Treading cautiously

United Finance Company plans to monitor the market developments and adopt a prudent approach to grow its loan book by optimising the market opportunities

In 2017, United Finance Company (UFC) booked a reasonable volume of business despite the subdued market conditions. The loan book of the company as at 31 December 2017 stood at RO113.59mnas against RO114.55mn as at December 31, 2016. The company recorded a net profit of RO1.02mn for the year 2017 as against RO4.50mn for the previous year.

The decline in profit is attributed to the decline in instalment finance income and the higher provision made to cover the increase in the level of impaired loans and the financial impact of irregularities at the Nizwa branch of the company. Despite the concerted efforts on the recovery front, impaired assets increased to RO21.61mn as at December 31, 2017 as against RO11.56mn as at December 31, 2016.

The company holds a cumulative provision of RO8.54mn as at December 2017 and a special reserve of RO2.37mn to guard against delinquencies. The management is pursuing necessary recovery measures to control and bring down the level of impaired loans despite the prevailing tough market conditions.

The company’s fund position was comfortable throughout the year despite tight market liquidity. Banks renewed / enhanced the credit facilities extended to the company to meet its business needs. Some of the banks also expressed their willingness to extend additional credit facilities to meet the growth plans of the company.

The company detected some irregularity in its Nizwa branch operations in December 2017. The fraud investigation committee of the company performed a detailed investigation and reported that the Nizwa Branch Manager had indulged in accounting manipulation and theft of company’s documents. The investigation report quantified the financial impact at RO1.35mn which has been fully provided for and given effect in the financial statements for the year.

Looking ahead

The state budget for the year 2018 continues to lay emphasis on economic diversification and curtailing increase in expenditure. The budget aims at supporting the government’s initiatives of encouraging private sector participation in developmental projects to foster growth and provide sustained employment opportunities to citizens. The budget envisages a similar outlay for developmental activities as in the previous year. The government is expected to pursue ongoing projects and prioritise its outlay for developing infrastructure to augment its diversification plans.

Considering the thrust on diversification into non-oil sectors, the expansion of Muscat airport, development of Sohar and Duqm seaports, dualisation of arterial roads and development of industrial infrastructure are expected to be pursued in the ensuing year.

UFC would tread cautiously and cash in on the market opportunities to grow its loan book with emphasis on asset quality. The company would continue its focus on maintaining a balanced loan portfolio with the objective of mitigating risk. The company has obtained adequate credit lines from banks to meet its business requirements. The company’s bankers are forthcoming to extend additional credit limits to augment the company’s business plans.

UFC believes the market would provide modest opportunities for business and competition is likely to be intense with pressure on lending rates. Cost of borrowing is also expected to remain high in the near term till such time market liquidity eases. Our collection team would pursue all efforts to control and bring down the level of impaired loans and arrest the fresh incidence of impaired loans. However, the inordinate delays being experienced in settlement of dues by counter parties pose a major challenge to curtail the level of impaired loans. The company would continue its pursuit for optimum utilisation of resources to achieve higher operational efficiency and improve profitability.

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