BusinessToday’s finance company rankings see some dramatic changes from last year’s results
BusinessToday Reports

Overall, it has been a good year for non-banking finance companies (NBFCs). Increased gov-ernment spending has meant tremendous opportunity in the SME sector. The decision of the Central Bank of Oman (CBO) to grant NBFCs permission to offer insurance products to their customers, and to accept corporate deposits, hold promise for future growth and the development of the tourism sector, combined with clearly framed property ownership laws for expatriates, mean more growth for the future. On the flipside, rising interest rates have strained margins. There are issues relating to legal remedies against defaulters. And, as ever, the competition is never too far away in its pursuit of market share, in the process pushing down income and profits.

In this scenario, what the BusinessToday finance company rankings demonstrate pla-inly is that change is the only constant. Muscat Finance takes the top spot for 2005 with 188 points. It displaces last year’s league leader United Finance, which has slipped four positions. There was reverse swing for Oman ORIX, occupying the second place this time round with 176 points, leaping three positions from number five last year. That jump has meant there are only 12 points separating the first two companies in the ranking. Further down, it gets even closer. There’s just one point separating Al Omaniya Financial Services and Taageer Finance Company, which take the third and fourth place respectively, an exact switch from their positions the previous year.

Going by the growth indicator charts of the survey, which use growth in gross loans and growth in net profit as parameters, a slightly different picture emerges. Here, it is Oman ORIX, with 85 points, and Taageer Finance, with 80 points, that have a considerable lead over Muscat Finance, which is at 50 points. Close on the heels of Muscat Finance are Al Omaniya and United Finance. The three companies are separated by just five points each.

In the profit indicators chart, where earnings per share, return on equity and return on capital determine ranking, the overall survey rankings are almost replicated. Except United Finance pips Taageer Finance to the number four position. But again there are just five points that make for the difference in ranking.

For leasing and finance companies, which don’t have the advantages of scale that banks do, finding niches is not an option but a necessity. They have also to keep in mind that considering the size of the market, opportunities have to be created rather than awaited. Record oil prices boosted the economy this year and enabled the government to post a substantial fiscal surplus. Apart from the natural and all-encompassing opportunity this created, there were also several growth openings for NBFCs in infrastructure and housing-related projects. The SME sector is one where Oman ORIX, the leader in the growth indicator sphere, plans to focus. For Al Omaniya, automobile financing continues to be the growth driver. Then there is Taageer, second on the growth chart, which plans to introduce big ticket leasing as its differentiator. For National Finance, the focus will be on the fast-growing SME sector as well, albeit with some moderation.

Consolidation and expansion has been the flavour of the year for several players in the industry. So while United Finance increased its share capital by 67.43 per cent through a rights issue, Taageer Finance raised capital through a successful IPO. On the strength of its increased net worth, Al Omaniya increased it presence in several core areas. And there was good news for shareholders as Muscat Finance achieved a record profit, reported a strong earnings per share (EPS) and declared a 25 per cent dividend for the year.

The opportunities in the market mean that there will be more innovations and serious brainstorming to expand as much as possible, on part of all the finance companies. And in their race for larger parts of the market pie, it is obvious that customer service will play a deciding role.

From Taageer Finance’s move to offer its customers online approval for loans to the flexibility in approach keeping with the times that United Finance prescribes, it is all about moving to keep up with the changing needs of consumers. Collaborations with dealers to provide better deals across product ranges are part of the strategy that several companies have adopted to increase their customer base. Because, with the competition between them hotting up, out-of-the-box strategies are what will make the difference between leaders and followers. Meanwhile, the rankings capture a stage in the life of players aggressively chasing growth and profits. There’s always the possibility of more dramatic changes in the future. And when the next rankings come out, it could be a whole new ball game.

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#1 MUSCAT FINANCE COMPANY
Premium on consistency

Consistency seems to be the key to Muscat Finance Company’s (MFC) move to the top slot, from the second place it enjoyed last year. Says CEO Raphael Parambi, “We have always had a steady approach. That combined with our ongoing customer-centric programmes has kept our position strong.�

MFC conducts exit interviews with its customers in an attempt to figure out exactly what it is doing right and what it is doing wrong. Adds Parambi, “We have a high proportion of repeat customers. Since we know their track records, our NPLs are low. And our return on assets is high. And in a scenario where interest rates are high, our costs are relatively lower.�This leads to a large proportion of its income going straight to the bottom line, keeping its operating costs low. On the HR side, MFC has its staff voting for its ‘Employee of the Month� making it a process that truly involves the staff.

