In 2019 oil prices witnessed moderate fluctuations triggered by macroeconomic factors and geopolitical developments in the regional and international markets. However, oil prices remained above the budgeted mark and aided in restraining the budget deficit. Considering the volatility in oil prices, the government adopted a conservative approach and exercised restraint in spending in line with the expected sources of income to conserve resources to meet exigencies. The government resorted to mobilizing funds from the international markets and through local borrowing to bridge the budget deficit. Market liquidity remained fairly modest despite witnessing some volatility. The banking sector played an instrumental role by complementing the initiatives taken by the government and providing the required financial support for pursuing the planned developmental activities. The thrust on diversification has aided in increasing the revenue streams from the non-oil segments. The government’s long term strategy of achieving fiscal sustainability by reducing the dependency on oil revenue has started paying off. The non-oil segment is now geared to increase its contribution to the overall revenue of the government and aid in achieving sustainable economic growth in the years to come.

2019 was another challenging year for the banking sector and in particular for FLC’s. The market witnessed restraint in the implementation of developmental projects. The government was selective in embarking only on need-based projects in line with budgeted outlays to curtail the budget deficit, resulting in limited opportunities for expansion of business. There was a decline in the sale of commercial vehicles and equipment due to a dearth of avenues for deployment, idle capacity, drop-in hiring rates and delayed settlement of dues by contractors. The sale of private vehicles was however modest. Banks encroaching into vehicle financing and SME funding further impacted the market share of FLCs. In view of the limited market potential, competition from banks and among peers was intense. Market liquidity was restrained and volatile resulting in borrowing cost moving up and contraction of net interest margins. The market continued to be pressured by the inordinate delays in settlement of contractual dues by counterparties resulting in the strained cash flow of borrowers, forcing them to delay/default on their loan obligations, thus triggering delinquencies.

During 2019 the company adopted a cautious approach in booking fresh business in view of the prevailing market conditions. The loan portfolio of the company as at 31 December 2019 was RO 98.46 Million as against RO 101.46 Million as at 31st December 2018. The company recorded a net profit of RO 672,704 for the year 2019 as against RO 755,374 for the previous year. The decline in profit is attributed to the decline in instalment finance income, increase in interest cost and the provisions made to cover impaired loans in line with IFRS 9 requirements. Despite the tough market conditions, concerted efforts on the recovery front aided in reducing impaired loans to RO 26.76 Million as at 31st December 2019 as against RO 27.37 Million as at 31st December 2018.

The company holds cumulative provisions of RO 17.40 Million as at December 2019, including reserved interest and a Special Reserve of RO 2.37 Million to guard against delinquencies. The Management is pursuing rigorous recovery measures to control and bring down the level of impaired loans in the coming year.

The company’s fund position was comfortable during the year despite volatile market liquidity. Banks extended adequate credit facilities to the company to meet its business needs.

The Board of Directors do not recommend any dividend distribution for the year 2019.

The objectives of the State Budget for the year 2020 are to achieve fiscal sustainability, reduce public debt, focus on economic diversification to reduce dependency on oil and gas sector and curtail non-essential expenditure. The budget has increased spending by 2% and focuses on spending on need-based infrastructure projects and encouraging private sector participation in developmental projects, to stimulate economic growth. The budget has earmarked a sizable outlay for developmental activities. It is envisaged that the government would focus on completion of ongoing projects and prioritize its outlay on developing infrastructure to cater to socioeconomic needs of the country and its diversification plans. The government is expected to continue its thrust on diversification and focus on establishing the required infrastructure to enhance the contribution from the non-oil segments and to gradually reduce the dependence on oil and gas revenue. These initiatives are aimed at insulating the economy from the volatility in oil revenue and achieving fiscal sustainability over the years.

The budget continues to lay emphasis on the government’s social development objectives by increasing its outlay on social welfare and basic services such as education, healthcare and housing sectors to improve the quality of living of its citizens. The budget also aims at generating employment opportunities and encouraging self-employment. These measures are aimed at stimulating economic activity and provide opportunities for business. Initiatives to hasten the settlement of contractual dues would aid in easing liquidity and drive economic growth.

UFC would pursue a cautious approach and capitalize on the market opportunities to grow its loan book with emphasis on asset quality. The company would focus on maintaining a balanced loan portfolio with the objective of mitigating risk. The company has sufficient credit lines from banks and management is confident of sourcing additional credit facilities from banks to meet its business requirements for the ensuing year. We expect the market to provide reasonable opportunities for business. However, competition is likely to be intense, resulting in lending rates being competitive. Interest cost is likely to remain high as market liquidity is expected to remain volatile. The company would continue its concerted efforts on the recovery front to control and bring down the level of impaired loans. The continuing delayed payment cycle and its impact on the cash flow of borrowers poses a challenging task. The company would continue its pursuit of achieving better operational efficiency.

UFC has, over the years, been compliant with the required Omanisation percentage. The company recruits aspiring Omanis and lays emphasis on training its employees by imparting the required skill sets to efficiently discharge the tasks handled by them. Periodic training aims at improving their proficiency to take up higher responsibilities and achieve their aspirations. The company provides a congenial working environment to encourage Omani staff to achieve their career goals.

The company adopts the best corporate governance practices and is compliant with the prescribed code. The corporate governance philosophy and practices pursued by the company are contained in the report on corporate governance accompanied by the report of Statutory Auditors.

As part of its corporate social responsibility initiatives, UFC provides employment to fresh Omani graduates and diploma holders and imparts training to groom them as productive resources. The company participates in social programs by conducting regular blood donation camps and offers employment to the physically challenged. The company also extends funding to SME’s and local community contractors in the interior regions and indirectly aids in providing employment opportunities and a source of livelihood to the locals in the vicinity.

The Board of Directors and Management would like to place on record their sincere condolences on the passing away of His Majesty Sultan Qaboos bin Said and pray for His Soul to Rest in Peace. The Board of Directors and Management would like congratulate and express their highest gratitude to His Majesty Sultan Haitham bin Tariq Al Said and respectfully acknowledge his able leadership to nurture the country in the years to come. On behalf of the Board I wish to express our gratitude to the Central Bank of Oman, Capital Market Authority, Ministry of Commerce and Industry, Ministry of Manpower, Royal Oman Police and other Regulatory Authorities and thank them for their support and guidance. We also take this opportunity to extend our sincere thanks to our bankers, shareholders and other stakeholders for their unstinted support. On behalf of the Board I would like to place on record my appreciation and thank the Management and staff for their individual and collective contribution to achieving operational efficiency and realizing the company’s goals. May God bless all of us.