      Main positives: i) lower provisioning costs; ii) cost control; iii) decline in LDR
      Main negatives: i) weak net interest income and non-interest income
 
The National Bank of Oman (NBO) reported a 1Q18 net income of OMR12.6mn, a decline of 9% Y-o-Y, but an increase of 33% Q-o-Q from a low base in 4Q17 (which was dented by high operating expenses). 1Q18 earnings slightly missed our forecast of OMR13.3mn (-5%).
 
Our take on the results: Balance sheet trends recovered, with both loan growth and deposit growth back to black. Loan growth rebounded to 0.8% Q-o-Q in 1Q18, following three quarters of consecutive decline, suggesting that the de-risking in the UAE subsidiary, which took place in 2017, has come to an end. Deposit growth was strong at 7% Q-o-Q in 1Q18, after two quarters of sequential decline as the bank let go of some deposits due to weak lending appetite and high funding costs. It is worth noting that deposit growth tends to be stronger in the first quarter as NBO gets a large chunk of public sector demand deposits. Revenues declined 6% Y-o-Y (-4% Q-o-Q), with both net interest income and non-interest income falling 4% and 9% Y-o-Y, respectively, mainly on weak volume growth since 2Q17. However, solid cost discipline led to a broadly muted growth in operating costs Y-o-Y (-20% Q-o-Q). Provisioning was the key positive this quarter, with provisioning costs down 24% Y-o-Y (-41% Q-o-Q). NBO has been hit in 2017 by high UAE-related provisioning costs due to credit quality deterioration and has been cleaning its UAE book throughout 2017. NBO’s domestic credit quality dynamics are still sound despite a weak macro backdrop, thanks to its conservative lending approach.
 
National Bank of Oman: OMR0.19 as of 15 Apr. 2018, Rating: Neutral, TP: OMR0.21/share, MCap: USD830mn, NBOB OM/NBOB.OM
Rajae Aadel