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ANNUAL REPORT 2013

His Majesty Sultan Qaboos Bin Said

Board of Directors ...............................................................................04

The Executive Management ...............................................................05

Chairman’s Report .............................................................................06

The Economic Report .........................................................................08

The Technical Report on the Bank’s Performance ............................10

The Strategic Initiatives ......................................................................16

Corporate Governance Report ...........................................................18

Report & Financial Statements for the year .......................................22

Basel III - Pillar III Disclosures for the Full Year 2013 .........................50

Contents

4 ANNUAL REPORT 2013

Board of Directors

Sheikh Dr. Abdullah bin Ali bin Zahir Al Hinai

Representative of the

Ministry of Commerce & Industry

Mr. Sabir bin Said bin Rashid Al Harbi

Representative of the National Center

for Statistics and Information

Dr. Abdullah bin Ali Al Maa’wali

Representative of the

Ministry of Agriculture and Fisheries

Mr. Essa bin Ali Al Sabagh

Senior Manager, Chairman’s Office

Mr. Hamed bin Salim Al Harthy

Mr. Hosni bin Fuad bin

Abdullah Tubailah

Deputy Chairman,

Representative of the Ministry of Finance

Honorable Ahmed bin

Ali Al - Shanfari

Independent Member

Office of the Board Acting General Manager

ANNUAL REPORT 2013 5

The Executive Management

Mr. Ali bin Mohammed Hussain Al Zaa’bi

AGM - Strategy,

Risk & Business Development

Mr. Eid bin Khair Mohammed Al Balushi

AGM - Corporate Banking

Mr. Khalifa bin Hamed Al Ma’amari

Manager - Human Resources &

Administration

Mr. Said bin Hilal Al Jabri

Manager - Strategy & Risk Management

Mr. Mohammed bin Khamis Al Rasbi

Regional Manager for Al Batinah, Al Dhahira,

Musandam and Al Buraimi Governorates

Mr. Saif bin Hamed Al Zeedi

Regional Manager for Al Dakhiliya,

Al Sharqiya and Al Wusta Governorates

Mr. Said bin Abdullah Al Mujaini

AGM - Banking Support Services

Mr. Khamis bin Hamoud Al Sabahi

Senior Manager - Corporate Credit

Mrs. Muna bint Mohsin bin

Baqer Abdul Latiff

Manager - Business Development

Mr. Said bin Saud Al Maa’wali

Manager - SMEs Credit

Mr. Abbas bin Mohammed bin Abdullah

Manager - Finance Department

Mr. Abdul Rasheed bin Othman bin Fareh

Acting Manager - Branches

Mr. Younis bin Abdul Rahman Al Zadjali

Manager - Audit

Mrs. Zaina bint Nasser Al Naamani

Manager - Information Technology

Mr. Fahad bin Amour Al Hosni

Manager - Legal


Chairman’s Report

On behalf of my colleagues and members of the board of directors it gives me great pleasure to present the annual

report on the performance of Oman Development Bank(ODB) during the year ended 31/12/2013.

The year 2013 witnessed impressive growth for Oman Development Bank’s activities. In terms of profit, the bank

managed to achieve a net profit of RO 7.085 million. The asset base of the bank rose from RO 144 million to RO 151

million.

The net loan portfolio of the bank rose to RO 110 million compared to RO 101 million in 2012; a growth of 9.1%. The

arrears percentage declined to 8.7% by the end of 2013 from 9.2% at the end of the previous year.

The main financial indicators of the bank witnessed good growth in 2013. The capital adequacy ratio was 88.8%,

which is above the statutory requirement of 12% by the Central Bank of Oman and Basel III requirements. The level is

the highest compared to other banks operating in the Sultanate.

The bank has maintained its leading position in financing SMEs in the Sultanate. On the approval front, the number of

loans approved to permitted sectors stood at 5,213 worth RO 51.3 million during the year 2013.

The main financial indicators of the

bank witnessed good growth in

2013. The capital adequacy ratio

was 88.8%, which is above the

statutory requirement of 12% by the

Central Bank of Oman and Basel III

requirements. The level is the highest

compared to other banks operating

in the Sultanate.


With regard to loan disbursement, the bank achieved 35% growth in 2013 to reach RO 41.9 million compared to RO

31 million in the past year. The Bank also managed to achieve a remarkable growth in collection of loans (RO 34.7

million in 2013 compared to RO 29.8 million in 2012, a growth by about 16.6%).

As part of the strategic plan for 2011 – 2015, during the year the bank has initiated and implemented a number of

improvements and development programs for its internal systems to provide more efficient services to its customers.

