Islamic Banking in Oman Oman First Islamic Finance and Banking Conference January 23 rd 2012

1. Islamic Banking in Oman Oman First Islamic Finance and Banking Conference January 23rd 2012

2. Today’s discussion points • Pent-up demand • Availability of Islamic liquidity, particularly internationally • Potential for innovation Why Islamic Banking? Size of the prize? • Up to USD 15 Bn, next 4-5 years • Favourable macro-economics • Attractive demographics • New entrants Growth drivers? Main opportunities? • Mass-affluent, mortgages and personal credit • Infrastructure and real estate, SMEs • First mover advantage; source deposits • Cross border funding • Selective, innovative strategies • Sharia’h credibility with customers How to win?

3. Why Islamic banking? Pent-up demand • Religious sentiment among large consumer segment • Recent survey ~ 70% of customers likely to switch to Islamic banks Availability of Islamic liquidity, particularly internationally • Large (~ USD 800 Bn) and fast growing (25-30%) liquidity in Islamic finance globally • Islamic banks can ‘bridge’ Islamic liquidity to the Sultanate Potential for innovation • Excess capacity and heightened competition… • … drives greater product, service and channel innovation to build customer and deposit base and boost profitability

4. Size of the Price? Asset Penetration Credit Penetration GDP Penetration 38% 37% 45% 35% 57% 29% 2016 28% 34% 34% Islamic Assets Up to USD 15 Bn 27% 25% 225% Penetration/ Total Assets 15-20% 17% 18% 28% Penetration/ GDP 12-15% 17% 24% 31% 3% 4% 1% GCC Avg. 30% 38% 35 %

5. Growth drivers? Favorable macro-economic outlook • Economic diversification and greater infrastructure spend • Higher capital inflows, vibrant private sector • Growing FDIs and trading volumes Attractive demographics • Young population (62% under the age of 30), large and growing middle class ( >60% of total income) • Growing affluence and income levels - improving education infrastructure and Omanization New entrants • Two new licensed banks (Nizwa and Al-Izz), sizeable capitalization (USD 600-800 Mn) • Main incumbents launching windows (Bank Muscat, Al Ahli, NBO, Oman Arab Bank etc.)

6. Main opportunities? - Personal banking Segments Products % of 2016 Revenue Pool Growth (2011-2016) Affluent (incl. mass affluent) • ~25-30% of bankable population; 10-15% growth; ~40-50% of revenue pool • Underserved; needs differentiated/ tailored services/ channels Personal Credit 60-65% 10-15% Mortgages 15-20% 15-20% Young • High growth segment • Future feeder for affluent AUMs and Bankatakaful 10% 15-20% Credit Cards 7% 10-15% High net-worth • Sizeable wallet and cross-sell potential (~20-30% of revenue pool) • Needs offshore center and dedicated onshore coverage team Remittances And Others 5% 7-10% 2016 Revenues ~ USD 1.5-2.0 Bn

7. Main opportunities? Infrastructure financing Project Finance Commitments 2005 - 2011 YTD Expected Project Finance Commitments 2011 - 2016 YTD Capabilities needed • Long-term, stable funding • End-to-end project finance solutions: • Structuring/ advisory, industry-specific (e.g., utilities, LNG, transport) • Syndications(Sukuks/ securitization) • Banking solutions (e.g., supplier financing, payment management) New Players Potential Domestic 25-30% 50-60% Foreign 15-25% 80% Local Foreign Total Financing ~ USD 25-27 Bn Total Financing ~ USD 45-50 Bn

8. Main opportunities? Real estate and construction sector Demand Capabilities needed • Construction finance fastest growing sector (~ 41% CAGR over past 5 years), ~ USD 3 Bn in 2010 • Real estate and construction projects continuing ~ USD 6 Bn (next five years) • Growth drivers: Need for affordable/ modern housing, urbanization (e.g., Sohar, Duqam, Salalah), and large Integrated Tourism Complexes • Shariah-compliant tailored solutions across the real estate value chain • One-stop-shop for financing projects of local/ regional developers, offering: • Capital raising and distribution/ placement with own affluent/ HNW customers and regional investors (retail and institutional) • Channeling liquidity through funds, DCM, direct equity and/ or long-term financing vehicles (Istisnaa, Ijara, Musharaka) • Asset management • Financing for customers and investors

9. Main opportunities? SMEs Demand Capabilities needed • 10,000 – 15,000 SMEs in the Sultanate • SME contribution to grow given private sector boost (particularly in manufacturing, trade, logistics) • SME financing to grow (SME financing in GCC still limited: 2-5% of total loan book vs. 10-15% in OECD) • Easy and timely access to financing • SME packages and bundles • Advisory center Tailored Solutions Superior Service • Dedicated RMs • Dedicated SME areas and contract center • Simplified processes and custom pricing Technology Innovation • SME e-Platform • Alternative and innovative channels

10. How to win? • There will be losers - excess capital and rapid switching of deposits • Launch early (First mover advantage) • Focus on sourcing deposits early-on • Build cross border funding and FI relationships • Attract long-term funding (e.g., government deposits) • Pressure on local balance sheets to provide large-scale and long-term funding (infrastructure, real estate) • Tough to generate returns from mainstream segments (personal and corporate) • Be selective on where to play • Adopt innovative strategies • ‘Man on the street’ is demanding stricter Shariah-compliance • Build-up appropriate Shariah skills rapidly • Use proven products to gain credibility

11. Recap • Pent-up demand • Availability of Islamic liquidity, particularly internationally • Potential for innovation Why Islamic Banking? Size of the prize? • Up to USD 15 Bn, next 4-5 years • Favourable macro-economics • Attractive demographics • New entrants Growth drivers? Main opportunities? • Mass-affluent, mortgages and personal credit • Infrastructure and real estate, SMEs • First mover advantage; source deposits • Cross border funding • Selective, innovative strategies • Sharia’h credibility with customers How to win?