• Tweaking estimates and fair value, but still Neutral on the stock We tweak our earnings estimates for National Bank of Oman, incorporating the trends from the recent results. The bank continues to maintain a disciplined approach to growth. While NBO reported continued strong loan growth trends (14.7% Y-o-Y), net interest spreads have been resilient, remaining broadly stable Y-o-Y. Moreover, operating cost growth has also been contained to only 3% Y-o-Y. We adjust our FV to OMR0.26, incorporating the 10% stock dividend announced along with 2015 results. We maintain our Neutral rating, with our new FV implying only 8% upside.
• Pick-up in retail lending is driving loan growth NBO’s retail loan book growth momentum has picked up strongly over the past four quarters. After a sharp slowdown in 1H15, retail loan growth has steadily accelerated, growing c20% Y-o-Y in 2Q16 - partially supported by continued expansion of the UAE business, where assets have risen by c50% Y-o-Y in 2Q16, accounting for c8.6% of the bank’s total assets compared to 6.1% a year ago. Most of the bank’s lending in UAE is to small and medium sized businesses, and is categorised within retail lending. Corporate loan book growth however is relatively subdued, up only 10% Y-o-Y in 2Q16.
• Spreads resilient to funding cost pressures Though loan growth has been strong, NBO has been able to maintain its net interest spreads, which were only 4bps lower Y-o-Y. While funding costs have risen, the strong expansion in the retail loan book has allowed it to offset funding cost pressure. While headline LDR at 115% appears high, we estimate its lending ratio (adjusted for long-term debt and equity) at c84%, comfortably below the central bank’s prescribed limit of 87.5%.

Murad Ansari