National Bank of Oman (NBO) has reported net profit of OMR 41.4 million for the year ended 31 December 2013 compared to OMR 40.7 million for 2012, an increase of two per cent. National Bank of Oman showed total assets up 14 per cent at OMR 2.8963 billion . Net loans, advances and financing activities were up eight per cent at OMR 2,0682 billion while customers' deposits and unrestricted investment accounts rose 15 per cent to OMR 2.1792 billion . Operating profit was up six per cent at OMR 55.2 million and NBO reported operating expenses up four per cent at OMR 48.6 million . The bank showed a net loss on Islamic banking activities of OMR 0.6 million . NBK Capital MENA comments... Loan growth slows National Bank of Oman (NBO) reported a net profit of RO 10.2 million in 4Q2013, (+0.4% YoY, -17% QoQ). The sequential decline in net profit in 4Q2013 was driven by slightly lower operating income and, possibly, higher net provisioning. For FY2013, NBO posted a net profit of RO 41.4 million, 2% above FY2012. Operating income broadly in line with our expectations. Total operating income reached RO 26.4 million in 4Q2013 (+6% YoY,-2% QoQ), resulting in RO 103.9 million in FY2013, 5% above FY2012 and 2% ahead of our forecast. Margin pressure continues in 4Q2013. NBO's NIM had declined in the first 9M2013, driven by declining assets yields and we expect this trend to continue. Net interest income stood at RO 19.3 million in 4Q2013 (+12% YoY, +0.3% QoQ). For FY2013, net interest income reached RO 74.7 million, 11% above FY2012 and 1.5% above our forecast. Loan growth tanked in 4Q2013. Net loans declined by 2% in 4Q2013, taking FY2013 loan growth to 8%, slightly lower than our forecast. Deposits grew faster than loans in FY2013 at 15%, taking the LDR to 95% in December 2013 . Decent results, issues persist. Operating income and net interest income were in line with our FY2013 forecast. However, the net profit for FY2013 was higher than our expectation due to significant recoveries during the year. We suspect NIM compression will continue, while the decline in loan growth is an area of concern. We downgrade our recommendation from "Hold" to "Sell" for NBO, with a fair value per share of RO 0.260, which is 24% below the last closing price. We believe that the ongoing margin compression, persistent growth challenges, and regulatory headwinds warrant the stock to trade below its current valuation (1.1x 2014 P/B).
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