National Bank of Oman Annual Report 2019 | C National Bank of Oman Annual Report 2019 | 01 His Majesty Sultan Qaboos bin Said His Majesty Sultan Haitham bin Tarik National Bank of Oman Annual Report 2019 | 03 05 65 Contents 2019 Overview Basel II and III – Pillar III Report 2019 07 97 Our Vision Statement of Financial Positions at 31 December 2019 09 Chairperson’s Report 2019 195 Muzn Islamic Banking 21 Executive Management 199 Muzn Islamic Banking: Basel II & III – Pillar III Report 2019 23 Management Discussion and Analysis Report 2019 227 Muzn Islamic Banking: Financial Statement 37 Corporate Governance Report 2019 279 Branch Network 40 Board of Directors National Bank of Oman Annual Report 2019 | 05 1 2019 Overview National Bank of Oman 2019 Overview 2019 Overview Annual Report 2019 | 07 Our vision: To be the Bank of Choice National Bank of Oman 2019 Overview 2019 Overview Annual Report 2019 | 09 Embarking on a new era of successes, prosperity and welfare Dear Shareholders, On behalf of the National Bank of Oman, represented by its board of directors, we would like to express our deep feeling of sorrow and sadness as we find ourselves in the wake of the passing of our beloved His Majesty Sultan Qaboos bin Said, whose absence has surely left an immeasurable gap in our hearts. Our nation’s late leader has built a solid foundation to advance our beloved country to where it is today. Therefore, the onus is now on us to continue this trajectory and achieve the hopes and aspirations for our great nation with a great sense of pride and responsibility. The National Bank of Oman, was the first and only bank to have been granted license to operate by the late Sultan Qaboos bin Said himself and it is a privilege that we have always held with the greatest sense of respect and honour, the Bank has always been dedicated to the fulfillment of his forward-thinking vision, also of serving the Omani people and of our role in the nation’s economic progression. We will be proceeding on the same path under the leadership of His Majesty Sultan Haitham bin Tarik, following his directives and guided by his wisdom, while we are embarking on a new era of successes, prosperity and welfare. On this note, on behalf of the Board of Directors of National Bank of Oman SAOG, I am pleased to submit to you the Bank’s full year results for 2019. Rawan bint Ahmed Al Said Chairperson National Bank of Oman 2019 Overview 2019 Overview Annual Report 2019 | 11 Chairperson’s Report 2019 Net loans and advances to customers as at 31st December 2019 were at 2.8 billion showing a very marginal reduction over last year while customer Economic developments The Bank selectively grew its loan book in the last deposits were at 2.53 billion showing an increase several quarters, given its focus to onboard only good of 3.2 per cent over last year. In terms of deposit mix, Capital adequacy The year 2019 saw Oman’s public finance performing quality assets and to avoid exposure to certain sensitive the Bank continues to maintain healthy 58 per cent better with a lower deficit for the first 10 months of sectors. Over the last couple of years, the Bank has low cost deposits. As mentioned earlier, the Bank has ratio is the year compared to corresponding period last year, consciously reduced its exposure to real estate and identified certain key strategic initiatives like digital on the back of prudent expenditure management allied sectors. To partially negate the steep rising cost payments and enhancements to our Transaction and Government’s continued focus on diversification. of funds, the Bank actively repriced its existing loan Banking proposition which are aimed at increasing This is despite challenges faced in the oil market book. This has helped in growing the NII year on year the low cost deposits for the Bank and we expect to improve the mix in the current year. 16.7% with imbalance between supply and demand, and by 1.8 per cent and net interest margin continues to continued fluctuation in oil prices. Although the GDP be at a healthy 3 per cent, as a result. The board will be recommending a modest growth has contracted in the first six months of 2019, most The Bank continues to focus on diversifying its revenue in dividends which in absolute quantum will be 5 per analysts predict Oman economy to grow at 3 percent streams, given the challenges in growing NII. Several cent over last year. This level of dividend approximates in 2020 with World Bank predicting Oman’s real GDP strategic initiatives like Payments and enhancements to a dividend yield of about 10 per cent which is a key NBO continued to thrive on its digital transformation growth to be fastest in GCC in the years 2020 and in Trade proposition are being implemented and this shareholder value