Sasi Kumar, Acting CEO, Bank Sohar says that the bank has built tremendous brand equity winning customer trust over the last ten years of its operations. Mayank Singh reports
What are your thoughts when you look back at financial year 2016?
2016 was a challenging year. There was issues relating to liquidity and uncertainty in the investment in the capital markets arising out of Brexit and US elections. Our government has been successful in managing the fiscal over the last two years and this year they are better equipped with a successful borrowing programme, raising of taxes and control on expenses. The measures initiated would enable the government to manage the deficit and inject the necessary liquidity into the system.
Looking back at the bank’s performance, what would you reckon as the significant achievements of 2016?
We had a very healthy growth in our books. The corporate book continues to grow well. The environment of the private sector and the private sector’s growth is taking precedence, despite reduced government spending and that is a heartening sign, as it shows that the private sector is getting less dependent on the government. Despite the reduced number of government projects being awarded, we saw a growth in credit to the private sector. These sectors are primarily driven by diversification of the economy and are not focused on oil and gas or on the subsects of oil and gas like contracting etc. but on manufacturing, tourism, logistics etc. which is a healthy sign for the economy.
On the flip side, certain changes in regulations like the provisioning on restructured assets, investments etc. had an impact on the bottomline, though it has not made a material impact on shareholder funds or on total comprehensive income. If you look at the bank’s total comprehensive income it has been flat. It is primarily an accounting treatment as the investment impairment which was being charged to equity is not now being routed through P&L, which made a material impact on the declared net profit level without having an impact on the total comprehensive income, which contributes to the shareholders net worth ultimately. The growth of capital too has been healthy. In 2016, we raised RO35mn of subordinated debt, reflecting the trust of the market. This year again we will be raising a tier one bond to bolster our capital. We are continuously on a growth path, and that is getting reflected in the size of our lending book.
Has the increase in the cost of funds affected your margins?
The cost of funds has gone up significantly, both on the dollar front and in terms of Omani rial. This is a reflection of the tight liquidity. In addition, the government’s borrowings has also increased from the local market, which could have put further pressure on liquidity. The rise in the cost of funds has affected our margins. On the retail side, one cannot lend beyond the interest rate cap, so when the cost of funds go up, your margins get affected. We are trying to diversify our funding so as to reduce the pressure on domestic liquidity.
How has the bank’s corporate and retail lending been in FY 2016?
Our corporate loan book grew by 16 per cent in 2016, while the overall book grew by 15 per cent. Retail lending has been slow as it is largely a function of employment growth. As there has not been any significant growth in employment in the private sector and since the government is going slow on recruitment, retail loan growth has been affected.
How has Sohar Islamic, the bank’s Islamic finance window been doing?
Our Islamic finance window has been doing very well, and overall Islamic banking has really caught on in the Omani market. We have grown our Islamic finance book significantly. I think Islamic banking has caught on because of greater awareness in the market. We have strengthened our distribution and reach, which has helped us in acquiring both on the corporate and retail customers.
Has Bank Sohar strengthened its ATM and CDM network?
We have grown our ATM and CDM network significantly; as of now we have 56 ATMs and are growing continuously. In the next few months we will be adding six to seven more.
Please share your plans on HR
We are well above the required targets so we have no challenge in terms of Omanisation. The stipulated target is 90 per cent and we are already at 92 per cent.
What are your thoughts on 2017 and how you see it shaping up?
The only challenge that I see for the general economy is a slowdown in awarding of contracts. Till the end of 2017 and early 2018, companies have sufficient work in hand. If no contracts get awarded in 2017, it will impact some of the larger contractors which may result in the shedding of jobs. In general, the steps that have been taken to rejuvenate the economy are positive and they are helping.
On the taxation front, all the measures taken are very healthy except the one which is regarding the withholding tax on interest and this needs some clarification. If the current interpretation stands true, it will cause funding costs to go up further, so there needs to be some clarity. A number of projects that are underway are dependent on dollar funding, and as dollar funding comes from outside, the withholding tax on interest will have bearing. It is a double whammy; there is a chance that the US Federal Reserve will increase rates a couple of times this year, over and above that the withholding tax could increase the funding cost. Once this scenario of uncertainty comes in, investors too will be wary. Overall, things are positive as the government has taken steps to address the fiscal situation and taken proactive steps to address them. Oil prices above $45 will also help in shrinking the RO3bn deficit.
Now that the merger with BankDhofar is off, has that brought about more clarity?
Had the merger with BankDhofar happened, there would have a different paradigm, as there was a different strategy behind it. The bank was never been laid back because of the merger. We continued investing in our capabilities; we just completed a major core banking transformation by the end of 2016 and early 2017. The merger was called off only in October 2016, but it did not deter us from planning and going ahead. We continued growing our branches, business, recruiting people so all this moved in parallel to the merger talks. The clarity on the merger will help us to strategise better. Bank Sohar continues to be a very strong brand, and is a strong institution. It continues to retain customer’s faith and confidence, and it reflects in the kind of businesses that we underwrite. We complete 10 years of successful operations in April 2017, and this is a significant milestone.