Introduction of Electronic Cheque Clearing System and Point of Sales (POS) machines for cash collection has enabled

the bank to streamline its collections.

The development of Workflow Automation is progressing. This project will help to identify bottlenecks and possible

remedies to improve service level of the bank.

In its continuous efforts to provide more support to SMEs, the bank in collaboration with the Ministry of Commerce

and Industry continued supporting the Loan Guarantee Program which targets entrepreneurs who have ideas for

feasible projects but could not avail loans from commercial banks due to inability to provide collaterals. As per the

program entrepreneurs may get guarantee up to RO 125,000 to cover half of the loan that may be obtained from

commercial bank operating in the Sultanate. In response to a recommendation by the Council of Ministers the sectors

eligible to be covered by the Loan Guarantee program has been expanded by adding new sectors that were not

covered by the bank before such as trading, construction and real estate. At present only two commercial banks are

involved in the program. It is expected that during the next year other banks also will join.

The bank’s management continued its efforts to develop human resources in the bank. The stress is on skill

development by suitable training programs and encouraging higher studies.

I take this opportunity to express our gratitude for our customers for the confidence vested with us. I would also thank

the Central Bank of Oman, Commercial Banks, the Ministry of Finance and the Ministry of Commerce and Industry for

their support to enhance the growth of the Omani national economy under the wise leadership of His Majesty Sultan

Qaboos Bin Said.

We would also like to express our thanks and appreciation to the executive management and ODB staff for their

earnest efforts and dedication to meet the Bank’s objectives.

Hosni bin Fuad bin Abdullah Tubailah

Deputy Chairman


The Economic Report

Global Economy

The world economy had a good 2013. Of course for many it was still a struggle, with the euro-zone in recession for

much of the year and living standards in most of the developed world still below their 2007 peak. But by the end, even

the laggards had started to catch up, and for them the long nightmare of recession and its aftermath began to recede.

Growth in China, at 7.5 per cent, might seem breathtakingly fast, but actually it’s the slowest for 23 years. Things also

slowed in India, to a little below 5 per cent, again fast by our standards, but slow when compared to the past. Africa,

encouragingly, grew by more than 5 per cent.

As for the second story, in the developed world what had started as an uneven and patchy recovery began to

strengthen. The US, despite having to cope with feuding over its budget, seems to have sped up. It has been creating

jobs and its housing market and Wall Street have moved up sharply. So the question there is what happens when the

boost from the Federal Reserve’s easy money policy is reduced next year? Most commentators are optimistic.

In Britain there has also been a burst of optimism. Early in the year there was speculation of a “triple dip”. As it turned

out, figures showed there had been no second dip, and growth strengthened steadily. By the end of the year the UK

had become – on some counts – the fastest growing large developed economy. This was led by higher consumption,

in turn leading to fears of overheating in the housing market. But while it might be “the wrong sort of growth”, most

commentators acknowledged that prospects for 2014 were brighter still.

In Europe there was a better story too, though an uneven one. The north, led by Germany, had a solid year, reducing

unemployment and boosting living standards. Across the Mediterranean the pattern was more disappointing, with

Italy, Spain, Portugal and Greece all enduring a year of rising unemployment. However, the numbers have started to

improve. Europe and the euro are not out of trouble, but the acute phase of their difficulties may be past. All this bodes

better for 2014, which may see better and more balanced growth than any year since 2007.

GCC Economy

As the year 2013 witnessed a strong shift towards economic recovery, the outlook for the GCC continues in 2014 is a

positive one, driven by investors’ sentiment and eased economic policies.

The strong recovery of the GCC economy is evident through excellent stock market performance that has managed

to keep momentum since the start of 2014.

The fact that the UAE and Qatar will host two major global events gave the stock market a huge boost, in terms of

investors’ confidence and diversifying the economy. With the Expo 2020, the UAE’s 50th anniversary and the FIFA

World Cup in Qatar, the whole region is expected to benefit from these Events.

Expo 2020 will help strengthen Dubai as a brand; it will capture more attention from tourists and investors. The real

estate crisis is behind us, but it is not only real estate, Dubai is much more diversified for any kind of investment”.

This diversification will reflect on major industries in the GCC region. The strongest industries are logistics, buildings,

companies, materials, services industries, hospitality and oil industry, and, to a lesser extent, financial services.”

While two new suppliers, with Iran and Libya coming back to the market, oil prices will remain flat and traditional oil

supply will remain strong.

The strong economic performance will be accompanied by renewed trends occurring in the stock market.

Oman Economy

Stable growth in Oman during 2013 is expected to continue this year, supported by both an increase in oil production

and the government’s fiscal policies, with the non-oil sector set to boost expansion.

