margin with very high quality asset which will consume lower capital from us what we are looking mainly is high return on equity.
Speaker #2: And optimization of the our the optimization of our equity and and capital. Regarding our growth we'll continue our growth either through Oman operation either in retail in the deposit side in which we are doing that through more marketing and sponsorship and attracting more customers to us or through the whole sale banking by lending the quality asset diversify quality asset either in Oman and Saudi.
Speaker #1: Yeah. Yeah. That's it from my end and come back to you later.
Speaker #2: Thank you Sundar. Very good question. Thank you. Really appreciate it.
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Speaker #1: Hello.
Speaker #2: Hello. Good morning.
Speaker #1: Congrats this set of numbers and very fantastic market share gains. And I have been joined four times so far for several couple of years now.
Speaker #1: So just picking up on the previous question could you tell us what are your thoughts on the general market outlook in terms of credit growth?
Speaker #1: We have seen the market picking up in over the last one and a half years. So do you see the momentum continues in terms of credit market growth and where do you see yourself in terms of the market positioning both in terms of the credit growth as well as on the funding side?
Speaker #2: Sure. I think our growth strategy is mainly going with the vision 2040 in which the vision is to attract more FDI and that's in which we play a a strong role there to attract more FDI to the countries and more investment to the countries.
Speaker #2: So we try to be pioneer by finding those credit opportunity or even the depositors before they come to Oman and even to attract them and find them the right business opportunity to operate.
Speaker #2: And that's going along with the vision 2040 and we also focus clearly on the sectors which the visions are focusing on and we create clear economical report about each sectors and the forecast and the major players who are who should come and play that role in the Omani market.
Speaker #3: I think it may have been in the previous presentation Abduad where you discussed some of the successes we've had internationally such as transactions out of Brazil with the bankers has ventured.
Speaker #3: We have a rep office in Hong Kong. That is there to support across cross border facilitation customer taking the best of Oman to the world and the best of the world to Oman.
Speaker #3: So these are these international objectives are also a money centric not just so international centric.
Speaker #2: Hong Kong operations the office employees everything's ready the official opening ceremony will be in September but from now we have almost six live transactions coming from Hong Kong in which investors from the world are coming to Oman and we are working with them for different project.
Speaker #2: And there's another 13 project for example in the pipeline. So that's maybe can reflect the growth which we are looking for above the normal growth which you see in the market.
Speaker #1: So how do you see the overall market growth forward probably for the next one and a half 18 months to 24 months?
Speaker #2: See in term of numbers I cannot disclose it. However in term of the economical growth we believe there is very strong pipeline of investors coming to the Omani market.
Speaker #2: A lot of projects are planned in the Omani market and that's supported by the vision 2040 and the vision support them. So it is and our role to maximize our input to those project and also maximize the output of those project to the world.
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Speaker #1: Okay. Thank you. And I was going to have any feedback your strategies are we expecting we have noticed that you know despite the advanced growth in aspects we have not seen this growth getting converted into the margins.
Speaker #1: The scalability of operations are not margin until it's means are on a continuously declining path. So could you please discuss the reasons for this lower means and where do you see the margins settling over the short to medium term?
Speaker #2: Sure. Maybe we'll answer the same way. See mainly our growth focus on very high quality asset with lower capital allocation or risk weighted asset.
Speaker #2: And those asset normally will require lower margin. And that's show that our growth is mainly on a quality asset in sustainable income. And all of that contribute to increase our return on equity.
Speaker #2: We I believe we have a healthy growth in the name but also if you notice that our in BA increase by almost 100 million Omani rial.
Speaker #2: In the last 12 months or 18 months sorry. And all of that reduce the interest income which booked in our profit and loss. So if you add the same and you do your analysis you will find that we have a healthy NIM and a healthy growth in the net interest income.
Speaker #3: And also maybe to give another another overlay to that from a different perspective is the the funding costs in in KSA because we're done obviously have a retail operation there.
Speaker #3: Is one estimate also the general rapid growth in the bank it takes some time to grow the retail base which is obviously very reliable sticky deposits and enhance enhance the NIM.
Speaker #3: So as we as we move forward we are seeing very positive growth in our retail deposits but at at the level of scale it doesn't match the current level of loan growth.
Speaker #3: So what you're seeing is is is a reflection of the bank's growth and the need for us to gradually catch up through that retail base.
Speaker #3: And we also do do still see some to an extent some drop in the yields on some of our treasury treasury book but that's now starting to normalize that was a story we had back in 2024.
Speaker #3: So there's some other dynamics within the drivers of that NIM but over the longer term we expect the NIM to improve.
Speaker #2: We need to add there is around two billion Omani rial investment securities and those investment security if you notice that the inter is mainly invested on treasury bills in which the yield or the treasury bills worldwide in different currencies was dropping on the last 18 months.
Speaker #2: And that drop affecting our NIM also. However our strategy is not to depend on the on the interest income from investment in securities of the two billion rial but mainly to depend on our lending activities.
Speaker #2: So by the time you will find more stable net interest income with a good growth despite the increase or decrease on the interest rate worldwide.
Speaker #1: Okay. And very great mention about the retail operations which show your area. Are you operating on the retail clients of your area or is it entirely with the clients?
Speaker #2: No it is mainly a wholesale bank. What he mean the the depositors mainly need time and the in order to attract fund and deposit from the depositors you need a proper relationship and maybe a proper technology also.
Speaker #2: Considering that the Saudi market has very strong competitors mainly on the retail market. But our operation in Saudi is mainly wholesale. And we are not planning to do retail in the near future.