driver. The proposed dividend enabling digital on-boarding of customers for prepaid 2021, given the rising natural gas production and will help further diversify the revenue base in the is subject to approval in the Annual General meeting card, launched Pay+ a mobile wallet in collaboration the positive results from the Tanfeedh programme. year 2020. and by regulatory authorities. with Ooredoo, and upgraded our own e-wallet with While there are clear green shoots visible in several Operating expenses increased by 3.1 per cent year on The Bank’s capital adequacy ratio as at year end, after convenient features that make digital payments even sectors, there is cautious optimism across numerous year primarily due to mandatory staff increments and the proposed dividend is 16.7 per cent, which compares easier. In line with payment strategy we enhanced sectors of the economy as we enter the new decade. certain one-off costs. The Bank has one of the lowest to the regulatory requirement of 13.5 per cent. our merchant payment solution with QR based payment The Oman’s national budget for 2020 aims to allocate growing cost bases and will continue to manage costs acceptance. Our Badeel pre-paid cards continue sufficient funds for key development projects and judiciously, while investing for approved technology/ Key achievements to go from strength to strength, picking up three increase the share of non-oil revenues. The budget revenue earning initiatives. awards at The Middle East Cards and Payments focuses on completion of infrastructure projects that Innovation has been a particularly key theme over Operating profit, as a result, reduced by 3.8 per cent Leadership Awards. will help promote economic growth and encourages the last year. The global finance industry is navigating over corresponding period last year. Sadara, our Wealth Management and Private Banking private sector participation in implementing and through an ever-changing landscape of digital proposition, enjoyed considerable growth, as NBO was managing projects. Emphasis on social spending and Impairment charge is higher compared to last year disruption. By pioneering this disruption, rather than named the Best Wealth Management Business (Affluent basic services such as education, healthcare, housing by 4.7 per cent despite better asset quality and this merely reacting to it, NBO has consolidated its position Segment) in Oman in the Asian Banker Oman Awards. and social welfare continues to be a priority for the is primarily due to lower recoveries as compared to last at the forefront of innovation in the industry. This is The new Systematic Investment Plan launched by Government and similar to previous years, social year. In addition to this, reflective of market stress in evident in both the tangible output and the recognition the Bank is an excellent tool to help customers invest spending represents the largest portion of the budget. asset quality, Stage 3 provisions have increased in our we have received. We are already seeing the fruit of more broadly and wisely, enabling them to build up a Also new regulations issued by the Government in 2019 Oman business compared to last year, partially offset our technological labours, not only the positive substantial nest egg for the future. This is part of our such as the new Commercial Companies Law, Foreign by reduction in Stage 1 & Stage 2 provisions. The cost response from our customers, but also in a growing commitment to promote the value of savings by taking Capital Investment Law, Public Private Partnership Law, of credit for 2019 at 22 bps of average assets compares accumulation of international awards for innovation on an advisory role, and this is something we Privatization law and Bankruptcy Law are expected to very favourably to the market. Net cost of credit for and digital leadership. significantly boost the investment climate in Oman. the Banking sector in 2019 has increased in excess will continue to develop. The Bank was a finalist for the coveted Gartner Eye on of 40 per cent year on year. The Bank is continuing to invest in data analytics The banking sector however continues to operate in a Innovation EMEA Awards, and was also rated the Best and artificial intelligence, the unveiling of the robot difficult environment. Liquidity pressure has not eased, Innovation Centre in the Asian Banker Awards. We also this year, is a symbol of our commitment to offer resulting in higher cost of funds and asset quality issues, proudly accepted the award for Best Mobile Banking our customers the best of modern banking. which forced the Bank to further tighten its lending App Oman 2019 by International Business Magazine norms. This is reflected in the lower credit growth in and by International Finance.