In the various parameters that were considered to rank finance companies, MFC has maintained a steady presence at the head of the charts. It enjoys prime position for return on capital, earnings per share of RO0.285, and an interest spread of 87.19 per cent; and is in the top three in all other parameters, except for growth in gross loans, where it has only managed a 6.66 per cent growth to reach RO41.04mn from its figures of RO38.47mn in 2004.

The year 2006, the beginning of the 20th year of operations for MFC, started on a high note. The company achieved a record profit for 2005, making it the 15th year of continuous impro-vement in profits for the company. A dividend of 25 per cent has been recommended by the company. This takes the total dividend distributed to date, since the company’s inception, to RO14.76mn.

There has also been a steady increase in MFC’s exposure to productive sectors, now comprising almost 58 per cent of its balance sheet. For the future, Parambi says that the company is working on a new product relating to project financing, keeping Sohar in mind.

#2 Oman ORIX LEASING COMPANY
Growth spurt

A massive 219.4 per cent increase in net profit, from RO0.39mn in 2004 to RO1.25mn in 2005, is one of the factors that has seen Oman ORIX make the leap from number five on the list last year to second-in-line for the top spot this year. The company’s new business volumes increased by 44 per cent to RO21.75mn, compared to RO15.12mn in 2004. And owing to substantial recovery of overdues, it wrote back excess provisioning of RO0.34mn. Says Hira Lal Bharvani, general manager, Oman ORIX, “Our emphasis has been on consolidation and gradual systematic growth, while keeping a very tight control on our portfolio. Control over credit, combined with aggressive marke-ting, has led to the pace of growth continuing for us.�

Bharvani lists Oman ORIX’s branch in Nizwa as another important development for the company. “The branch, which was opened in early 2005, has contributed to our improved business as well. Besides, we increased our exposure in the SME business. The trickle-down effect of the recent mega projects will continue to see us focusing on the SME sector in 2006. We are also looking to strengthen our position in the retail business.�/p>

The company, which is looking at the possibility of opening a branch in the Dhahriya region, saw its total operating costs increase by 19 per cent to RO1.17mn, compared to RO0.98mn in 2004. Meanwhile, an increase in business and rising interest rates in 2005 led to an 18 per cent increase in financial charges, from RO0.61mn to RO0.71mn. The company has also recommended a cash dividend of 15 per cent for the year.

The company’s improved performance notwithstanding, the general manager sees further growth as the true challenge. “This is a very competitive and sophisticated market. I believe that the challenge, with regards to growth, is something all companies face. You have to be fast, flexible and friendly. Good processes, fast turnaround times, and helpful staff, will always add to business.�/p>

#3 AL OMANIYA FINANCIAL SERVICES
Driving on auto

As Al Omaniya Financial Services (AOFS) enters the tenth year of its operations, the company has more than enough reason to cheer. A strong showing in retail lending helped AOFS to post good numbers in 2005. The company registered a 40.65 per cent growth in business in 2005, taking its net worth up to RO11.67mn in 2005 from RO11.35mn in the previous year. The company proposed a cash dividend of 21 per cent for the year 2005. Its total cash dividend paid out since its inception adds up to an impressive 128 per cent.

The company offers a variety of specialised financial products under the brand name Lifeline, and among its focus areas during the year was increasing the brand image of Lifeline (auto loan segment).

Apart from automobiles, the other big focus area for the company is financing lifestyle products. It has been aggressive in extending the customer base of its Lifestyle loan �a micro credit programme. AOFS�tie-up with BankMuscat to offer lifestyle loans to the bank’s customers has been a runaway success with the volume of loans growing by close to 100 per cent in the segment. According to AOFS�annual report, it plans to increase emphasis on quality credit and risk mana-gement; diversify distribution channels locally; and enhance its market share by forming business alliances with dealers. Despite repeated efforts by BusinessToday, AOFS officials were unwilling to comment on the company’s performance.

#4 Tageer FINANCE COMPANY
ï»?span class="Size-5">The stability formula

They have slipped a slot in the rankings this year, but Taageer Finance’s approach still made it a significant 12 months for the company. Says Sanjeev Kumar Chadha, chief executive officer, Taageer Finance, “We are one of the few companies whose business pattern is more or less stable throughout the year. Our average business follows a straight-line pattern. We don’t hit peaks and then come down.�Taageer’s business volumes went from RO14mn in 2004 to RO20mn in 2005, an increase of 43 per cent.

Tageer Finance also floated its IPO in 2005. As it went from a closed company to a public company, it had over 2000 shareholders, making it the most widely held non-banking finance company. A 7.5 per cent dividend was also declared for the year.

