Transcription
Okay. Okay. Recording in progress. We'd we'd like to thank all the stakeholders who are attending this uh MSX discussion. We would like to thank MSX for uh giving us the opportunity to present our financials for the uh first half of 2025.
We'll have the normal disclaimer for all the stakeholders who are attending uh uh this presentation. We'd like to start by highlighting the Oman economic which is the main driver for the banking sector and the growth in the banking sector. Frankly, the economic and the Roman vision 2040 is the main driver for uh for our growth and our vision and where we can invest and develop.
You can see that from the GDB composition that we have well-diversified compositions by sectors. And also the dip, we need to highlight that the dip to uh the government dip to GDB, it dropped sharply, almost from 71% in 2020 to expected to go to 31% in 2026. And uh we have the third lowest inflation on the uh on the GCC and the 10th globally. The fiscal budget for Oman for 2025 shows sizable investment and diversified allocation of those investments between uh uh the investment of Oman Investment Authority, the energy development, and the development projects. And that gives us so many opportunities for the bank to invest and to to lend for so many opportunities coming in in the market.
Also, it is uh critical to highlight that uh even with the price of $60 uh uh the government will have, or the fiscal deficit of Oman will be around 6 billion, which is very reasonable. And I believe the government had uh an amazing strategy to reduce expenditures and control expenditures at the same time to grow the non-oil revenue or the non-hydrocarbon revenue, which will ensure sustainability even with low oil prices.
Sahar International started by 2007. And by 2018, the name of the bank changed from BankDhofar to Sahar International, which reflects our international uh ambition to growth, in which we did it. Uh we opened our first branch last year in KSA. Uh also, we merged in 2023 with HSBC Oman, which was a major step for our growth and gave us a lot of insight and access to so many customers in Oman and outside Oman.
From the map, you can see that we have a well-diversified branch network and ATM network. We are placed on the northeast point in Oman in in Khasab. Also, we are uh we have branches on the most south point in Oman uh in Salalah and in Musannah, which also reflects our uh trade ambitions with the neighbor countries. Maybe the maps also didn't cover the Saudi branch, which we may need to add it in the future.
Sahar International at a glance. You uh it is very important to mention that our market share as compared with the listed banks in Oman uh in terms of total asset growth from 17% last year to 18%. And that reflects our uh growth strategy in well uh uh in uh in strong assets, also the ability of the bank to raise the right liquidity from the depositors.
We'd like to present the financial overview for the first half, and I will leave it to my colleague Greg to present those financials. Thank you, Abdul Wadud. Uh good morning, everybody. First half results, excuse me, for for 2025. Uh the bank reported a a strong return on equity of uh 10.3%. Um this was down on last year's exceptional performance. We reported 12.5%. Um the bank's uh cost-to-income ratio increased to 45.1%. Uh which I'll discuss in in more detail when I talk about the financial uh P&L for the bank. Uh loans and deposits ratio increased to 77% in line with the bank's strategy to continue to grow its its loan portfolio and to replace our investment securities.
I want to give you some context in relation to the bank's compounded growth rate. Through the cycle since 2020, which were the COVID years, and then the very successful merger with HSBC Oman in 2023, and the resultant results of 2024, which saw the first full year of operation of the merged entity. The bank's uh CAR for loans of 14% and deposits of 27% have provided a foundation to support the bank's accelerated growth in its loans.
If I move on to 2025 specifically, um our net loans grew by 21% uh year-on-year. Uh if we consider the entire market growth across Oman for the last 12-month period, uh our bank took 30% of the market share. Supporting that was a growth in our deposit base. Um and I'll give you some context around the the implications on our NIM of uh that acceleration in deposit growth to support the loan growth for the bank.
A key point to note on the uh key results. Do one moment, please. I'm sorry, just back on this slide. I just wanted to highlight here um the the continued strength of of the bank's uh key metrics around um earnings and profitability, the credit quality for the bank, the capitalization levels, and the funding liquidity, which I'll again discuss shortly in a bit more detail. Um key point to note around the key result indicators um is in relation to the uh the credit ratings, which we expect to be supporting the bank uh very strongly going forward on the back of the upgrade to investment grade by Moody's of the sovereign. So Sahar International benefited from also the similar upgrade, but also our BCA increased by two notches. We're now one below the headline rate. It's a very positive outcome for the bank.