Under the draft 2014 budget, unveiled on January 2, GDP is forecast to rise by 5% this year, roughly the same rate

recorded in 2013. Significantly, much of this growth will be driven by the non-oil segment of the economy, which

would expand by 7.3%, a step up from the 5.6% of 2013.

The new year will also see an increase in state spending, with expenditure set to rise by 5% over the 2013 figure to

RO 13.5 bn. Of this, some 24% is to be directed to investment projects, including new refineries, road and rail works,

and tourism facilities.


The economy’s solid performance in 2013 was reflected in a decision by ratings agency Standard & Poor’s (S&P)

to maintain its outlook for the Sultanate as “stable” going into the new year and affirming Oman’s long- and short-

term sovereign credit ratings at A/A-1. In a report issued in late December, S&P said Oman’s strong net external

and general government asset positions, as well as prudent investment policies, mitigated against any risks posed

by the economy’s high level of dependence on hydrocarbons. This year the budget surplus will increase by 1.9% as

compared to 1.6% in 2013.

Oil industry steps up

The economy in 2013 was buoyed by a stronger performance from its mainstay energy sector, with output up and

international prices remaining high. Production from Oman’s fields rose 2.5% over the first 11 months of 2013, with

the daily average climbing from the preceding year’s 915,600 to 941,700 barrels. Though prices on global markets

eased slightly, coming in at an average $105.40 a barrel through the end of November, marginally down on the 2012

average, this was more than offset by the increase in production. For the 2014 budget, the government has assumed

$85 per barrel price and average daily output of 945,000 barrels.

The Sultanate is stepping up investments in the energy sector, both to develop new deposits and prolong the life of

existing fields using enhanced oil recovery (EOR) technology, which will become increasingly important in the coming

years as many of Oman’s oil fields approach the end of their normal operational life. According to some estimates, up

to one quarter of Oman’s oil production will be the result of EOR processes by 2021, with the provision of associated

technology set to be a major area of business activity.

Bank credit, deposits up

Growth is expected to be supported by lending from the country’s banks. As of October, outstanding loans were up

6.8% over the same month the prior year, supported by an 11% rise in deposits, according to data from the central

bank. With domestic interest rates easing to below 5.5% late in 2013, down from above 6% the year before, credit is

forecast to remain affordable, and the Finance Ministry has predicted further rate reductions.

Inflation remained subdued throughout the year, falling to 1.3% in November. Price increases could pick up this year,

however, as the government looks to scale back some of its subsidies, with support for fuel and gas being among

those in line to be reduced. The impact of this policy, if implemented, will likely be felt in Oman’s inflation figures, as

too could the effects of wage rises for civil servants, which may fuel demand in 2014 and spur activity in the retail,

real estate and service sectors. Despite this, the government has forecast inflation to hold at around 1.5% or less in

the coming year.

Though not having the fiscal reserves of some of its Gulf neighbours, Oman’s stability and the expanding breadth of

its economy should shield it from any major external shocks over the coming year, while the improved performance

of its hydrocarbons sector will allow it to take advantage of the recovery in many of its key markets. With forecasts of

steady growth, modest inflation and a further easing of interest rates, the Omani economy should offer opportunities

across the board in 2014.


Technical Report on the Bank’s Performance

Technical Report about the performance of ODB in 2013

Oman Development Bank has been a key player in the economic development through the loans provided by the Bank

to set up or expand various projects. In 2013, ODB provided 5,213 loans worth RO 51.3 million.

The loans disbursed by the Bank in 2013 are higher than those in 2012. The total amount of loans disbursed in 2013

hit RO 41.889 million compared to RO 31 million in 2012, a growth by almost 35%.

The Bank also managed to achieve remarkable increase in the amount of loans collected , which amounted to RO 34.7

million, compared to RO 29.8 million in 2012 , a growth by 16.6%.

1) Loans disbursement over the past five years.

The following chart shows the amounts disbursed during the past five years.

2) Collection of loans over the past five years

The following chart shows the collection of loans over the past five years.


3) Situation of loan portfolio in the last five years

a)- The gross loan portfolio over the last five years

The following chart shows the gross loan portfolio over the last five years. The portfolio witnessed 8.2% growth in

2013 compared to 4.4% growth in 2012.

b) The net loan portfolio during the past five years

The following charts shows the net loan portfolio over the past five years. The portfolio witnessed 9.1% growth rate in

2013 compared to 7.3% growth rate in 2012.


Past Due Percentage

The rate of Past Due Percentage has witnessed continuous decline. The ratio of Past Due over Outstanding, declined

to 8.7% by the end of 2013 compared to 9.2% in 2012.

