Chairman Message

Rashad Al Zubair

Chairman

CHAIRMAN’S REPORT – FIRST QUARTER 2022

Dear Shareholders,

I am delighted to present to you the financial results of Oman Arab Bank for the first quarter of the year, ended on 31 March 2022.

As we enter 2022, after more than two years of the outbreak of the COVID-19 pandemic, the economies of the Arab Gulf region appear to be taking a positive turn, and is expected to continue pushing the region’s GDP in the right direction. The pace of recovery will, of course, vary for each state based on their oil revenues, and on their ability to diversify their sources of income. It is also expected that these economies will follow the path of recovery by increasing the demand for goods and services, thus resuming commercial activities of all kinds. On the other hand, the current conflict in some part of the world will have a material impact on economic activity and inflation. The prospects of the world economy may be slower than was expected before the outbreak of the conflict.

The economic data released by the Ministry of Finance has indicated that the state’s general budget for 2021 achieved the lowest deficit since 2014. In the same context, the country’s general budget recorded a financial surplus of around 210 million riyals at the end of February 2022, compared to a final deficit of 457 million riyals in February 2021, mainly due to the measures taken by the government in managing public finances and the increase of oil prices.

Recent statistics from government bodies indicate a growth in the foreign assets of the Central Bank of Oman and an increase in the domestic liquidity. Moreover, the total private sector deposits of commercial banks and Islamic windows have increased. Statistics also indicated a rise in total commercial bank loans and financing, which are pointing towards economic recovery.

The international credit rating agency “Capital Intelligence” has recently revised the outlook for the long-term foreign currency and standalone ratings of the Bank from negative to stable. This follows the revision of the outlook for the Sultanate’s sovereign rating from negative to stable. The Agency also confirmed the Bank’s long-term and short-term foreign currency rating at BB and B respectively. The agency noted that the Bank’s ratings are based on its strong deposits, resilient asset quality metrics and solid capital position following the issue of perpetual bonds in the past year.

The Bank will continue to diversify its activities and strengthen its financial position by following a wise policy and a highly focused approach to risk management, as it looks forward to further development and growth in all areas.

Financial Performance

For the first three months ended 31 March 2022, the bank generated a consolidated net profit of OMR 3.5 million compared to OMR 3.3 million during the same period in 2021 showing an increase of 5%.

Net interest income from conventional banking and net income from Islamic financing services reached OMR 24.1 million for the three-month period ended March 31, 2022, up by 13.1% compared to the same period in 2021, driven by healthy growth in the loans portfolio. Non-interest income increased by 17.1% to reach OMR 6.5 million in the first quarter of 2022, mainly due to healthy growth in the fee and foreign exchange income.

Operating expenses for the three-month period ended 31 March 2022 reached OMR 19.3 million compared to OMR 16.9 million for the same period in 2021.

Net allowances for credit losses recorded OMR 7.2 million in 1Q 2022 compared to OMR 6.4 million in 1Q 2021. This increase was driven by higher expected losses in the wholesale segment, and in line with the cautious approach under current market conditions.

Net loans and advances, including Islamic finance, rose by 7% to OMR 2,844 million compared to OMR 2,654 million as of 31 March 2021. Customer deposits reached OMR 2,846 million by the end of the first quarter of 2022, up by 4% compared to OMR 2,746 million as of 31 March 2021.

On 29 January 2022, the Bank has redeemed perpetual subordinated bonds amounting OMR 30 million, which it had originally issued on 29th December 2016 at an interest rate of 7.75% per year, after the expiration of their five-year term.

Parent Company Performance

Oman Arab Bank recorded a net profit of OMR 2.1 million in 1Q 2022, 5% higher than the same period last year. Total operating income increased by 12% to reach OMR 23.3 million supported by a growth of 10% in the net interest income and 20% in the fee income. Operating expenses reached OMR 14.3 million in 1Q 2022 compared to OMR 12.6 million in 1Q 2021. This was translated into a growth of 11% in the net operating income.