Key discussion point around the the profit movements compared uh to last year. Uh the story in terms of the interest income, there are two aspects of that. One is clearly the growth in the loan book has increased the interest income, but also the bank held uh very large portfolios of uh treasury bills, US dollar denominated, and with the repricing with the drop in the US dollar interest rates, the rates, income on those bonds has dropped, which has given rise to a rate variance through that interest income number. So two variables, a positive uptick on the volume growth, and then the implications of the repricing on those um T-bills.
On the interest expense side, um as we've funded the increase in loans, we've seen an increase in the cost of funds, as you'd expect. But also the bank has seen an increase in the pricing of wholesale wholesale deposits, which we've uh raised in order to support the loan growth. Uh building your CASA base, the current savings accounts, uh takes takes time to come to fruition. But with the bank's initiatives around the loan growth, attracting current accounts, as well as the initiatives we have within our retail business, um we'll look to firm up that and start to gradually increase that NIM.
The positive story we have from Islamic banking, we've seen an increase in the volumes as well as the the pricing on the assets and stabilization of the cost of funds and some enhancements. Other operating income was a positive story that's driven by an increase in loan processing fees, as well as fees from payments, cash management, and related activities. The total operating expenses variance, half that variance is from our continued investment in KSA, um which we saw for this quarter. We reported a a profit for the KSA operation, which I'll discuss in a bit more detail shortly.
Loan impairment charges are up, but that equates to a 50 basis points impact as a cost of risk, in line with the previous six months period. Uh just a mention on the income tax benefit, which we've disclosed as we received a positive, able to recognize a positive deferred tax benefit on our KSA operation. Noting that the entity is now profitable.
Balance sheet, just to emphasize the story around the loans growth of 20%. If you look on the investment securities, you'll see that is uh beginning to um unwind, as we look to replace the uh lower yielding investment securities with our loan portfolio, funded by um customer deposits, which I noted we're uh we're sourcing, and some of those are pricing up to support that growth story.
Shareholder's equity is a is a positive story, noting there was a 130 million successful rights issue in 2024, which supported that that increase. Just a key point to highlight again, the cost of risk for the bank is 0.5%. This is uh below the cycle, which would normally be higher than 0.5%.
Capital leverage. Uh the bank's capital ratios remain strong. Uh the bank has announced its intention to issue a Tier 1 instrument. Um and we're progressing with that process and would inform the market in due course regarding the success of that issuance and the timing.
Funding liquidity for the bank remains strong across the key metrics. Um all of our ratios are well above the regulatory minimum, and we look to optimize uh the equity for the bank to support the balance sheet initiatives. Uh thank you very much. Thank you, Greg. And uh we'll be glad to receive any questions from all the stakeholders and the analysts. Yeah. Thank you to yourself and the team for hosting this call. Um I have a few questions if you don't mind. I'll start with the cost of deposits. Um for the past uh four to six quarters, your cost of deposit ratio has been actually very high and solid, averaging at 67-70%. And we've seen a significant drop to 53% a bit this quarter. Could you shed more light on this? Um uh and where do you see it going forward because this has significantly impacted your cost of funds. Um you're actually your yields on um on interest-earning assets have actually increased, but we haven't seen that reflected on the NIM due to the significant increase in cost of funds. So what has happened to deposits and Craig had mentioned that you guys are looking to to capitalize on that going forward. So if you could shed more light on this, is number one. Um number two, the significant uh fee income growth. Is this um of a recurring nature or non-recurring? I'll leave it at these two questions and potentially maybe later I'll I'll ask more.