Mohammed al Kharusi, general manager says that company has always focused on service and coming up with tailor-made schemes for its customers. Says Kharusi, “We want to make ourselves a one-stop shop for products, offering retail as well as corporate products. From the start, our focus has been on the corporates. That’s one area we want to capitalise on. Also on SMEs, because it is a niche market there. Besides SMEs, there is consumer financing as well.�Continues Chadha, “We plan to be aggressive in deposits. We want to reduce our cost by taking more and more deposits. The idea is to generate more fee-based income because interest costs are going up.�The big news on the Taageer front for the future is its plan to offer big ticket leasing. Informs Chadha, “Most big companies here tend to borrow from outside, from banks across the GCC. What we plan to do is offer big ticket leasing in Oman, which will range anywhere between US$2mn to US$30mn. This is, of course, subject to CBO approval. It is still being negotiated.�The company is also in negotiations with its stakeholders, promoters and partners to explore outside Oman, part of the strategy to leverage outside its expertise and charge a fee for that. Says Chadha, “We are looking to set up a leasing company in Iran where Taageer will have significant role in terms of setting up operations. We will not have a significant share holding, we are only planning to take five per cent. If this goes well, we may work on similar models in the GCC, or in the MENA region.�

Meanwhile, for its customers within Oman, there will be more convenience. Informs Kharusi, “We are about to launch our website where we will be able to give customers a pre-approved loan. You go to the website, fill in your details, and we tell you how much loan you are entitled to. With that pre-approval, you can go and buy what you want to.�

#5 UNITED FINANCE COMPANY
ï»?span class="Size-5">Eye on the future

United Finance Company (UFC) has fallen four places, from the top slot it enjoyed last year, but chief executive officer Raghavan K Murti views 2005 as a good year, one that will pave the way for future growth. “We had a rights issue. Our capital went from RO11.9mn to RO18.3mn, up 67 per cent. We also saw fresh loans of RO31mn. We have seen extremely good growth in our loan portfolio. In terms of fund mobilisation as well as financing schemes, we are doing well.�

Murti continues, “The reason for the slip in our survey ranking could be that a raise in equity tends to bring about a reduction in the earning per share. But we have to take that call, since future growth has to be considered. There are several very large projects coming up here. Through increasing our equity, we have become fundamentally stronger, and we can become a part of that growth. It’s a strategic decision and we have no regrets about that.�

UFC’s net profit only grew 1.2 per cent, from RO1.86mn in 2004 to RO1.88mn in 2005. And its gross loans showed modest growth of 18.31 per cent, from RO47.70mn in 2004 to RO56.44mn in 2005. But the company’s confidence comes from its asset size, which, at RO57.73mn, puts it in a league of its own; its operating efficiency, which tops the list for finance companies; and the scale of its ambition, which extends beyond Oman. UFC has applied for a licence to open in Bahrain, has conducted a feasibility study in Qatar, and is studying the UAE market as well. In March 2005, UFC also established a branch in Ibri.

Murti explains that UFC has an assistant general manager for strategic planning whose job is to dream and to plan. “He basically identifies gaps in customer aspirations. Customers look for flexibility in financing. A ‘take it or leave it�attitude doesn’t work. While you might not be able to look at each customer, it is important to look at each customer segment.�That has meant launching an insurance-linked loan scheme, in a tie-up with Oman United Insurance Company, to provide insurance for whatever period UFC is providing finance for. With CBO granting permission to accept corporate deposits, there’s that much more scope to grow. Having recently completed the implementation of an integrated business solution software, UFC expects a further boost in its operational efficiency. And its enhanced capital gives it that much more leverage to support its growth plans and improve returns to its stakeholders. In perspective, however, Murti pegs UFC’s philosophies and strategies as balanced ones. “We react aggressively to growth opportunities, and act with a conservative stance.�For the future, there is a plan to convert the company into a holding company.

#6 NATIONAL FINANCE COMPANY
ï»?span class="Size-5">Catching up

Go by the numbers and it’s plain to see that National Finance Company (NFC) has a good deal of ground to cover before it gets back in the black. NFC’s net profit fell 69.9 per cent in 2005, as compared to 2004. Meanwhile, its gross income for 2005 was RO3.90mn, compared to RO3.97mn for 2004. But the way Robert Pancras, the company’s general mana-ger, sees it, NFC is on the right learning curve. “We have internalised a lot of learning and made process changes to improve our delivery platform over the last few years. Currently, we continue to be focused on retail and are also in the fast-growing SME space with some moderation. The SME sector has been growing significantly, particularly when it comes to contracting companies and the demand for equipment finance has been strong.�

He added, “We had pulled back from the market quite consciously in the last few years. Now, we are back into growth mode.�/p>