BankMuscat CEO Abdulrazak Ali Issa talks to Oman Vistas about the bank’s performance in the first half and milestones reached thus far in 2007

How has the first half of 2007 been in terms of the bank’s performance?

BankMuscat has achieved a net profit of RO 40.2 million for the half year ended June 30, 2007 as against a net profit of RO 28 million reported during the same period in 2006, thus recording an impressive growth of 43.6 percent.

Net interest income increased by 28.9 percent to RO 59.3 million during the first half of 2007 from RO 46
million reported during the corresponding period in 2006, mainly driven by asset growth. Non-interest income has grown by 39.5 percent to RO 20.8 million for the first half of 2007 as compared to RO 14.9 million for the same period in 2006. Operating expenses have increased by 28.3 percent in the first half of 2007 as compared to first half 2006 mainly due to an increase in manpower and other administrative costs as a result of increased business activities and expansion of business lines. However, cost to income ratio reduced to 39.5

percent during the first half of 2007 as against 40.6
percent during the first half of 2006.

Impairment for credit losses was RO 7.7 million for the first half of 2007 as compared to RO 8.1 million during the corresponding period in 2006. Share of profit from associates have increased to RO 2.7 million in the first half of 2007 from RO 1.9 million in first half 2006 to due to better performance of associates and contribution from Mangal Keshav Holdings, India where the bank has taken a strategic stake of 43 percent in April 2007.

The basic earnings per share on an annualized basis works out to 88 baizas for every 100 baiza share of the bank.

The bank’s net loans and advances of RO 2,199 million as of June 30, 2007 has grown by 41.4 percent as
compared to the position as of June 30, 2006. Customer deposits have also seen a similar growth of 41.1 percent to RO 2,152 million as of June 30, 2007 from RO 1,525 million the year before. Savings deposits have registered an impressive growth of RO 144 million or 37 percent to RO 533 million as of June 30, 2007 from RO 389 million in the year ago period.

On behalf of BankMuscat I would like to take this

opportunity to reiterate that the bank’s growth would not have been possible without the foresight and
market-friendly policies adopted by His Majesty’s

government. We are deeply thankful to His Majesty Sultan Qaboos bin Said for his vision and for ably
steering the nation along its path of growth and

prosperity.

With the rise in petroleum prices and resultant increased spending by the government on development projects, what are the new opportunities for BankMuscat?

The year looks poised with promise: the promise of reaching greater heights, riding on the back of an even stronger performance turned in by the bank in 2006; a local economy that is showing definite signs of being on the move; higher domestic consumption trends and

continued strong global energy prices, all of which augur well for the bank.

The government has, over the last few years, focused on diversification of the Sultanate’s economy and attracting private sector participation in the development process. Moreover, the emphasis of the government is also on development of core downstream industries such as petrochemicals and large-scale industry such as

aluminium. BankMuscat views these efforts as a key strategic opportunity and has been involved with almost all the projects which have been set up in the country in various sectors including oil and gas, power and water, petrochemicals, aviation and shipping.

The bank’s involvement in these projects is in various capacities including a Tier I lender (usually in the
capacity of one of the mandated lead arrangers), agency roles for the lenders (Onshore Bank, Security Trustee), providing working capital for the project and general banking services.

During the year 2006, the bank was associated with the financial closure of two large petrochemical projects as a mandated lead arranger – Aromatics Oman in Sohar and Octal Petrochemicals in Salalah. Four major
re-financing progammes were also undertaken by the bank – two in the oil and gas sector, one for a power and water project and for another for an LNG tanker. The bank also participated in structured transactions in the GCC, which saw several high profile financial closures for projects in the UAE, Qatar and Bahrain. In 2007, the bank was one of the mandated lead arrangers for the Barka II/ Rusail power/water projects which achieved successful syndication as well as the Sur Water project.

The government has undertaken several steps to boost the tourism and real estate sectors in the country, including the conceptualization and development of ‘integrated tourism complexes’. BankMuscat views this as an opportunity to support the government’s efforts and has provided financing for some of the large tourism development projects under construction.

What is BankMuscat’s share of the home loan market?

It is worth mentioning that BankMuscat’s Baituna suite of home finance products comprises of Baituna Classic Home Finance, Baituna Gold Home Finance and Baituna Plus Home Finance. The Baituna suite of products is available for the purchase and construction of homes for first-time buyers; purchases of second homes or

retirement homes; and also for the purchase of land for residential use at selected locations. Financing is offered primarily to Omani nationals, though the suite of
products also provides financing options for GCC nationals and expatriates who wish to seek housing finance for properties in the sultanate. The bank also provides refinancing options to customers with existing housing loans from other organizations.
BankMuscat enjoys a market share of 42.87 percent in terms of total assets, 43.36 percent in terms of total credit and 39.56 percent in terms of total customer deposits as at 31 March 2007. The bank’s share of total savings deposits was 41.08 percent as at 31 March 2007.

