RANKING NBFCs

The story of finance companies is in equal parts about steady performances and dramatic reversals of fortune
BusinessToday reports

It has been a newsy year for finance companies, both in our annual survey and off it. The year 2006 saw record oil prices, combined with increased economic activity, resulting in GDP growing by an estimated 16.8 per cent. Projects either underway or starting out are estimated at US$20bn. What all this means is that there is greater demand than ever for consumer goods as well as for commercial assets like machinery and equipment related to construction and transportation. Translated, that is a lot of business for finance companies.

There is a new leader in the ranking – Al Omaniya Financial Services, followed closely by Muscat Finance, which took the top spot last year. Taageer Finance makes a comeback into the top three league as Oman ORIX Leasing Company drops out to finish fourth. On the strength of a dramatic turnaround perf-ormance, National Finance Company pushes past United Finance Company. The former is number five while the latter ends the ranking at number six.

But there is a story beyond the figures and its lesson is simple. Despite gaps between the numbers that the individual players have rustled up, there is no room for complacency in this market. Put it any which way – funding costs have risen, thin spreads have not expanded, rates have been under pressure – the competition is everywhere. New branches, which finance companies require for reach, can also be a challenge. They require generation of a judicious mix of corporate and retail business, which is not as easy to achieve in the smaller towns as it is in the cities.

Banks, which were earlier on the periphery of finance companies’ scope of business, have moved in closer. Financing small and medium enterprises (SMEs), traditionally an NBFC stronghold, is now the latest area in which banks are looking to expand. In some instances, finance company staff are being poached by banks to meet these growing needs. Some finance company professionals hold that the SME business model, operation-intensive and system-intensive, is intrinsically different from what a bank offers. The view is that the average SME might be too small for a bank. That it is the next tier of stronger SME that a bank will cater to. It remains to be seen how far banks stick to the speculations that certain finance companies have about their future performance in this sector.

Meanwhile, the Central Bank of Oman (CBO) has directed all finance companies to increase their paid-up capital to RO10mn by July 2009. This should be a good move for NBFCs as it will strengthen their financial position and help them to get involved with even bigger deals.

Corporate deposits, which the CBO had allowed finance companies to accept, have been a growth area for some companies and a mixed success for others. A greater fexibility in the rules governing corporate deposits could make them more attractive for NBFC clients. Otherwise, this might be another area where NBFCs lose out to banks.

Newer products and further innovation depend as much on the regulatory framework as they do on demand and market appetite for them. That finance companies have a more proactive approach to changing the scope of business will be a plus point. Things are definitely moving for them, what differs is the pace at which they are moving. To control the market, instead of letting it control them, finance companies will have to better understand their own goals to deliver on them.

Al Omaniya Financial Services
Leading philosophy

Al Omaniya Financial Service’s (AOFS) pole position in the NBFC rankings is a result that has taken its time coming. But AOFS has always been a focused player, steadily making its mark with good performances. And 2006 was no different. A 15 per cent growth in net profit from 2005 was accompanied by a growth of over 54 per cent in the company’s hire purchase assets, which stood at RO59.11mn. The company also proposed a dividend of 25.038 per cent, comprising 21 per cent cash and 4.038 per cent stock dividend for the year. The dividend amount of RO1.62mn is 19.2 per cent higher than the previous year and one of the highest for the company.

AOFS’ focus this year was on increasing the brand image of Lifeline, its auto loan segment. Apart from this, a separate division was crea-ted for corporate credit to increase focus on it. The company is also in the process of exten-ding the network of its Lifestyle loan segment and expanding its customer base. Besides, the company will soon be issuing compulsorily convertible bonds of RO8mn to increase its capital. With the stronger equity and net worth, AOFS plans on increasing its market share and its presence in several core areas. Also on the cards are branches in Nizwa and Salalah, expected to be functional in 2007. Despite repeated efforts by BusinessToday, AOFS officials were unavailable to comment on the company’s performance.

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Muscat Finance Company
Winning habit

Raphael Parambi, CEO, Muscat Finance Company, (MFC) says that lending is easy. “It is recovery that is the difficult part.” He adds that MFC’s customer-oriented strategy is the key to its high realisations. “We have a large number of repeat customers as well as customer-referred customers, so quality tends to be better. Our thrust is not just on growth, it is on quality of growth.”
MFC’s net profits for 2006 grew a cautious 3.8 per cent from 2005. And the percentage of its NPLs to gross loans, at 11.77 per cent, lost it some points in the ranking. But the company does enjoy the best return on equity and return on capital in the charts.