We take CASA. Yeah, take a second. Okay. So, so firstly, sorry, just on on the CASA growth. Um I I guess uh one one thing you don't see is the um average balance sheet uh for the bank and therefore um you can get volatility um within your CASA mix, as well as uh to an extent some of your your deposit mix. So we do see volatility uh between the uh term deposits, call deposits, which you'll classify as um as CASA. So you will get some volatility in those those numbers. As I mentioned, the driver for the um increase in the cost is repricing on some of the uh call deposits and also repricing of some of the time deposits across the um uh wholesale portfolio. Um in terms of CASA growth, if we look at our retail CASA growth, we are increasing. If we look at the um some of the underlying products that define CASA, those are also increasing through retail Islamic. So what you're seeing is not necessarily a trend in terms of reduction in CASA. Thank you. I I think we have very healthy growth in the sticky CASA at attractive prices, that's the thing we can confirm. And about the fees income, I can confirm that the fees and the other operating income are sustainable in nature. Oh, perfect. Thank you. Thank you so much. Would I be able to ask a few more questions or I'll leave it for the others and I can return back later? Hey, please go ahead. Uh, sure. Um, regarding your I mean, KSA mentioned that 50 basis points to cost of risk is normally. Does that mean in the second half we make the increase in provisioning? That is one. And the other question is regarding a restructuring that you guys have announced with the LEFA group of 63 million. Would we see the impact of this in the third quarter? And I have looked at the financials, I'm sure you have as well, very much so and scrutinized it of the group, but it seems that they've incurred a loss in the first half and 2024 wasn't great. So what makes SIB confident in restructuring such accounts and what is the risk from those accounts as well?
Sure. Uh regarding the second question, I think uh we believe on the company and that's part of our growth plan, and we believe on the sector itself and the governance and the stakeholders related to the uh LEFA group. Just to add to that also is the fact that it's a new relationship that has been entered into with LEFA. So the matter related to restructuring of their exposure that you alluded to is not applicable to us. It's a new relationship that we have. They probably had a bad year a couple of years ago due to the heavy rains in Dubai that was associated with their core business, but nothing else apart from that. As for your first question on the cost of risk, if I may, otherwise, the amount of buffers held by the bank, as you can see, are already on the higher side, and they are believed to be more than sufficient to help the bank absorb any potential shocks. That said, the bank continues to be very prudent in its approach when it comes to lending practices. Sahar, is it clear? Yes. Yes. Thank you so much. Thank you. Nick. Hello. Yes. Hi. Good morning. This is Vishin Bala. Thank you so much for the call and for the presentation. Just have a few queries. I'll do you want me to go one by one or put them all out there? I prefer one by one. It will be easier for us. Absolutely. That makes sense. Perfect. Thank you. So, you know, you most welcome, sir. You mentioned, you know, cost of funding and you said that's basically gone up, interest expense has gone up because of repricing of certain wholesale accounts and in general, you said, you know, there's there's some increase over there. Now, if you could just put this in perspective with the interest rate cycle that we've witnessed over the last couple of years, where we saw an increase probably up till '23 and then we've seen a decline, you know, partial decline in '24 and a sort of muted scenario. So, in in that situation, when you talk of repricing, can you just put it in perspective of the interest rate cycle because you've seen some decline there. So the overall cost of funding should have ideally gone down. If you could just give us some perspective there.
Sure. I I may answer this question in general. That's the bank's strategy is to have high liquidity, and you can see that we have one of the highest liquidity in terms of loan-to-deposit ratios, and we'd like to maintain that high liquidity because of our future plans. But in order to do that also, we need to ensure that we keep our deposits and also to attract new deposits. And you can say that we have one of the highest growth in terms of percentage in in the deposits for the last 12 months across the market. However, what I can confirm to you is that for each new deposit, we apply a proper return on equity based on the opportunity to lend, and we ensure that we maximize the return from equity from the from any relationship, and at the same time to keep the buffer of liquidity. Okay. Okay. So this will be relative to what the market is offering in terms of deposits, not just an absolute number. See, what I can tell you, we are at par with the market or below the market, but we are not offering higher prices than the market. Okay. Okay. I'm finding it slightly hard to comprehend, but but fine. Sure. I can I can probably go through the numbers a bit more deeper and then probably reach out to the team later. That's fine. Just wanted to understand that. Okay. Thank you. Uh so, you know, the next next question will be next question will be with regards to sort of, you know, the other income. You mentioned it's sustainable, as well as if we look at the, you know, tax sort of number, it was on the lower side for this quarter. So, so given, given, you know, given the sort of status of of the bank and the operating environment, you know, what would be a sustainable or sort of a guideline number to go by in terms of bottom line, you know, for let's say second half as well as over the next 12 months? Well, I As you're aware, as you're aware, we don't we don't give any forward-looking projections. You made a comment there about tax. I mean, just as one example, I already gave a I gave an explanation for part of that. I mean, the the other part is through through the we had some benefits through the filing of our tax return. We were able to release some overaccruals around the tax line specifically. But again, I mean, we don't give any forward for forward-looking projections in terms of profitability. You mentioned that there was a positive deferred tax benefit on the KSA operations since the entity is positive now. Now, that would be how, what's the quantum of those deferred tax benefits in terms of will they continue for the subsequent quarters as the entity continues to be positive, just to understand that it's a YTD. Thank you. Thank you. It's a YTD adjustment, and it's disclosed in our financial statements on the segmental section. Noted. Noted. Thanks. Great. You know, next is with regards to, you know, the the sort of consolidation with Alif Bank. I understand you put out a disclaimer over there mentioning sort of the regulatory process that that you did not get the approvals. Is that a done deal? Is that something, you know, there was some sort of market bites in terms of a cool-off period post the HGB transaction and beyond a certain period of time that would probably still be on the table? If you could just, I understand there's no future guidance, but just in terms of your thoughts over there, if anything for the market. No new news, frankly. So the latest announcement, which we announced on 22nd of June, as I remember, and there's no any new development since then, and the reason was announced that's to postpone this merger. Understood. Fine. So I I'll try and bring you to the lines without saying much. Fine. And last question, thank you so much, is, you know, with regards to Saudi, what's what's happening over there? How do you see that market? What sort of dynamics are there? How different is it from this market? Just some quick highlights to help us understand what's the strategy over there? What's happening over there? Thank you.
