MSM witnesses sharp recovery

MSM30 closed the week up by 3.29 per cent on the back of a ‎recovery across all sub-indices led by the financial index at 4.72 per cent. The ‎Shariah index was up by 0.04 per cent. Foreigners continued to ‎remain net sellers and sold $10.9mn worth of ‎securities while Omanis and GCC investors remained net ‎buyers of securities.‎

During the week, Majlis Ash’shura discussed the Value Added Tax (VAT) Draft Law, referred by the Council of Ministers as an urgent matter. The members voted on each article separately after extensive discussions, in light of the report of the Economic and Financial Committee in Majlis Ash’shura. The report took into account the importance of the project’s compatibility with the economic and financial situation of the Sultanate and future aspirations that may have impact on the national economy.

Our analysis of Oman bank results for 1H20 / 2Q20 indicates that the total operating income for 2Q20 of Bank Muscat (BKMB), Bank Dhofar (BKDB), National Bank of Oman (NBOB), Oman Arab Bank (OAB), Sohar International Bank (BKSB), Ahli Bank (ABOB), HSBC Oman (HBMO) and Bank Nizwa (BKNZ) is down 7.5 per cent YoY and 5.8 per cent QoQ on likely reduction in net interest income due to interest payment deferrals mandated by the CBO in its efforts to support borrowers under covid-19 pandemic.

Other operating income for the quarter is also under pressure most likely as a result of CBO’s guidance to freeze or reduce fees and ban on introduction of any new fee in 2020, aside from slow new loan origination fee income growth on tepid loan & Islamic finance growth. Operating profit for the combined entities is down 9.3 per cent YoY and 1.1 per cent QoQ as operating expense reduction outpaced income reduction on QoQ basis vs YoY basis across the board. Combined operating expenses reduced by 5.3 per cent YoY and 10.5 per centQoQ.

Combined net impairment or ECL charge is up 103 per cent YoY, which is expected under the current scenario and banks’ complete adoption of the more forward-looking reporting standard, IFRS-9. Combined net ECL is down 6.4 per cent QoQ primarily because of a slower quarterly rise posted by BKMB and HBMO, having already booked large provisions in 1Q20. BKDB, NBOB, OAB, BKSB and BKNZ continue to build provisions from the previous quarter. This excludes ABOB as it has not reported Net ECL charge and taxes separately.

On a combined basis, the 8 banks have posted RO 70.1mn in total profits for the second quarter of 2020, down by 33 per cent YoY and yet up by 1.8 per cent QoQ on drop in provisions by the largest bank, BKMB, and HBMO. QoQ profit rise also results from improvement in efficiency (measured by cost-to-income ratio) of some banks, significantly so from BKMB, OAB, BKSB, ABOB and BKNZ and some improvement from HBMO as well. BKDB and NBOB posted deterioration of their cost-to-income ratios as drop in operating income surpassed operating expense decline for the quarter.

The combined Islamic financing & net loans have risen by 1.9 per cent YoY but dropped by 0.6 per cent oQ, with fastest quarterly growth posted by BKNZ at +3.3 per cent QoQ. Customer deposits are up 4.6 per cent YoY and down 0.5 per cent QoQ. Fastest YoY growth in deposits has been posted by BKSB at 15.1 per cent YoY and BKNZ at 14.4 per cent YoY followed by BKMB at 7.3 per cent YoY and ABOB at 1.7 per cent YoY while both BKDB and HBMO posted YoY declines. On QoQ basis, BKMB, BKSB, OAB and BKNZ have posted growth while the rest have posted declines. This indicates changes in market share as overall loans & deposits declined in 2Q20.


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