In 2003 BankMuscat bought 26 percent of Centurion Bank in India for US$15 million. How has this deal benefited BankMuscat?

BankMuscat’s investment in Centurion Bank has proven to be a success. In 2006, Centurion Bank successfully completed its merger with Bank of Punjab to become Centurion Bank of Punjab (CBOP) and announced another merger with Lord Krishna Bank. CBOP is today amongst the top ten private sector banks in India in terms of total assets and has 279 branches and 408 ATMs across 143 locations. Financially, as at December 31 2006, total assets of CBOP grew 56.9 percent on a year on year basis to reach RO 1.38 billion, while net profit for the nine month period ended December 31, 2006 improved by 51.2 percent to RO 8.1 million as compared to the corresponding period in 2005.

Tell us about your investment in Mumbai based share brokering firm Mangal Keshav Securities. How has this deal been, in retrospect?

BankMuscat entered into an agreement with the Mangal Keshav Group (MK) to acquire 43 percent of its holding company in the last quarter of the year 2006. The Mangal Keshav Group has a growing presence in
securities trading, commodities trading, insurance broking and the Initial Public Offering (IPO)/Mutual fund distribution space and is recognized as one of the top 20 brokers in India (by market share). Set up in 1939, which makes it one of the oldest security houses in India, the group is today among the top 20 securities brokers in India by market share. The group has a

network of 20 branches and 220 franchisees across 70 locations. With this acquisition, BankMuscat has become the single largest investor in the Indian financial services and securities sector from the sultanate. While it’s still early to comment on the returns of this deal, the prospects seem highly rewarding given the pace at which the Indian equities market has been growing.

Some foreign banks are setting up bigger operations in Oman. Is this a concern for BankMuscat? What would be the competition from these foreign banks?

Competition is expected to considerably increase in the domestic market during 2007. Resurgent local players; the influx of three strong regional banks, and the
incorporation of a new bank in Oman are all expected to keep BankMuscat on its toes during the year ahead. Competition helps banks become more competitive, more customer-focused and helps raise the service standards. We welcome greater competition in Oman. Don’t forget that we have been gearing up with our own expansion plans too. With the opening of our Saudi Arabian operations and the successful completion of our acquisition of a 43 percent stake in a leading Indian securities firm during the first half of the year, the international operations of the bank are expected to become a significant contributor to its bottom line in the current year. These expectations are also based on the continued strong performances turned in by the bank’s strategic investments in India and Bahrain.

Any significant milestones covered in 2007 yet?

This year has been extremely rewarding for the bank, which also marked the kick-off of BankMuscat’s 25th year anniversary celebrations. BankMuscat flagged off a mobile customer convoy on the occasion. The customer convoy has been travelling around the country meeting people and sharing with them details of our latest
product and service offerings and will be stationed in the Dhofar region right through the Khareef Festival in Salalah. International operations of the bank achieved a significant milestone with the opening of Riyadh main branch on April 1, 2007 in the Kingdom of Saudi Arabia – the largest market in the GCC. BankMuscat is the first bank from the Sultanate of Oman to open a branch in the kingdom. The bank has launched consumer and
corporate banking products under a new brand name ‘Khayrat’, reflecting the localization of our services for the Saudi market. The first quarter of the year also witnessed the launch of ‘Hayatuna’ family protection plan, which has provided a promising Bancassurance product on the life insurance side. Initial feedback suggests that the product features are simple for customers to understand and therefore there is a potential to increase volumes./

During the second quarter of the year, the bank also launched the nation’s (and perhaps the GCC region’s) first ‘zero interest’ Al A’awn loans to provide relief to
victims of cyclone Gonu.

The year 2007 was extremely rewarding for the bank in terms of awards and recognitions. BankMuscat was declared the ‘Best Bank in Oman’ by Euromoney in its annual Euromoney Awards for Excellence. This is the sixth time that the bank has been bestowed this honour. The bank’s premier position in the country was also seconded by BusinessToday in its annual survey of banks in the sultanate. The bank’s brokerage unit, the leading

brokerage house on the Muscat Securities Market, received the ‘Best Brokerage Award’ (by trading volume) for the third consecutive year. In addition, BankMuscat’s

brokerage unit also bagged the first position for Best Organisational Structure, in the sultanate for the year 2006. The bank’s IT department also successfully

completed the BS7799 surveillance assessment and certification upgrade assessment to ISO 27001 during the second quarter of the year. The IT security section has been certified as compliant to ISO/IEC 27001:2005
standards by BSI. Moreover, The bank has been recently recognized as an Investor in People (IIP)
organization. BankMuscat is the first bank from across the Middle East and North Africa (MENA) region to receive this certification. The Investors in People Standard was developed in 1990 in collaboration with the UK’s leading businesses, both large and small. The standard provides a framework for improving business performance and competitiveness, through good practice in human resource development.