Net loans and advances to customers grew by 6% to reach OMR 2,046 million as of 31 March 2022 compared to OMR 1,938 million for the same period last year. Customer deposits reached OMR 2,012 million in 1Q 2022 compared to 1,972 million in 1Q 2021.

Alizz Islamic Bank

During the first quarter of 2022, Alizz Islamic Bank achieved a net profit of OMR 1.4 million compared to OMR 1.3 million for the same period last year. Finance receivables amounted to OMR 798 million as at 31 March 2022, compared to OMR 716 million as of 31 March 2021, while customer deposits reached OMR 833 million, achieving a 8% growth over the same period last year.

Banking Products and Services

The Bank continued to actively contribute to support the role of the Central Bank of Oman in maintaining monetary stability and strengthening the Omani banking system. The Bank has also continued to finance vital economic projects and to provide the necessary banking services and products to companies and individuals, by providing a comprehensive banking experience, across all its digital channels. The Bank has made significant progress in increasing operational efficiencies using appropriate technologies to enhance oversight of systems at all levels.

As part of the Bank’s commitment to provide an exceptional, comprehensive client experience covering all customer touch points, in the first quarter of this year, the Bank launched the latest feature on its mobile banking app, “Instant Digital Loan”. This service allows bank customers with a previously approved loan application to obtain a personal loan worth up to OMR 10,000 through the completion of a quick automated approval process. All customers are also entitled to a grace period of up to 30 days to postpone monthly premiums as well as to top up their current personal loans.

As part of its effort to expand the range of innovative products and services, the Bank launched the Motor Insurance Renewal Service through its mobile banking app, which  was a step taken as a result of the cooperation between the Bank and the National Life and General Insurance company.

The Bank also received an Award of Excellence in Straight through Processing (STP) from Citibank. The award is a testament to the Bank’s efforts to achieve the highest standards of quality and accuracy in direct execution of payments and the adjustment-free US dollar bank transfers.

During the first quarter of this year, Alizz Islamic Bank announced a variety of offers to enhance customers’ experience. It also launched a series of special offers for vehicle purchases and financing of consumer goods such as electronics, furniture and other related products, with various options for the financing or loan repayment period at low financing rates.

Human Resources Development

The Bank has continued its endeavor to create a strong pipeline of Omani talent in its senior leadership team. The first quarter of the year saw the appointment of a number of Omani talents to senior positions within its executive management.

This year the Bank also celebrated the graduation of seven of its employees from the “Etimad Program” an accreditation course aimed at enabling Omanis in intermediate and senior management positions to assume leadership roles in the private sector. Five of the Bank’s employees joined the same program this year. On the other hand, a special training program was launched for a number of the Bank’s branch employees with the aim to achieve excellence in customer service and as a result, qualify as “service ambassadors” at their respective branches.

In an effort to support the Ministry of Labour in providing on-the-job training opportunities for students at university and college level, 139 male and female students were trained during the first quarter of this year across the various divisions of the Bank based on their academic specializations. The Bank will work closely with these students to determine their skills and abilities and match them with their professional aspirations, thereby setting them up for success in their future workplace.

Sustainability and Social Responsibility

In acknowledgement of its active efforts in community service and sustainability during 2021, Oman Arab Bank recently won the Excellence Award in Social Responsibility, which aligns with the Oman Vision 2040 initiatives for sustainable development.

As part of an initiative launched by the Bank last year, Oman Arab Bank collaborated with 12 photographers to produce the eco-friendly annual calendar for 2022, made entirely from recycled material.

Conclusion

On behalf of the Board of Directors, I would like to thank our shareholders, customers, and employees for their continued trust and commitment during what has been an unprecedented, challenging year. I would also like to thank the Central Bank of Oman and the Capital Market Authority for their continued guidance, and to express our deepest appreciation to His Majesty Sultan Haitham Bin Tariq for his visionary leadership. We reiterate our strong commitment to further support and accelerate the development of our Nation.

Rashad Al Zubair

Chairman