Uh I believe Saudi is one of the fastest-growing markets and one of the biggest in the in the region, which offers us so many attractive opportunities with low risk and good margins. Okay. Thank you so much. Thank you. Uh yeah, am I audible? Yes. Yes. Thank you. Yeah. Thank you for my question. Thank you for taking my time and just two questions. One on the cost-to-income ratio, like the cost-to-income ratio has seen some upward pressure in Q1 compared to 2024. So how do you see this trend for the remainder of the year? Is there any target you're managing towards? That's my first question.
Look, I mean, if we dig into the um the reasons for the increase, um which I elaborated on, um I talked about the KSA investment. Um so so clearly, as as you're developing that KSA business, um we're absorbing higher costs and yet to achieve the full synergies and efficiencies that you'd expect for an operation which is um fully operational and delivering the standalone cost of um cost-to-income ratio. Um also I mentioned the continued integration investment in our people, our infrastructure. Uh we have a number of strategic initiatives which we're investing in, and we've also invested very heavily in branding over the last six months to support a lot of our strategic initiatives, which Abdul may want to comment on. And maybe about Saudi, I think uh to be in a green for the first six months, that's unachievable with high-quality assets and expected good growth. Okay. Also speaking on the Saudi operations, like currently you like wanted to understand, are there any strategic plans you like you want to expand further within KSA or other GCC markets? Like how many expansion plans, any in Saudi Arabia, can can highlight?
Frankly, we have one branch, and that's what we have right now. If there is any development, we will uh announce it in the market. Okay. Thank you. That's Thank you, sir. Shower. Uh yes, I think your voice is not clear to us. Is it Ben also now? Yes, it is clear. Thank you. Okay. Thank you. Apologies for the distress. So I was just mentioning that we have seen some tremendous growth in your deposits and your loan book. But when we compare these these two numbers, we have seen that your deposits are significantly higher than your current loans, and you have sizable investments. Now, is this group strategic or is it because the market appetite is not there to have the loans? Just want it from I didn't get the question. I I think I had I struggled to hear your question, but what I think you're asking is regards to the um the level of our assets to deposits. Is that correct? The current So, yeah. So, so, so my question is basically, you have sizable deposits, but the loan book that you have is not equal to the Yes. Yes. And you have sizable investments as well. Yes. Yes. Yes. No doubt. So, is this move, is this move strategic or is it just because the market is not there to move?
