Bank Dhofar nine-month net up 14.5pc at RO7.1m  

MUSCAT — Bank Dhofar yesterday reported a 14.5 per cent jump in its net profit for the first nine months of the current year ended September 30, 2003.

The net profit rose by 14.5 per cent to RO7.1 million compared with RO6.2 million recorded in the corresponding period of the previous year. The profit and loss account shows impairment of RO4.05 million (against non-performing assets) compared with RO2.89 million showed in the corresponding period of last year, an increase of over 40 per cent.

Working results for the year 2003 has great significance, as the impact of Majan Bank merger is reflected in Bank Dhofar's loan book, deposits and share capital.

The increase in profitability can be attributed to significant increase in net interest income because of fall in interest expense (from RO5 million to RO4.6 million) and increase in gross interest income. The increase in gross interest income can be attributed to the consolidation of loan portfolios of Bank Dhofar and the erstwhile Majan International Bank, which had reported a huge loss in 2001.

The net interest income rose to RO17.3 million compared with RO14.2 million. Operating income stood at RO20.1 million (RO16.6 million) and profit from operations stood at over RO12 million compared with RO9.9 million recorded in the corresponding nine months of 2002.

Operating expenses rose to over RO8 million (RO6.6 million), significantly because of the merger. In fact, as a result of the merger of beleaguered Majan International Bank with Bank Dhofar, the loan book of Bank Dhofar has witnessed a substantial expansion.

The bank's loans and advances as of September-end 2003 stood at RO355.65 million compared with RO261.25 million as of September-end 2002, an increase of over 36 per cent. To total assets grew by about 36 per cent to RO451.6 million compared with RO332.2 million as of September-end 2002.

Deposits rose to RO352.3 million compared with RO274.5 million. As a result of the merger, the paid-up capital has increased from RO35.28 million to RO41.96 million.

Moreover, the total shareholders' equity rose to RO60.31 million (it includes share premium of RO5.4 million) compared with RO45.5 million. In a nutshell, the merger has been considerably strengthening the bank's bootomline. The bank had issued 6.68 million shares to the shareholders of Majan Bank. In 2002, it had issued 1.68 million shares as bonus shares to its shareholders.

The bonus issue was funded from a transfer from the bank's retained earnings as at the end of December 31, 2002. The bank has a subordinated debt of RO7.3 million. As part of the merger considerations, on March 31, 2003, Bank Dhofar had issued 7.36 million subordinated five-year and one-day tenure bonds having a face value of RO1 each to Majan Bank shareholders. These bonds carry a coupon rate of seven per cent. The earnings per share and net asset value per share works out to RO0.238 (RO0.235) and RO1.437 (RO1.290), respectively.

One of the most positive results of the merger that has contributed to the sector is that the erstwhile Majan Bank has become part of a bank that is not only conservative but public limited, where disclosure norms are prudent.

As far as the erstwhile Majan Bank was concerned, disclosure at the bank was not that impressive to critics (constructive criticism). The bank had tried to justify that it had been a private bank and such disclosure had not been mandatory.

Basle Committee on Banking Supervision had pointed out that reputational risk poses a major threat to banks, since the nature of their business requires maintaining confidence of depositors, creditors and the general marketplace.

Banks are especially vulnerable to reputational risk because they can so easily become a vehicle for or a victim of illegal activities perpetrated by their customers.

Bank Dhofar share is currently quoted at RO3 on the Muscat Securities Market. As part of its long-term growth strategy, the bank is believed to be exploring fresh growth opportunities, both organically and through acquisitions. In fact, the merger has provided the bank with an ideal platform for growth. The merger is also expected to ensure long-term benefits for the shareholders and help reduce the impact of dilution of earnings and shareholdings.

Major shareholders of the bank include Dhofar International Development and Investment Company (30.26 per cent) and Qais Omani Establishment (11.37 per cent).