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

Booz & Company Today’s discussion points 1 Why Islamic Banking? Size of the prize? Growth drivers? Main opportunities? How to win?  Pent-up demand  Availability of Islamic liquidity, particularly internationally  Potential for innovation  Up to USD 15 Bn, next 4-5 years  Favourable macro-economics  Attractive demographics  New entrants  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

Booz & Company Why Islamic banking? 2 Pent-up demand Availability of Islamic liquidity, particularly internationally Potential for innovation  Religious sentiment among large consumer segment  Recent survey ~ 70% of customers likely to switch to Islamic banks  Large (~ USD 800 Bn) and fast growing (25-30%) liquidity in Islamic finance globally  Islamic banks can ‘bridge’ Islamic liquidity to the Sultanate  Excess capacity and heightened competition…  … drives greater product, service and channel innovation to build customer and deposit base and boost profitability

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

Booz & Company Growth drivers? 4 Favorable macro-economic outlook Attractive demographics New entrants  Economic diversification and greater infrastructure spend  Higher capital inflows, vibrant private sector  Growing FDIs and trading volumes  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  Two new licensed banks (Nizwa and Al-Izz), sizeable capitalization (USD Mn)  Main incumbents launching windows (Bank Muscat, Al Ahli, NBO, Oman Arab Bank etc.)

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

Booz & Company Main opportunities? Infrastructure financing 6 Project Finance Commitments YTD 80% Foreign Domestic New Players PotentialNew Players PotentialNew Players PotentialNew Players Potential Local Foreign 50-60% Total Financing ~ USD Bn Total Financing ~ USD Bn 25-30% 15-25% Expected Project Finance Commitments 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)

Booz & Company Main opportunities? Real estate and construction sector 7 Demand  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 Capabilities needed  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

Booz & Company Capabilities needed Main opportunities? SMEs 8 Demand  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 % in OECD) Tailored Solutions  Easy and timely access to financing  SME packages and bundles  Advisory center Superior Service Technology Innovation  Dedicated RMs  Dedicated SME areas and contract center  Simplified processes and custom pricing  SME e-Platform  Alternative and innovative channels

Booz & Company How to win? 9  There will be losers - excess capital and rapid switching of deposits  Launch early (First mover advantage)  Focus on sourcing deposits early-on  Pressure on local balance sheets to provide large-scale and long-term funding (infrastructure, real estate)  Build cross border funding and FI relationships  Attract long-term funding (e.g., government deposits)  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

Booz & Company Recap 10 Why Islamic Banking? Size of the prize? Growth drivers? Main opportunities? How to win?  Pent-up demand  Availability of Islamic liquidity, particularly internationally  Potential for innovation  Up to USD 15 Bn, next 4-5 years  Favourable macro-economics  Attractive demographics  New entrants  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