Bank Muscat reported 2Q18 net income of OMR44.9mn, up 12% Y-o-Y and broadly unchanged Q-o-Q. Earnings came in broadly in line with our estimate of OMR46.4mn (-3%). All key operational metrics came in fairly in line with our expectations, with the exception of provisioning costs, which were higher than expected, due to an increase in loan loss gross provisions. 
 
Our view on the results: Revenue growth was strong, at 10% Y-o-Y, supported by an improvement in net interest income (up 7% Y-o-Y) and non-interest income (16% Y-o-Y), likely on higher fee income. Muscat Stock Exchange volumes picked up in 2Q18 and likely drove higher brokerage fees and trading income for the bank. Loan growth slowed down to 0.7% Q-o-Q in 2Q18, from 1.9% Q-o-Q in 1Q18, likely due to seasonality, but was fairly stable Y-o-Y at 6%, likely driven by corporate lending demand, stemming from government-related projects. Deposit growth was in line with loan growth at 0.8% Q-o-Q, leading to stable liquidity metrics, with LDR unchanged at 111% in 2Q18. Costs were contained, with operating expenses up just 2% Y-o-Y and down 4% Q-o-Q, driving an improvement in cost-to-income ratio to 42% (down 3ppt Q-o-Q and Y-o-Y). However, provisioning costs came in higher than anticipated, with cost of risk rising to 47bps in 2Q18 vs. 26bps in 1Q18 and 28bps in 2Q17, mainly due to an increase in loan loss gross provisions of 21% Y-o-Y. We had anticipated a decline in provisioning costs Y-o-Y, following the introduction of IFRS 9, similar to the trend we saw in 1Q18 for all Omani banks under coverage. 
 
Bank Muscat: OMR0.37 as of 12 Jul. 2018, Rating: Buy, TP: OMR0.42/share, MCap: USD2,900mn, BKMB OM/BKMB.OM
Rajae Aadel