CEO's Message

 
Management Report
Taageer Finance has completed sixteen years of successful operations, offering a comprehensive range of financial products. The company has established a strong market presence. The year 2016 was full of economic, financial and business challenges. Low oil prices will continue to pose challenges for the economy and businesses. Over the past years, Taageer Finance has increased its market share and has progressed very well to meet the customers’ expectations by a team of its dedicated employees towards Company’s Vision “to be a leading Finance company in the region” and its Mission “To play an instrumental role in the development of the Corporate and SME sector while cultivating entrepreneurship culture in society” and delivering best in class service to the stakeholders. The following management discussion and analysis of the key financials are outlined here in our Management report.

Economic outlook
The recent decision by the Government to reduce its oil production in line with OPEC’s decision to reduce oil glut. This could help stabilize the oil prices and contain the deficit in the budget for the year 2017. Therefore, as per Oman’s budget for 2017, oil revenue is projected to decline to reflect a reduction in oil production to match the recent OPEC production agreement. During the year 2016, the Government was faced with tough challenges due to substantial increase in budget deficit. The steep decline in global oil prices and government revenues has caused tight liquidity conditions in the banking system.
On the positive note, the Government has taken several initiatives to address the decline in revenues. It has started National program for enhancing economic diversification (Tanfeedh). In line with the ninth 5 – year plan, the resulted projects and initiatives under Tanfeedh program cover three main sectors (manufacturing, logistics and tourism), as well as two economic enablers (finance and employment). If realized, these initiatives should boost GDP by more than RO 1.7 billion and create an additional 30,000 jobs for Omani nationals.
The government also believes that Privatization will drive economic growth. To achieve its growth objectives, the government will have to accelerate the privatization process during 2017 by transferring its interest in government assets to the private sector.

Outlook for 2016
Due to high deficit of RO 5.3 billion for the year 2016, the Government has initiated controls and fiscal discipline to look for sustainability through diversification as explained in the Economic outlook. In view of its excellent reputation, the government   is   confident of raising resources within and outside the country to counter the fiscal pressures. The real GDP growth rate is expected to reduce to around 1.1% and gradually increase thereon to 2%. Strategic moves and fiscal measures will go a long way towards addressing the challenging economic conditions.
Despite challenges, the budget for the year 2017 has maintained development spending levels while limiting public spending in other areas. The existing key infrastructure projects, under execution, would continue to progress till completion.

Potential of Financial Sector
Financial Institutions would continue to provide   financing   to   Small   and   Medium
Enterprises (SMEs) by identifying potential businesses.
Oman’s banking sector has shown growth of about 12% in private sector credit during 2016, and a marginal increase of 5% in its deposits.
Taageer Finance recorded a significant growth of 20% in its business. The implementation of IFRS 9 is mandatory from Jan 2018, which requires to quantify the expected loan losses instead of providing based on incurred losses, the Company has appointed external consultant to assist in arriving at the methodology. Also, the Company is working closely with the regulators in implementation of IFRS 9. The impact, if any, due to the revision of loan loss estimation shall be updated to the regulators and during the Q3 unaudited financials for 2017.

Return on shareholders’ funds (RONW)
The Company has posted a return of 12.65 % 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 8.48 % and 20.22 % respectively in 2016.   

Cost of funds
The Company continues to manage its borrowing costs and has made all efforts to efficiently manage and negotiate borrowings to maintain over-all bottom-line. During the year 2016, the borrowing costs increased considerably in view of lending rates by the commercial banks due to tight liquidity conditions in the banking sector. The interest rates will be closely monitored during the year 2017. 

Non performing assets
As asset size grows, it is important to ensure that the quality of loan portfolio and ratio of non-performing assets in the total portfolio of the Company remain within the Risk appetite of the company. The ratio of NPAs as a % of Gross Portfolio changed from 6.04% as at 31-12-2015 to 5.36% at 31-12- 2016. The company is closely monitoring the non-performing assets in the portfolio as part of its operational strategy.

Operating overheads
Operating overheads constituted 28.41 % of total income in 2016 as against 31.78 % for the year 2015.


Performance snapshot


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


Particulars

2016

2015

2014

2013

2012

Share capital

25,359

25,359

25,359

23,700

21,667

Net worth

36,402

34,312

32,427

31,123

29,386

Net investment in lease

152,264

126,686

107,306

101,958

92,000

Total borrowings

111,808

89,253

71,556

67,299

56,727

Gross income

13,923

11,893

10,908

10,445

10,266

Profit after tax

4,474

4,421

3,782

3,924

3,905

 
Branch network
Currently the company has six branches; at Al Khuwair, Hatat Complex, Sohar, Nizwa, Barka and Salalah.

Risks and concerns

Credit risk
The focus on credit risk is a key part of the Risk Management framework as indicated by the Central Bank of Oman. Measures such as loan review mechanism, sectoral caps on lending, analysis of non-performing assets and risk scoring models help the management to manage credit risk.
The Company has completed a review of its credit policies and procedures, in line with its five-year strategy plan, to balance the risk appetite with the requirements of its customers. In doing this it has taken on board the prevailing economic conditions.

Interest rate risk
Benchmark based lending products are usually offered to retail & SME customers. The Company, has however, offered an interest rate re-pricing clause to corporate customers. The Company has monthly ALCO meetings to review the loan pricing and work towards mitigating the interest rate risk by suitably pricing the loans and also the product mix.

Liquidity risk
Liquidity risk arises from the inability of the Company to pay its liabilities when they fall due.
In the lending business, liquidity risk often exists due to an element of mis-match in the cash flow timings of assets and liabilities. A strategic move to lock-in long term credit was made during the year 2016. Taageer has also reduced this risk by ensuring that it has adequate lines of credit available from its lenders which is over and above its normal business pattern.

Other risks
The Company has insurance cover in place to protect its assets.
It has plans in place to ensure that it continues to run smoothly in the unlikely event of a sudden gap in the leadership level of management.
The Company is constantly assessing and updating its 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 cohesive Disaster Recovery and Business Continuity Plan to ensure that we are prepared for every eventuality.

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