What is your lending framework on the corporate side?
SHAHIN AL BALUSHI Our target is 60% corporate clients and 40% personal. Today, we are closer to an even split. All our corporate clients are SMEs. We mainly finance small ticket business in Oman, not large transactions. The assets being financed by us mainly include passenger vehicles for the retail sector and heavy duty commercial vehicles and equipment to the corporate sector. Most of our transactions are full payout finance leases, so the ownership goes to the lessee at the end of the term. We finance purely local companies; foreign companies are financed by the banks.
AFTAB PATEL On the one side, we have an equipment finance segment that targets equipment leasing, the construction sector, infrastructure, roads, airports, and seaports. All the heavy equipment that is required, either directly by the contractors or required by occupant suppliers, is something that we fund. There is a large number of well-capitalized SMEs in this sector that require higher volumes, so we generally cater to high-end SMEs—ones with a track record. On the other side, 25% of our portfolio is in working capital products. This is, again, high volume, low margin, and very capital intensive. Here, we're looking at a $20 million ticket size at least. We only target well-capitalized, large companies. With both of these products we compete with the banking sector. We do not compete with other asset finance companies, because we only target high-end, high-quality contracts, which translates into a high-quality and low-margin business. Other leasing companies generally focus on the high-yield, low-quality segments, which are the smaller SMEs. Our project finance products include equipment finance, guarantees, bit bonds, advance payment guarantees, bill discounting, and long-term working capital.
How is the developing auto market affecting your strategy?
SB Oman is a young country with a population that requires vehicles. Before buying accommodation young Omanis look for transportation. With a paucity of public transport alternatives, this is a steady area of the market, which all financial institutions are involved in. We are aiming to reduce the balance of automobile finance in our portfolio and focus more on the SME sector. We see that the government has many projects in the pipeline over the next five years, some of which will themselves take another three or four years to complete.
AP Business is growing because we have seen large growth in employment over the last two years. Many of those who have a job want to buy a car. From 2011 to 2012, car sales have grown by 18% to 20%, with a slight tapering off in 2013. In 2011 and 2012, there was compound growth of 22%, which I think is significant. However, in recent years this growth has not necessarily resulted in greater business for us, as the banks are now competing in this segment. As a result, the market has become very crowded, meaning the margins have decreased.
What are your expectations for the near future?
SB At Oman ORIX Leasing Company, we are planning healthy growth in the region of 25%-30% over the next three or four years. We would like to see this company as one of the market leaders in asset finance. We aim to increase return on equity to 13% in the short run and 15% in the long run, while building the contribution of the corporate and SME business to 60% of total executions.
AP We expect the low interest rates and liquidity to continue. We also believe that interest rates are substantially driven by US dollar rates. The fiscal stimulus in the US will continue—I don't think it will be withdrawn—which means that the dollar will continue to be liquid and the London Interbank Offered Rate (LIBOR) will continue to be low, so we will continue to see low interest rates in Oman.