CEO's Message

 
Management Report
Management report contains analysis of important factors underlying the performance of the Company.

Economic outlook
Declining Oil prices has pushed the Government to initiate austerity measures and to look for diversification to reduce reliance on Oil Sector revenues. Oman possess a rich reserve of minerals and the Government has started working towards impetus on mining sector. The potential revenues through Tourism has also been identified. Other than austerity measures, fiscal discipline has also been introduced and the Government has started to introduce various refinements in Taxation and management of subsidies. Reduction in fuel subsidies has resulted in a rise in petrol prices by about 33% in January 2016. 
Although there are challenges ahead in the year 2016, the Government possess a strong track record of bouncing back from crisis as has been the case in many such occasions in the past. 

Outlook for 2016
A conservative GDP growth rate of about 2.5% has been projected by the Government. Due to high deficit of RO 3.3 billion for the first time in many years, the Government has initiated controls and fiscal discipline to look for sustainability through diversification. In view of the excellent track record in economic discipline, the Government is confident of raising resources within and outside the country to counter the fiscal pressures.  
Despite challenges the key Infrastructure growth has remained undeterred and prestigious and important projects have continued to progress.  

Potential of Financial Sector
The Cash Flow gap in various segments of business, particularly the Small and Medium Enterprises (SMEs) will provide ample scope for financial institutions to provide financial support through pro-active and efficient identification of potential business sources. The Government has always stressed the need upon the Banks and financial institutions to provide all support to facilitate the growth of the SME and also the MSMEs. To provide a positive stimulus to these enterprises the scope and definition of the SMEs has also been widened by policy level changes recently. Although, the competition amongst the Finance & Leasing Companies (FLCs) continued to be intense during the year 2015 and is expected to prevail for the most part of the year 2016. The FLCs registered a growth of 11.5% during 2015. However, in view of the prevailing economic conditions, the Industry could achieve a growth of 9%. The FLCs would strategize growth depending on the overall economic environment. 
Taageer registered a substantial growth in assets size of 18%.

Return on shareholders’ funds (RONW)
Company has posted a return of 12.88% on shareholders’ funds.
The RONW is the result of the following components:-

Business volumes and asset growth
Business volumes and asset size have grown by 30% and 18% respectively in 2015.   

Cost of funds
Company has managed its borrowing costs which is evident by a reduction in interest costs of RO 2,212K in 2015 as compared to RO 2,276K in 2014, notwithstanding the increase in asset size during 2015. However, this would be closely monitored during the year 2016 as the liquidity pressures on the Banks have pushed up the lending rates. 

Non performing assets
During the course of growth in asset size, it is important to ensure that the ratio of non performing assets in total portfolio of the Company does not deteriorate. Ratio of NPAs as % of total assets changed from 7.1% as at 31-12-2014 to 6.3% at 31-12-2015.  Company has introduced various operational improvements in the current year to closely monitor the non performing assets in the portfolio. 

Operating overheads
Operating overheads constituted 33% of total income from financing activities in 2015 (same as in 2014).  


Performance snapshot
Key indicators of Company’s operating performance over last 5 years are as under:
RO’ 000


Particulars

2015

2014

2013

2012

2011

Share capital

25,359

25,359

23,700

21,667

16,667

Net worth

34,312

32,427

31,123

29,386

27,031

Net investment in lease

126,656

107,306

101,958

92,000

83,660

Total borrowings

89,253

71,556

67,299

56,727

49,782

Gross income

11,893

10,908

10,445

10,266

9,758

Profit after tax

4,421

3,883

3,924

3,905

3,216

 
Branch network
The Company has always worked towards achieving excellence through customer satisfaction. In order to provide better services to its customers, the Head Office which is now located at a more favourable location to customers at Al Khuwair has contributed effectively towards better customer service. 
Currently the company has branches at Al Khuwair, Hatat Complex, Sohar, Nizwa, Barka and Salalah. 

Risks and concerns

Credit risk
Focus on credit risk is an important part of Risk Management framework as indicated by the Central Bank. Measures such as Loan Review Mechanism, Sectoral caps on lending, Analysis of non-performing assets, risk scoring models help the management to manage credit risk.
Company has initiated a review of its credit policies and procedures to balance risk appetite with requirements of customers and prevailing economic conditions.

Interest rate risk
It is not customary to offer benchmark based lending products to retail & SME customers. Company, however, has interest rate re-pricing clause in agreements with corporate customers. Company is also cautious in its pricing approach which factors interest rate volatility.

Liquidity risk
Liquidity risk arises from inability of the Company to pay its liabilities when they fall due.
In lending business, liquidity risk is inherent due to an element of mis-match in cash flow timings of assets and liabilities. This is mitigated by having adequate lines of credit from the lenders over and above its normal business pattern.

Other risks
Company has insurance cover over its assets.
It has a continuity of management plan, in the event of a sudden gap in leadership level of management.
Company is revamping all operating policies and procedures to identify areas of improvement, standardization and rationalization of its activities.

Business Continuity and Disaster Recovery
Your Company has put in place a Disaster Recovery and Business Continuity Plan and steps are being initiated to conduct periodic testing to ensure a state of preparedness.

Acknowledgement
On behalf of the management, I thank the Chairman, Vice-Chairman of the Board, Chairman of Audit Committee, Chairman of the Executive committee and Board members for their continuous guidance.
We also take this opportunity to thank our shareholders, our employees and regulatory bodies for their continuous support.

 
Mohammed Redha A. Jawad 
Chief Executive Officer