Cost of funds in the banking sector will remain a key focus in 2020 as banks compete for a lower cost and a more diversified funding base, whilst continuing lending activities to support economic development and business growth, says Sayyid Wasfi bin Jamshid Al Said, acting CEO of NBO
How optimistic are you about Oman’s economic growth in 2020? What is your industry outlook for the year and beyond?
We hold a cautiously optimistic outlook for Oman’s GDP growth in 2020, following a period of constrained growth in 2019 – along with many countries in the region. Projects initiated by the National Programme for Enhancing Economic Development, known as Tanfeedh, continue to bear fruit and drive development in the non-hydrocarbon sectors. This has clearly improved the robustness of the economy and provides impetus for growth. Oman’s business environment continues to improve and this year’s Ease of Doing Business report released by the World Bank shows a rise of 10 places from 2018 to 2019. In addition, Oman now occupies first place in the GCC for cross-border trade.
Privatisation of state assets has begun in earnest in line with government strategy to fund development and growth. These initiatives will help enormously in attracting local and overseas investment while improving standards, increasing diversity and reducing the burden on the state.
International bond issuances by the government and NBO have been very well received and the price of Omani assets is on a firmly upwards trajectory. This speaks to the high levels of confidence the international investment community has in Oman and its vision, and I believe this confidence is well placed.
Thanks to the efforts of both the government and private sectors, we expect to see increases in non-hydrocarbon sectors in 2020. However, despite the growth elsewhere, hydrocarbons remain an important economic driver and investments made to expand this sector are expected to provide increased revenues and have a positive impact on the overall economy in 2020.
The banking sector will continue to be an important pillar of the economy and NBO is constantly striving to support the country’s development. Cost of funds in the banking sector will remain a key focus in 2020 as banks compete for a lower cost and a more diversified funding base, whilst continuing lending activities to support economic development and business growth.
Capitalisation of banks in Oman remains – and will continue to be – robust; an important measure of the health of not only the banking sector but the country as a whole. However, profitability for the sector will continue to face headwinds due to margin compression and asset growth may be somewhat constrained due to tighter lending standards typical for this stage of the economic cycle. Medium- to long-term, the banks that will thrive are those that are best able to adapt to fast-evolving consumer preferences and provide a customer experience which rivals the best digital experiences seen in any industry, not just banking.
How was the year 2019 for National Bank of Oman and the banking sector in general?
Last year the banking sector followed a similar pattern to recent years with both growth and profitability remaining robust but edging lower. Funding and liquidity for banks remains in short supply while government investments are prudent yet constrained due to oil prices, which continue to sway between $50 and $70 per barrel – way below the estimated fiscal breakeven price of $89 per barrel.
The knock-on effect is that the growth in lending has outpaced deposit collections and deposit interest rates continues to rise. Non-performing loans rose above the 2.7 per cent as at end of 2018, so to maintain interest margins and protect profitability across the sector, most players in the market have repriced credit to account for the higher cost of funding, increase in risk and softening of asset quality. The sector is in a healthy state at the end of 2019 as capital levels remain sound due to stable earnings, good profit retention practices and prudent regulator supervision across the sector.
NBO is proud of its results and accomplishments during the year. Similar to the market, the bank’s earnings were stable and we remain one of the most profitable banks in the sector. We were able to achieve higher levels of profitability compared to our peers by actively diversifying our revenues and balancing investments and expenditures in line with growth in revenue. Our performance is also consistent with long-term goals to provide the highest returns to shareholders while prudently building a sustainable and thriving business, and throughout the year we continued to work to create value for our customers through innovative products and services. Our commitment to this strategic focus was recognised during the year as the bank received several prestigious awards, including “Best Wealth Management Business”, “Best Prepaid Card”, “Best Mobile Banking” and “Best Innovation Centre” from recognised industry publications and analysts.
The bank recognises the advantages that can be gained from collaborations and during the year NBO partnered with several corporate clients to build mutually-beneficial value-added products. Such partnerships reinforce the commitment to our client’s businesses and the lasting relationships we’ve built which in turn strengthens Oman’s economy. As 2019 comes to a close it is without doubt that NBO remains one of Oman’s most iconic companies and a leader in the banking sector.
Can you talk about the future plans and major areas of innovation for the bank in 2020?
NBO has always been a pioneer of innovation and digitisation, and in 2020 we will continue to build on our reputation as a bank of ‘firsts’. The latest introduction is the “Pay+” mobile-wallet in partnership with Ooredoo. Pay+ is set to offer a new level of convenience and security, enabling customers to make a wide range of transactions from a single app on their smartphone. Highly secure and highly efficient, it is a game-changer in both the banking and telecoms industries.
Last year, we introduced our artificial intelligence robot, again a first in Oman’s banking industry. In 2020, the bank will continue its investment into research and development in areas of robotics and digitisation of banking services. The goal for these investments is to deliver improved customer experiences as well as raise the bank’s operational efficiencies.
The current challenging operating environment demands innovation and further advances in business. This creates opportunities for employees to adapt and grow, and in 2020 the bank will focus on providing staff with opportunities to develop and learn. We have great confidence in the potential of our staff and our young Omani talent to be able to meet the demands of the current situation and any change in conditions in the future.
Furthermore, we remain committed to supporting Oman’s development and we will continue to invest in the Sultanate’s economic growth by leveraging our geographical presence and alliances to drive cross-border trade and support our clients to expand into the regional and international markets.
Lastly, we will continue to put our customers at the heart of everything we do and provide them with improved customer service and flexible product choices to support their current position and financial goals.