Oman ORIX Leasing Company achieved the highest profit and business volumes in its history during 2016. The company will focus on quality of credit and will aim to maintain an adequate margin thereby resulting in a healthy return on investment for the shareholders, says CEO, Shahin Mohammed Al Balushi
Can you highlight Oman ORIX Leasing Company’s financial performance in 2016? Has the company improved its profitability during the year?
Oman ORIX Leasing Company SAOG continued to achieve new performance milestones in the financial year 2016, its 23rd year of operations. The company is primarily engaged in providing lease facility for movable assets such as vehicles, construction equipment and plant & machinery. The company is supported by a network of strategically located 8 branches at – Sohar, Salalah, Nizwa, Ibra, Barka, Seeb, Al Kamil and Buraimi.
The financial highlights for the year are as follows-The company achieved highest profits and business volumes in its history during 2016. Profit after tax grew by 5 per cent and reached RO5.53mn compared to RO5.27mn in 2015. This increase was led by a healthy growth in revenue and net lease income. During the year, the company operated in a highly competitive market to achieve healthy growth in business volumes and revenue.
The lease income for the year grew by 14 per cent to RO17.02mn from RO14.95mn in 2015. Contribution to the total income came mainly from the finance lease income.
The company achieved highest profits and business volumes in its history during 2016. Profit after tax grew by 5 per cent and reached RO5.53mn compared to RO5.27mn in 2015.
Did the company undertake any initiatives to reduce non-performing loans and curtailing disbursements in 2016? How successful were these measures?
The company has been successful in its effort to maintain a quality portfolio and achieved its business targets for the year 2016. Apart from the recovery efforts, the prudent credit policies and the continuous and consistent credit evaluation process have all contributed to raising the quality of the credit portfolio. Compared with the industry, the company has maintained non-performing loan ratio at a healthy level and also loan loss coverage was higher than many of the peers, reflecting prudent level of cumulative loan impairment provision of RO10.107mn.
What is the company’s outlook for
Lower oil prices and huge budget deficits are expected to impose significant challenges during the year 2017. Government is looking to minimize budget deficit by reducing subsidies and cutting costs. Any constraints on liquidity situation in the market could exert pressure on the cost of funds resulting in increase in interest rates in the market.
The management is confident to carry forward the approach of maintaining the quality of its portfolio. The company will focus on quality of credit while approving it and will aim to maintain an adequate margin thereby resulting in a healthy return on investment for the shareholders.
Are there plans to increase interest rates in 2017 or will it continue to remain at the same level?
The interest charged to customer depends on the current macroeconomic conditions, prevailing interest rates in the economy, ability to raise loans from banks and financial institutions at a cheaper rates. The interest rates may vary based on the changes in above factors.
Does the company have any plan to expand into new product areas?
The company may diversify its product line depending upon the requirements of the customers.
How is Oman ORIX coping up with the increased competition in the market?
Stiff competition with peers and with banks, will continue to pose a challenge. This will put pressure on margins and maintaining adequate level of liquidity will be an issue if the overall liquidity from the banking sector will come under pressure.
However, company will capitalise on the opportunities in the leasing segment targeting through the extension of our products and services. In addition, we will continuously focus on improving our asset quality by strengthening the Recovery Division to improve NPLs. With the increase in market interest rates, funding costs are likely to increase. Hence, the sector needs to effectively manage their assets and liabilities to sustain margins in a rising interest rate environment.
What do you think about the performance of non-banking finance industry in the coming years?
Leasing Industry in Oman may continue to face challenging macroeconomic conditions over the next couple of years. So far the overall market has continued to remain sluggish. Payment delays are adversely affecting contracting companies with a severe hit on the cash flow and liquidity of the entire sector. Payment delays of completed projects have forced contracting firms to increasingly rely on short term bank funds. The increase in bank interest rates and flat fuel prices are also adversely affecting contracting firms leading to a squeeze in their margins.
Given the sluggish business environment the performance of NBFIs is expected to remain at the same level as in 2016.