I I um so just to give you again context to what I was saying earlier, um I was talking about the evolution of the bank's balance sheet post merger with HSBC. With the bank became extremely liquid, um so we invested into T-bills because, as you appreciate, growing the loan book aggressively in the current market is challenging to source quality assets. But in the same sense, the bank is very committed to supporting the vision 2040. We're very engaged in trying to address and support growth in the economy. And therefore, we have, and I'm pleased to say, you know, we have a very, very, very strong pipeline of quality asset growth in Oman as well as in KSA. So you we really want to position the bank to be able to support that growth. And therefore, as the, you know, again, as US dollar rates drop, as investments mature, we'll be able to roll those off and be able to then support that support the funding not just through deposits. So you can expect to see the loan-to-deposit ratio to start heading upwards towards more where the market is. Correct. It has actually moved. If you look at the numbers, 707. And just to add, the opportunities are there, but also we are very selective to take them. Great. That makes sense. And just building on that, would this move, is it expected to have a positive impact on the net interest margins? Yes. Yeah. That's of course, that's our target. Great. Perfect. Thank you, sir. Thank you. I have I have one more question on the loan growth. It's been robust and high single digits, especially driven by the corporate sector. Could you shed more light on which sectors within the economy are you seeing growth from and, you know, potentially yes, I'm not asking for forward-looking, but but where do you see that sector and the growth and demand for credit going forward, let's say in the next second half and potentially beginning until '26, depending on Oman's macro, which you spoke about.
Sure. Um thank you, Sumeaya. U for the forecast, it will be difficult to disclose or to mention, but we have a very healthy pipeline for that. About the sector, it is well-diversified our loan portfolio, and our growth for the last 12 months was well-diversified across different sectors, uh energy, infrastructure, oil and gas. So we are well-diversifying in that in our growth of loans, and also we are diversified, so it is distributed between Oman and Saudi. So we have very good healthy growth in Saudi and in Oman. Okay, great. Thank you. Hello. Good morning, everyone. Good morning. Thank you for the presentation and the answers so far. Um just a few questions on the Saudi Arabian operations. Saudi book, I'm seeing it's growing very fast, and a significant portion of your loan growth is supported by Saudi operations. So could you please share your thoughts on the market outlook in Saudi and your growth plans there?
As I mentioned, Joyce, Saudi is one of the fastest or the fastest-growing market or country in the region, and we have a lot of opportunity in lending, and we we are very selective in selecting the right lending opportunity with good pricing and top-tier credit rating. So you will, does it mean that you will continue to focus more aggressively on Saudi Arabia, and is it safe to assume for me to that know most of your growth will be contributed by Saudi?
Our growth will be diversified based on the opportunity. So whenever we find good opportunity in Oman, we'll grow in Oman. Whenever there is good opportunity in Saudi, we'll grow in Saudi. Uh we are committed for our growth in Oman also to support the vision of 2040 and the Omani economy. At the same time, whenever we find attractive opportunity in Saudi, uh of course, we'll jump and take it. However, we are very cautious in terms of the credit risk about that. So we are very selective in our growth in Saudi also. Got it. Thank you. Also on this side, I saw the operations, what I've seen is the operating income has, you know, jumped multifold in second quarter of this year compared to even first quarter or yes, it was supported by asset growth, but second quarter jump was, you know, beyond normal. So could you please tell us, you know, what was the reason for this jump during this quarter?
So it is not a yam, frankly, but we have a very low base from last year, and therefore all the growth in the loans contributed for the growth in our income, and those growth in loans was not happening during this quarter. Frankly, it was all planned and it was in the pipeline for the last 12 months. Only the execution happened this year, which helped us to grow our operating income. Yeah. The operating income, loan loan growth was, you know, you've doubled your loans from 16 million to 320 million, but at the same time, the operating income has, you know, jumped from half a million to 2.6 million. So I was just wondering what has happened in this quarter, I'm talking about the second quarter alone.
Yeah, but as as thank you, sorry, thank you, but as I as I mentioned also, we also um have been very successful in terms of the fee income from our payments and cash management business and associated um um products. So that has supported our results for the period, and we've also for the quarter, we also had a positive flow of dividend income. Um I think we disclosed over a million real, that also contributed to the growth for the quarter. But you're classifying it as net interest income. It's not as a fee income or anything like that. I'm sorry. I'm sorry. I thought you were talking about operating other operating income. Talking about the fee income. Do you mean the Saudi operation or the consolidated level? I'm talking about the KSA branch. I'm so sorry. 2.6 million. 2.6 million. Uh but I didn't understand what's the problem because also the timing in booking the assets plays a critical role for booking the income. Okay, and that's how what we can confirm. We have a healthy pipeline in Saudi, and we will take the right opportunity, and we are very selective whenever we find the right credit to lend with the right pricing. Oh, and also, can you please touch upon the tax reversal from Saudi, the 1.3 million, and that has helped you in achieving profitability for the branch?
