Bankmuscat posts 15.5pc profit rise in robust growth

MUSCAT — Bankmuscat, the Sultanate's largest bank by assets and leading financial service provider, attained a net profit of RO117.5 million registering an increase of 15.5 per cent on year basis.

The bank continued with its momentum of robust growth in credit addition during the fourth quarter of the year. As a result, total loan book in final quarter grew by 6.2 per cent sequentially and 20.2 per cent on year on year basis.

Total deposits grew faster than the credit growth during the year with deposit growth of 31.7 per cent. On absolute basis, the bank added RO 811 million and RO 1.16 billion in credit and deposits respectively.

While the bank continued to add more credit to its portfolio during the final quarter, deposit addition was slowed down to match with asset growth. Deposits in FY12 are expected to grow in line with asset growth, and we expect the bank is well positioned to tackle possible competition from Islamic Banking Sector, given the huge size diverse sources of its deposits

According to the preliminary unaudited results for the year 2011, net loans and advances of the bank grew by 20.2 per cent during 2011 and 6.2 per cent during the final quarter to reach RO 4,819 million as on December 31, 2011. Deposits grew at a higher rate of 31.8 per cent.

Net interest income increased by 13.3 per cent to RO 212.1 million in 2011 from RO 187.2 million reported during the year 2010.

According to the bank, “increase in net interest income is attributable to improvement in net interest margin and asset growth”. Non-interest income grew at a slower rate of 4.9 per cent to RO 82.1 million for 2011 from RO 78.3 million for 2010.

Operating expenses for the year ended December 31, 2011 was at RO 120.9 million, an increase of 17.5 per cent as compared to 2010 on account of higher manpower costs and operating expenses related to investment in technology and facilities.

The operating profit for the year stood at RO 173.3 million, registering a year on year increase of 6.6 per cent. Impairment for credit losses for the year is RO 56.2 million as against RO 45.6 million in 2010. Increase in impairment for credit losses was mainly due to creation of general provision in line with the loan growth.

Share of loss from associates reduced to RO 3.5million in 2011 from RO 12.6 million in 2010 due to lower losses from BMI Bank in 2011 as compared to 2010.

The most bullish factor in the Bank’s results is the fact that it continues with the positive momentum of loan addition during the quarter as well.

According to United Securities, the same trend is expected to continue in 2012, albeit at a slower pace, on the back of increased government spending. In our opinion, the higher loan book base makes it difficult for the bank to carry over the pace of asset additions in 2012.

“However, on absolute terms we expect the same trend to continue going forward. We expect Bank Muscat to grow its balance sheet at around 1215 per cent in 2012”, the brokerage firm says in its analysis of the financial results.

“With the improvement in the economic scenario and increase in salaries, we assume that delinquencies are getting reduced and service rate is increasing in the retail portfolio. We expect the provision write back cycle to get extended into FY12 as well”, it says

According to Al Maha Financial Services calculations, Bankmuscat shares currently trade at a per earnings ratio of 10.1 which is at a discount to the average sector of 11.2 and its historic quarterly average per earnings ratio of 10.3.

In December last, Standard & Poor's raised its long-term rating on Bank Muscat to Afrom BBB+ , citing “its strong business position, strong capital and earnings, moderate risk position, average funding, and adequate liquidity.”