The CEO says that MFC grew uniformly in the corporate and retail sides in 2006, with about 20 per cent growth in each area. There are no plans to open new branches in 2007 but there is going to be a focus on strengthening existing branches. “We are going to be driving staff efficiency further through an application installed by an overseas vendor, among several other measures.”

The first quarter of 2007 has been satisfactory for the company. “Income was up by about 12 per cent and the bottomline by around 10 per cent.” Parambi says that interest costs are currently hurting but he sees rates beginning to correct with the stabilisation of US dollar rates and increase in local liquidity. This should benefit MFC by mid year.

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Taageer Finance Company
Driven by diversification

The buzz around the offices of Taageer Finance has the intensity that comes with healthy growth. The new business that the company disbursed in 2006 stood at RO25.18mn, a growth of 26 per cent over 2005. As it breaks into the top three yet again, things are looking good for the company. CEO Sanjeev Kumar Chadha says that with business booming, it has been a cherry-picking scenario for Taageer, which has always been keen on diversifying. “Our strength is that we are always looking for new options, innovations and ideas.”

The company, which formally launched small consumer loans in 2006, is trying to grow this market. Also, tie-ups with Emax, the largest electronics showroom in Oman, and OHI, where Taageer is the approved financier, are in place.

Adds Chadha, “We are also focusing on non-funded facilities like letters of guarantees and bonds.” Meanwhile, the company’s Al Tayeb portfolio, which deals with non-conventional financing, has grown by 173 per cent during the year 2006. This year, they expect a growth of over 1000 per cent. Branches are now planned in Seeb and Salalah. Taageer also offers online approval for loans, though the response to this innovation could take time to grow.

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Oman ORIX Leasing Company
Number game

The company has slipped two positions in the rankings but Oman ORIX continued its asset growth momentum in 2006. It wrote RO31.1mn worth of new business, 43 per cent higher than in 2005. Net profit, informs general manager Hira Lal Bharvani, was 12 per cent lower in 2006 because of provision releases. Meanwhile, the company has worked on maintaining a balanced focus. “Oman ORIX generally has the reputation of being a retail company but now we have switched our business to the small and medium enterprise (SME) sector as well. By mid-2007, it will be well balanced between the two areas for greater effectiveness. All our three branches have contributed well to this.”

With a strong book in place, Bharvani says that this year they will concentrate further on growing SME business, developing new products, increasing efficiencies and consolidating their position. “With heavy investments in infrastructure, a lot of opportunities are being created. Things are certainly happening here.” With the business growing, Bharvani believes that finance companies have opportunities to take good credit decisions now, so that they are better prepared for the future.

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National Finance Company
Turnaround times

National Finance Company (NFC) only moves up one spot in the ranking but it rises on the basis of a remarkable improvement in its perf-ormance. The company’s net profit went from RO0.10mn in 2005 to RO1mn in 2006, up a whopping 882 per cent. Its business writings increased by 62 per cent to reach RO21.66mn during the same period, while the net finance portfolio grew by 26 per cent. Also, after a long time, the company declared a dividend.

Says Robert Pancras, general manager, “The year 2006 has been a turnaround time for us. We had decided during 2005 that we would consolidate our operations by reviewing our risk-return parameters. We implemented the revised business strategy and business has grown significantly in 2006, so have our profits.” While NFC still believes in having a conservative philosophy, business has expanded substantially with the growth of the market and increased market share. Says Pancras, “We are not chasing positions in the market but are more interested in building businesses that provide superior returns on a sustainable basis.” In 2007, the company aims at building new avenues of growth, delivering products and services that are better tailored to meet customer needs.

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United Finance Company
Firm focus

United Finance Company (UFC) slips another place from its position last year. Though operating profit for the year 2006 rose to RO3.59mn from RO3.27mn the previous year, there was a decline in the company’s net profit. The latter figure fell from RO1.88mn in 2005 to RO1.45mn in 2006, on account of decrease in net interest margins and provisions on loans. The 27 per cent growth in non-performing loans contributed to the fall in ranking as well. Meanwhile, the company concluded fresh business of over RO47mn in 2006.

Says D Stanley, chief financial officer, UFC, “The company’s key focus during 2006 was to achieve balanced growth in both its corporate and retail loan portfolio. Under the backdrop of a vibrant economic environment with focus on infrastructure development, the market provided abundant opportunities to expand credit to the SME segment and others. Increase in vehicle sales contributed to the growth of the retail portfolio.”

Continues Stanley, “As on March 31, 2007, our loan portfolio increased to RO72.3mn as against RO54mn in March 2006.” The CFO informs that plans are on the anvil to open two new branches and recruit around 30 additio-nal employees during 2007.

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