Uh sorry, the the tax, it's a very, it's also disclosed within our um capital adequacy framework. Basically, you can't recognize deduction for your losses until such time as you identify sustainable profitability for the entity, and therefore that is a year-to-date or life-to-date adjustment recognizing the deductibility at a group level for the losses carried forward for the Saudi operation. Okay. Yeah, it's a life-to-date adjustment. So obviously, it's not sustainable. But going forward, we'll be able to book that as a credit against the ongoing or positive negative depending on the profit losses for the periods. Got it. Got it. Thank you. Thank you, guys. Uh on on your on your loan classification, you know, I'm seeing that there is almost 5% of your loan book is classified as, you know, transferred to stage two during this year, which is around 236 million. So could you please provide some color on this and, you know, potentially your thoughts on how is this specific portfolio going to affect your NPL ratios and the coverage levels?
So on the stage two portfolio, as you may be aware, they are driven largely, the classification of the portfolio is driven largely by the regulatory frameworks that we are operating within. And as far as these concern, they are quite stringent, and the central bank mandates grouping certain segments within the portfolio as soon as very mild indicators are seen. And we are basically fully compliant with these regulations, and we are recognizing such assets as soon as these indicators are highlighted. That said, we do not, as you have seen, not much of this portfolio continues deteriorating. They are maintained within that, and a lot also finds its way back to the regular and standard category of the assets. And as far as these are concerned, we are maintaining significant buffers to the tune of around 160%. So the bank is very prudent. I I must reiterate on that in its lending practices. See, what I was looking at as or the stage two portfolio, it is it is growing, you know, it's increasing from 14% in last year to now it has reached almost 70%. So, you know, was wondering, you know, how is it going to have an impact on your provisioning cost, especially when Craig said earlier that this is already the 50s is already below the cycle? So just wanted to check, you know, your thoughts on how is it going to have an impact on the second half as well as maybe into 2026.
So although we were not supposed to provide a forward-looking view here, what you would most likely see with the improvement in the in the overall economy is actually an improvement in that portfolio going forward. What you have seen in the in the in the beginning of the year until now is a result of us adhering to a very stringent set of regulations by the central bank, which are a lot more stringent than the international financial reporting standards in that regard. But nonetheless, we maintain adequate buffers and cushions against that portfolio. Okay. Okay. My last question is on, you know, the merger announcement. Mr. If you can, you know, provide a little more clarity on the merger announcement because earlier your announcement was that the merger talks have been postponed. So does it mean that the proposal is still on the table, and you will try to approach the regulators again with the same proposal sometime in the near future?
Frankly, there's no development from the latest announcement, and uh whatever was mentioned in the announcement will continue, and we cannot disclose anything because nothing's happened since the announcement. Fine. Thank you. Thank you. Thank you. Hello. Hello. Hi, this is Bish. I just had one more minute, please. Yeah, please. Bish. Yes. You know, if you could just elaborate on your on your KSA operation on the balance sheet. You have an increase in internal funding by year to date and customer deposits. Internal funding is is what? Equity contribution, just to clarify. Are you referring? Are you referring to the segmental analysis? Yes. Yes. Yes, look, the segment analysis is is aimed to project a balanced balance sheet across the segments. So you can see the external view, how we look at those accounts, and then we balance those balance sheets internally, and then to ensure that we're correctly rewarding or recognizing the net interest margin for the businesses on a comparative basis. So, okay, so just help me understand, we've seen a we've seen obviously the asset side grow, which is loans have grown from, you know, 80 million at the beginning of the year to 350 million. You've raised obviously deposits to the tune of almost 180 million real to fund that, and the balance is an internal sort of adjustment which basically came from the parent balance sheet. Yeah, of course, that's right. Yes, that's correct. Okay. But that's not an I mean, from just from from accounting perspective, that's not an equity contribution. Tomorrow you might reverse that. Is it? It is. It is not equity, absolutely not equity. Right. So again, as I mentioned, as I mentioned, when