Al Omaniya Financial Services: Impaired by market realities

Aftab Patel, CEO, Al Omaniya Financial Services

Al Omaniya Financial Services (AOFS) fell three places to the last slot in the 2016 Business Today-EY survey. Overall the company scored just 144 points, lowest among peers, compared to 222 points in the 2015 survey. 

The company's overall performance has declined in most parameters compared to last year and as against other rival companies. In 2016, the company's net profit declined by over 20.22 per cent to RO5.31mn compared to RO6.66mn in the corresponding period an year ago. Similarly, in terms of growth in gross loans, its performance was second lowest in the ranking. Its total loans fell 2.83 per cent to RO247.62mn in 2016 compared to RO254.84mn in the previous year. The company's performance was also impacted by a 49.4 per cent increase in non-performing loans (NPL) in 2016. However, due to its larger asset size, the company's ratio of NPL to gross loans is still lowest among all companies indicating a very healthy asset quality.

In its annual report the company said, “NBFCs have faced major challenges during the year 2016, apart from the stiff  competition from commercial banks and Islamic banks including the Islamic windows of commercial banks in the retail and SME segment.

“The situation was further aggravated by the tightening of liquidity in the market that has raised the cost of short-term funding for financial institutions and also raised the fears about steep hike in interest rates amidst prevailing depressed business sentiments. Against the backdrop of the challenging economic situation, the sector is  facing a herculean task in maintaining abundant liquidity and a healthy asset quality.

There will be higher stress on the NBFCs to sustain the earnings and profitability with the increase in non-performing assets, shortage of talent and increase in staffing costs. The stress on the net margin of NBFCs due to the liquidity crunch in the local market and the consequent increase in the cost of funds coupled with increase in FED rates is another major cause for concern.

There is a nervousness in the market due to prolonged softening of crude oil prices that is hampering the economic growth in the country. What are your views on that?

The current year is a very challenging one in view of the continued and persistent low oil prices. This has impacted the GDP growth and the capital expenditure. Employment opportunity both in the private and public sector have not grown as anticipated. This has reflected in low offtake of vehicles, plant and machinery, capital and transport equipment. The automobile industry is one of the big contributors to the non-oil economy and generates lot of direct and indirect employment.

On the positive side, we are seeing developments in Sohar and Duqm and there has been an increase in gas production, which will mitigate to some extent the decline in other sectors. With the government’s borrowings, both in the domestic and international markets, and keeping up the pace of expenditure, we expect the market to pick up, employment opportunities to grow and arrest the fall in GDP going forward. 

How do you rate your performance in 2016, particularly in the backdrop of the sluggish economic growth which the country faced last year?

We are following the guidelines of the Central Bank of Oman very seriously and have made aggressive provisioning of non-performing assets. There was also a decline in interest income because of increase in the cost of funds. Despite challenges, the company still has the highest asset size and lowest NPA to gross loan ratio, robust earnings per share and has maintained its dividend track record.

Industry captains in the country's financial segment often complain that there aren't enough avenues available for them to invest. Do you agree with this?

Every challenge, downturn and bottle neck is also an opportunity to create value and superior returns to all the stake holders. Your business and strategies should be able to adjust to the vicissitude and uncertainty in the market place. We therefore believe that there are opportunities and challenges and you need the foresight and vision to benefit from the market conditions. 

Recently, there was an announcement about the merger of National Finance and Oman Orix Leasing. As one of the most experienced persons in the sector, do you believe that this trend will continue in the near future also?

I believe that there is a scope for mergers and acquisitions in the market. Right now, there is an economic rationale for mergers and acquisitions in the sector and consolidations will create economies of size and scale and allow the institutions to become better comprehensive financial solution providers.

Al Omaniya Financial Services: Impaired by market realities
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