Release Date: August 06, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net profit increased by 9.3% to $137.5 million for H1 2026, reflecting strong business growth.
- Non-interest income grew 12.7%, driven by higher investment income and business expansion.
- Loan portfolio expanded 6.3% and deposits grew 13.2%, indicating robust balance sheet growth.
- Asset quality improved with total provision coverage at 170% and net impairment charges down 20% year-on-year.
- Return on equity improved to 13.5% and return on assets reached 1.75%, showing enhanced profitability.
- Cost-to-income ratio remained disciplined at 37.8%, demonstrating efficient cost management.
- Islamic banking segment holds the highest market share in Oman, contributing to diversification.
- International operations contributed 7% of net profit, providing a hedge against domestic competition.
- Strong capital position with a floor of 17.5%, well above regulatory minimums.
- Management expects continued loan growth of 6-7% for the full year, with a solid pipeline for H2.
Negative Points
- Operating expenses increased 5.8% due to administrative expansion and technology investments.
- Loan growth of 6.3% lags behind the sector's double-digit growth, with management citing intentional prudence in retail.
- Capital ratio declined to 18.7% from the previous trend of around 20%, though still above the 17.5% floor.
- Regulatory mandates to spin off Islamic banking and investment banking activities may increase costs initially.
- Islamic banking segment faces lower profitability due to higher funding costs and limited product offerings compared to conventional banks.
- Competitive pricing pressures in the retail segment led to intentional slower growth, potentially impacting market share.
- Geopolitical uncertainties and global interest rate fluctuations could affect asset quality and provisioning needs.
- Fee income growth is expected to be high single-digit, which may not sustain the double-digit pace seen in H1.
- The bank's conservative approach may result in missing out on aggressive market share gains by smaller competitors.
- The spin-off of Islamic banking could lead to consolidation in the sector, creating uncertainty for Bank Muscat's strategy.
Q & A Highlights
Q: Regarding the robust fee income growth, is this the expected run rate for the second half? Also, with loan growth at 6% year-to-date, can the bank close the year at a high single-digit loan growth rate?
A: Sheikh Walid (CEO) indicated that the bank has a decent pipeline for the second half, expecting loan growth of 6-7% for the full year if the geopolitical situation and interest rates remain stable. Ganesh (Deputy CEO, Investment Banking and Finance) added that fee income is expected to outperform net interest income growth, with the bank aiming for high single-digit growth in fee income, maintaining its contribution to total income at around 30%.
Q: What are your thoughts on the Central Bank of Oman's (CBO) mandate to spin off Islamic banking windows, and the FSA's new rules to spin off investment banking activities? What are the timelines and expected impact?
A: Sheikh Walid (CEO) stated that these regulatory changes were anticipated and the timelines provided are sufficient for planning and execution. He views the Islamic banking spinoff as a positive development that will strengthen the sector and diversify revenue bases, despite initial increases in cost. Regarding the FSA spinoff, he noted it is still in draft stage but is also a positive development that provides a framework for banks to plan and execute in the best interest of shareholders.
Q: Bank Muscat's balance sheet growth is lagging behind the market, with smaller banks gaining market share. What is the strategy for balance sheet expansion, especially when the sector is seeing double-digit growth and you are targeting 6-7% credit growth?
A: Sheikh Walid (CEO) explained that the bank starts from a much higher base, so percentage growth requires substantial volume. He emphasized a disciplined approach to credit quality, noting that retail segment growth was intentionally slower in the first half of 2025 due to unattractive pricing competition. However, he expects a different story in the second half of 2026, with the bank becoming more aggressive yet prudent in retail credit, supported by developments in urban real estate areas like Sultan Haitham City.
Q: With capital ratios having come down to around 18.7% from the previous ~20% trend, are there any plans to enhance capital ratios or is there a target level you are comfortable with?
A: Sheikh Walid (CEO) confirmed the bank has a floor of about 17.5%, which is still more than 2% above regulatory minimums. He stated that the current level represents excellent capital utilization, delivering a 13.5% return on equity. The bank will continue to grow and deploy capital as long as it makes sense from a credit and expansion perspective, without compromising on asset quality.
Q: With the new regulations on Islamic banking, do you foresee consolidation in the market? What is Meethaq's strategy to remain the largest, and how will you handle increased competition from larger players?
A: Sheikh Walid (CEO) outlined three possible options for banks: merge, acquire another window, or close. He expects consolidation to occur and confirmed that Meethaq, with the highest paid-in capital and retained earnings among Islamic windows, is well-positioned whether it merges or stands alone. Regarding competition, he emphasized the bank's strong funding base, diversified revenue streams, and international operations (now contributing 7% of net profit) as key advantages. He reiterated that the bank will not compromise asset quality or pricing to chase market share, focusing instead on fundamentals and returns.
Q: Islamic banking within Meethaq is the largest but does not generate attractive returns. Will the independent setup add more costs and further erode ROE? How can Meethaq improve its low ROE scenario?
A: Sheikh Walid (CEO) explained that Islamic banking in Oman is only 13 years old compared to conventional banking's decades-long history. The higher cost of funds, due to a larger proportion of institutional deposits versus CASA, impacts profitability metrics. However, he believes that a level playing field will create more competition, marketing opportunities, and product development. He noted that while Islamic banking may not achieve the same results as conventional, it remains a good contributor to shareholders and is an important segment to serve.
Q: Can you provide more details on the bank's financial performance for the first half of 2026?
A: Sheikh Walid (CEO) reported a strong performance with net profits increasing by 9.3% to $137.5 million. Non-interest income grew by 12.7%, driven by business growth and higher investment income. Operating expenses increased by 5.8% due to administrative activities, infrastructure expansion, and technology investments. The loan portfolio grew by 6.3%, deposits by 13.2%, and net impairment charges reduced by around 20% year-on-year. Total provision coverage stands at 170%.
Q: What are the key highlights regarding the bank's asset quality and profitability metrics?
A: Sheikh Walid (CEO) highlighted that the NPL ratio has remained stable at around 3-4%, with coverage ratios consistently high at 160-174% over the past five years. The bank's ROE improved significantly from 10.5% in 2022 to 13.5% as of June 2026, and ROA reached 1.75%. The cost-to-income ratio remains excellent at 37.8%, and non-funded income contributes around 30% to total income.
Q: How is the bank's funding and liquidity position?
A: Sheikh Walid (CEO) stated that the bank has a well-balanced funding mix, with 70-72% coming from customer deposits and the remainder from interbank borrowings and equity. This structure has remained consistent and stable. The bank maintains high levels of liquid assets and has one of the strongest capital positions among Omani and GCC peers.
Q: What is the outlook for the banking sector in Oman?
A: Sheikh Walid (CEO) noted that the sector has delivered consistent growth, with total credit registering a CAGR of about 6.4% and customer deposits growing at nearly 8% between 2020 and H1 2026. Combined profits of the top seven Omani banks rose by 10.6% in 2025 and maintained the same growth in H1 2026. He expects credit and deposits to continue expanding at high single-digit rates, supported by a robust macroeconomic framework and sustained operational momentum.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This stock alert was generated using automated technology and GuruFocus financial data to provide readers with timely and accurate market reporting. This content was reviewed by GuruFocus editorial team prior to publication. Please send any questions or comments about this story to [email protected].