we're looking at the segmental reporting, it's the it's the management view. So we look at, for instance, with the KSA operation, they don't have capital. So we look at internally how much capital would be required to support their risk-weighted assets, and we give them the benefit for that capital, so we're comparing like with like, and we're comparing the other businesses, otherwise, you don't have a fair comparison being a branch operation. Understood. So, so from a purely purely mathematical analyst perspective, there wouldn't be an let's say return on equity concept here just for KSA. It'd probably be for the group, but but but just purely for KSA, it'd be difficult to sort of derive that. Just Absolutely. Look, internally, absolutely, we derive a a notional return on equity for the KSA business. And we will continue to look at it in the same perspective as we look at all the other businesses as a basis of measuring performance, and this is how the CEO analyzes the results. No. And in your last query, you know, you you touched upon ROE, and that's been sort of, you know, we've seen significant growth there, and kudos to the management and strategy. What would be an sort of aspirational ROE in terms of I understand future guidance, but sort of what's a goalpost you would like to sort of set for yourself? Now, keeping in mind you also have a a perpetual Tier 1 issue coming up, which will sort of it's an explicit cost that might also drag or eat into your ROE. So, so the current levels of 10 plus percent sustainable? Do you see sort of organic growth enough to offset the explicit perpetual cost to sort of maintain that? Just any guidelines over there? We sorry, what I can tell you, we cannot give any forecast about the return on equity or our target, of course, but I what I can assure you that for each lending opportunity or each relationship, either it is a product or corporate relationship, we will have the right threshold of return on equity, and a deep analysis will be there for all products and growth, either in loans or even in deposits. And so any any any sort of guideline on the quantum of Tier 1 issue that you're looking at? You you did mention you're looking at that at the right time with the market with any sort of insights into quantum? It used to be 200 billion real and came down to 100 million. They are it's completely paid off. You've not had one for us in a year and a half. A year. The Yeah, thank you. The bank announced, we we announced to the market that we would be looking to issue up to 150 million in Omani Rial plus it was a green shoe of another 50 million. So that's what we announced to the market. As you were aware, the bank currently has no Tier 1 issuance. And I guess also a point to emphasize that if you're looking at our return on equity, as as the rating agencies do, they look at the return on equity including Tier 1. We obviously have no impact. If we were to issue a Tier 1, clearly that would actually improve our NIM, high-level NIM, because of that movement of funding. So, you know, our return on equity of 10.3% including Tier 1 compares extremely favorably with the market. As I mentioned, we're have the second highest ROE for the six-month reporting period. On that basis, could you elaborate on on Tier 1 issuance not impacting ROE? Could you just elaborate on that, please? I'm sorry. You mentioned that the even if you issued a Tier 1 security, it would not impact your ROE. Could you just elaborate on that?
Yes, because the the dividend, the div, the dividend flows through your equity, not through interest. Okay. But but how would a Tier 1 issue not impact your ROE? It would be an explicit cost which would come into your ROE, right? You're you're looking at and and you're looking at an explicit cost only from Yes. From the denominator. You're from the denominator. Yes. Your Tier 1 flows out of your denominator for your equity, but not through your interest. Right. Okay. And and lastly, you know, on on dividend, again, you know, what? It's fine because I would I was about to ask about dividend, but then that's a future guidance question. So I'll avoid that. That's fine. Thank you so much. You're welcome. Thank you, Joyce. Maybe question. Thank you for taking the question. I have two, just two more questions. You know, one is on your deposit trends. You have a very comfortable loan-to-deposit ratio. Liquidity is very good. But now you are continuing to add deposits. Yes, you you have explained that that's part of your strategy. But what we are seeing is most of the additions are happening in fixed deposit side, which has now grown by almost 17% on YTD and not 16 60% over the last one year. But at the same time, we don't see a similar momentum in your CASA. You know, it was mentioned earlier that your CASA ratio has come down. So could you please, you know, tell us the reason behind you adopting this strategy of going for more into fixed deposits and not chasing CASA during your using your existing branch network or additional branch network?
