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Bank Muscat

Source: Taib Bank

Quarterly Result Update

Bank Muscat (BKMB) reported a total operating income of OMR 291.05 million during FY09, up 22.9% YoY. The total income was 12.9% above our estimate due to higher than expected other operating income.

The company’s net profit plunged 21.3% to OMR 73.76 million during FY09, which was 34.2% lower than our estimate due to higher than expected impairments on credit loss.

We have revised our FY2010E operating income downwards by 5.4% on account of lower net-interest income estimates. Accordingly, our net profit estimate now stands lower at 14.0%, incorporating higher impairments on credit loss.

We are revising our earlier OVERWEIGHT recommendation to NEUTRAL with a target price of OMR 1.039, implying an upside of 3.1%.

Operating Income
During FY09, BKMB’s total operating income increased 22.9% to OMR 291.05 million as against OMR 236.80 million in FY08, owing to higher interest and non-interest income. Geographically, 77.8% of the operating income came from domestic (Omani) operations, while International operations accounted for 22.2% of the total. Interest income increased 6.1% YoY to OMR 279.53 million on higher income from loans & advances to customers, which increased 12.7% to OMR 255.37 million. On the flip side, interest expenses rose 3.8% to OMR 105.16 million, on account of a 30.1% rise in interest expenses on customer deposits and 71.2% hike in interest expenses related to subordinate liabilities, countered by a 55.9% decline in interest expense on bank borrowings. As a result, net interest income advanced 7.6% to OMR 174.37 million from OMR 162.11 million in FY08. Meanwhile, total non-interest income jumped 56.2% to OMR 116.68 million, attributable to higher profit from sale of non-trading investments and higher foreign exchange income. Profit on sale of non-trading investments soared more than seven-fold to OMR 53.48 million, and foreign exchange income was up 32.7% to OMR 9.22 million. Consequently, the share of non-interest income in total operating income improved to 40.1% during FY09 compared to 31.5% in FY08.

Net Spread and NIM
BKMB’s yield on average interest earning assets declined 75 bps to 5.6% during FY09 from 6.3% in FY08. The average cost of funds dropped 32 bps to 2.1%. As a result, net spread slipped 42 bps to 3.4% from 3.9% in FY08 and net interest margin (NIM) was down 41 bps to 3.5% during FY09.

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