Speaker #1: Okay. Got it. And what I'm seeing as so far has a higher cost of cost of funding in the capital side is there any plans for reducing the cost of funding basically that is coming from Oman?
Speaker #3: So I'm not clear I'm not clear on your question sorry.
Speaker #2: Because we believe our cash has lower cost.
Speaker #3: So what was the question?
Speaker #1: Back on the recording side but what I've looked at is your purpose of capital is slightly on the higher side.
Speaker #2: See our strategy mainly to grow the low cost cash and that's what we do through investment investing in technology marketing and promotion. So that's the strategy which we are looking for.
Speaker #2: It it was never our strategy to grow the high cost cash. And we believe that's what we'll continue to do. I'm not sure if that answer your question but that's what we do mainly.
Speaker #2: And we leave that reflected in the number. A lot of things are not disclosed maybe in the financial statement with proper management analysis.
Speaker #3: Yeah sorry because our cost of funds I mean this you can derive this it's market market data. Our cost of funds around weighted about 2.68 which is well below most of the other banks.
Speaker #3: And customer deposits are at 2.56. There's a standalone. So I'm not quite sure what the analysis you you're comparing.
Speaker #2: You need to put in mind also I am not sure of the cost of fund for the Saudi operation disclosed because also the cost of deposit in Saudi higher than Oman.
Speaker #1: Okay. Okay.
Speaker #2: Yeah. Maybe that's the reason which you are referring to.
Speaker #1: Yeah. Yeah. Yeah. Got it. Yeah. That's it from my side what we've done.
Speaker #3: Thank you.
Speaker #2: Thank you Joyce. Thank you. Thank you.
Speaker #3: Thank you.
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Speaker #1: Assalamualaikum.
Speaker #2: Waalaikumussalam.
Speaker #1: Yeah. I have a couple of questions. The first question regarding the discussion and the merger with Alibaba. Can you give us a bit of update on that because it's been a while since we heard the last update?
Speaker #1: And the second question regarding the right issue. Is there like where Subhan Bank raises rights issue every two years after this family has six years or so?
Speaker #1: So is it is it something like part of the strategy of the bank to raise capital through rights issue every couple of years? And what is the plan for the funds you know the 140 plus million that was raised just recently?
Speaker #1: Thank you.
Speaker #2: Thank you. Regarding the merger, there is any development we'll announce it on time. The latest announcement was on 20 I remember on June 2025.
Speaker #2: And there is no development since then about it. If there is any development we will announce it immediately to the investors and to the market.
Speaker #2: Regarding the right issue, the right issue is mainly reflect the trust of our shareholders by providing them sustainable income. When the shareholder believe that we can provide a sustainable revenue and growth in their in their profitability, which we present to through our financial presentation and this presentation for example, we we will continue to grow with there is a lot of opportunity to grow in Oman and outside Oman.
Speaker #2: And that growth will yield a good return on equity which push the investor to invest more in our capital. Of course we will ask for the right to grow our business because we find quality opportunities either in the local or in the international market.
Speaker #2: Which we operate like Saudi.
Speaker #3: Maybe just to clarify to Ali one of your questions there was is it as a matter of policy are we looking to raise do a rights issue every every two years?
Speaker #3: So the answer is no. There's no policy. It's up to what I'd mentioned. It really is a matter of looking at the bank's opportunities and if you look historically the bank has been very successful in identifying opportunities raising capital to support the growth story you'll also see that we opportunistically look to issue 81 securities per petrol 81 securities again last year there was 200 million both of those are are instruments that we look at either a rights issue or tier one depending on the the bank's capital ratio position.
Speaker #3: You've seen we've introduced MCBs for the first time which has will in future you know a marginal impact. So we're looking at those capital raising opportunities and how to structure the capital base of the bank but really is looking at the opportunity we see ahead and if we don't see those opportunities we won't won't be looking to increase the capital of the bank.
Speaker #3: So very much looking at the the strategy going forward and very responsive. We've had very strong support from shareholders in the past and we're looking you know hopefully we'll continue to have that support.
Speaker #3: Yeah.
Speaker #2: We'd like to thank all the participants and everybody who asked question and I hope our answers are clear to them. And since there's no more question we'd like to end the session and to thank all of our stakeholders for their trust and contribution to our success.
Speaker #2: Thank you.
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Speaker #3: Anyone اليوم هاي المحاضره بعد ما تكمل ما راح تلقى سؤال خارجه بالوزاري يعني كل الاسئله راح تكون من داخل هاي الصبوره واريدك وياي تقول يا الله وخليك مركز وياي ونبدا المسائل مال الفصل الثالث كالتالي اول مجموعه المقاومه الصرف المجموعه الثانيه محل صرف ومتسعه ذات سعه صرف مجموعه ثالثه توالي ار ال اللي هي الملف وعندنا التوالي ار ال سي عادي واكو ار ال سي رنين واخير مجموعه التوازي نقدر ونقول يا الله ونبلش بالمقاومه الصرف طبعا قبل لا ابلش اكو محاضره كامله شرح بها كل قوانين الفصل يعني مراجعه قوانين وخطه حل تقدر تشوفها تفيدك يعني كمراجعه لكل قوانين الفصل وانا همات كل مجموعه راح اخذها اشرح قوانينها زين نجي هسه اول شيء المقاومه الصرف المقاومه الصرف اللي اريده من عندك اني اول شيء كالتالي مقسمه القوانين اول شيء معادلات معادلات وراها المعادلات عندنا معادله الفولتيه.