What I can say is that we have very healthy growth in CASA, and especially what we focus is the sticky CASA from the retail and from the branches. So that's our target. And what we are looking for, the mix between fixed deposit and CASA, sometimes it will be because you need to cover the maturity mismatch, etc. But as a strategy, we are focused on the sticky CASA, and you will see a healthy growth in our savings deposits. Also, I I think there's also um for more transparency, if you look at the disclosure from June '24 to June '25, our savings deposits increased by 17%, which is a very core fundamental part of your CASA growth. We our demand deposits dropped by 8%. But there's two component parts within demand deposits in Oman. It's there's current accounts and call accounts. Our current accounts, we don't disclose, but our current accounts are increasing, and the call accounts are dropping. Call accounts tend to be at a higher rate. Where you see a very significant increase is our time deposits. Time deposits have increased by nearly 60%. A lot of that growth, as I mentioned, is supporting our loan growth, but also it's also customer-driven. So we also, in response to, you know, customer demand for time deposits, locking in higher rates, we're also responsive to our to our customer demands. So there's more dynamics in those deposits than what you're seeing. And drawing, I think maybe that CASA decision discussion around our headline rate of 2.5% drop is not material to the bank's growth strategy. Yeah, I totally agree that, you know, you're growing strong on the CASA side, but my question was on, you know, your relative growth, the 60% growth versus 70% CASA, you know, that's that's a strategy that you have adopted. So, you know, just wondering how is it going to have an impact on your NIMs, sustainable NIMs over the next one, one and a half years. So, you know, that's if you can throw some color on that on your market trends and everything, that would be much appreciated.
So yes, if you go to the market right now, even you will see that the long-term bond or even the SOFR is for three months or is higher than the long, the two years, and it is the same thing applied on the banking system across the world. So in some cases, even you can, we find that the cost of fixed deposit could be cheaper even than the call deposit, and that's a global trend. It is not something about so for us, we need to optimize our cost of deposit, and that's part of our strategy. I am speaking in general. Okay. Thank you. Uh thank you. Thank you, gentlemen, for the call. Congratulations on a great set of numbers. Couple of calls. Couple of questions rather. One specifically about, you know, the Fed dot plot. You know, people are pricing in a 75 basis point cut from now till the end of next year, specifically given your deposit mix and your loan mix. How do you see the price of, you know, credit move in relation to those cuts, and how do you see obviously the cost of deposits? I know that CASA will shield you, but I just wanted to understand and when you look at that, and how do you sort of bake that into your growth strategy? Is there, you know, retail which is capped at 6%? Is that the focus, or, you know, obviously we're seeing that corporate is growing faster than retail? So I wanted to sort of get a rounded view on the Fed cut, you know, Oman following, how do you see, you know, the price and cost of, you know, risk moving from your perspective?
Thank you, Abbas. I think interest rate risk is one of the key risks for any bank. What we are working is to have sustainable NIM in terms of percentage and to have the right mix between and balancing between our assets and liabilities. Okay. Uh if you have any color on how do you see NIMs move given the 75 basis point reduction that's going to come in over the next 18 months, it will be really difficult to answer this or to disclose it. However, as I said, we are our strategy to have sustainable NIM, and that's to balance between the cost of deposits and the yield on assets. So. And just to follow up on the on the loan growth side, obviously corporate growth is outpacing retail growth. Is there a what is the key reason for this strategy? Is it is it more in terms of the demand of the corporate side, or is the bank consciously not trying to grow its retail book? I mean, I just wanted to get some understanding on how you guys look at the corporate versus retail split when it comes to growth.
As I mentioned at the beginning, we are working in different economic sectors to support the vision 2040, and we find good opportunities in different sectors in corporate in Oman and Saudi, and as you know that we found or we lend to diversified portfolios in in Saudi, which was a significant part of our growth in loans, and Saudi branches are mainly corporate. Yeah, thank you. And you know, you guys have sector-leading coverage ratios. At what point do you start, you know, being comfortable saying, hey, you know, my cost of risk has to come down now because, you know, I'm anyways far above the sector. You have peers who are not even at 100%. So, you know, at what point do you start moderating this and take a view that, you know, I don't need to take build up these kind of, you know, collective provisions? So I just wanted to understand because sometimes one thinks that there is there like a hidden risk down the road that you're providing for that, you know, you haven't. At the same time, that, you know, we get comfortable that, okay, you know, the bank is looking okay on the coverage side, so, you know, it's a double-edged sword the way I look at it. So I just wanted to understand your view on this provisioning coverage that you have.
Credit risk is part of the bank's risk, and that's part of our cost, which we will continue to provide the right provision as required because that's part of our business. Okay. Okay. All right. Thank you very much. Good luck to you. God bless. Thanks. So, we'd like to thank all of you for attending and all the right questions and very useful questions which enrich us, frankly. Also, I'd like to thank our colleagues Fed from Islamic, Greg, and Magg, the CRO, for participating in this event. Thank you. Thank you very much. Thank you. Recording stopped. Offline. Thank you. Well done, guys. This also.