Non-performing Loans over the past years

Loans are classified as Non-performing (NPL), when the interest and or principal payments are more than 89 days

overdue. The ratio expresses as percentage of outstanding of Non-performing Loans with total outstanding is termed

as Gross NPL%

Over the years there was continuous decline in Gross NPL%. In 2008, it was 23.1%. The ratio improved to 12.9% at

the end of 2013.

Technical Report on the Bank’s Performance (continued)


Approved Loans in 2013

In 2013, the approved loans were 5,213 compared to 4,855 loans in 2012 distributed over different regions of the

Sultanate and amounted to RO 51.3 million, reporting an increase of 22.2% by value and 7.4% by number, compared

to 2012.

The table shows that the percentage of loan approvals in fisheries sector is 41% representing 17% of the total loan

amount. The agriculture and livestock sector reports 25% of loans and 14% of the total loan amount approved.

Economic Sector

No. of

loans %

Approved

Amounts

(RO ‘000) %

Fisheries 2,134 41 8,465,615 17

Agriculture and livestock 1,324 25 7,376,152 14

Education and health services 103 2 3,460,344 7

Tourism, professional and general services 219 4 6,946,361 14

Manufacturing of Wood, Paper, Publication Houses, Furniture and

Metallurgic Industries 201 4 3,348,307 7

Manufacturing of Machinery, Electrical Equipment,

Communications and Transportation Equipment 347 7 4,507,838 9

Mining industry, Building Materials, Basic Materials, Molding

Industries 195 4 7,643,760 15

Textile, Leather and Footwear Industries 321 6 967,702 2

Foodstuff and Beverage Industry 110 2 4,097,319 8

Manufacturing of Chemicals, Petrochemicals and Oil industry 259 5 4,488,007 9

Total 5,213 100 51,301,405 100


Number and value of loans approved over the past five years

Technical Report on the Bank’s Performance (continued)


Number of loans approved according to governorate in 2013

The table below shows that Muscat, South A' Sharqiyah and Dhofar governorates constituted 32%, 14% and 13% of

the gross value of loans approved respectively. In terms of the number of loans, South A' Sharqiyah, North al Batinah

and Dhofar Governorate constituted 23%, 18% and 13% respectively.

Governorate No of loans %

Approved

funds

(RO ‘000) %

Muscat 419 8 16,525,215 32

South A'Sharqiyah 1,192 23 7,065,696 14

Dhofar 661 13 6,862,982 13

North al Batinah 938 18 6,031,500 12

A' Dakhiliyah 365 7 4,405,225 9

North A' Sharqiyah 462 9 3,034,950 6

Musandam 342 7 1,987,270 4

South al Batinah 235 5 1,703,463 3

Al Dhahirah 158 3 1,698,664 3

Al Wusta 359 7 1,130,990 2

Al Buraimi 82 2 855,450 2

Total 5,213 100 51,301,405 100


Strategic Achievements - 2013

ODB’s current corporate strategy is formulated on the need of self-sustenance of the bank in the long term. Consequent

to the choice of ODB becoming a full-fledged SME bank, as per the new strategy there is a need to add new products,

keeping the core sectors eligible for financing the same as at present, emphasizing the development objective of

the bank. However, the implementation of the strategy of introducing new products shall be in various stages in the

coming years, considering the regulatory, technical and resource requirement aspects.

The year 2013 was the third year of the current corporate strategy (2011-2015).

During the year, ODB opened a new branch in Saham. Renovation of Khasab, Ibri and Nizwa branches and Sharqiya

regional office has been done during 2013. Tendering process is in progress for the construction of own office

buildings in Sohar and Salalah.

After the loan procedure manual covering the loan origination and loan management has been re-written with the help

of an external consultant, Workflow automation has been tested and implemented for loan management in the Head

Office. This facilitates easier tracking of status of loans and improves accountability. The project will be extended to

all branches of ODB in the future.

The project of developing Data Warehouse and Business Intelligence System along with Performance Tracking

System is progressing well.

The bank continued its efforts in the execution of database projects and development of e-services. Automatic SMS

has been introduced to communicate important milestones and due dates related to loan accounts. Customers can

now check and know outstanding balance online.

The bank, in coordination with the Ministry of Commerce and Industry launched a program aimed at investors with

feasible projects, but with non-availability of sufficient collateral to avail finance for their projects, where Oman

Development Bank provides guarantee (up to RO 125,000) for half the amount of the loan that the investor will

get from Commercial Banks, to encourage this category of borrowers. Recently, the Council of Ministers expanded

the scope of the Loan Guarantee Program (LGP) to cover the sectors which ODB is not financing such as trading,

contracting, construction and real estate activities. During 2013, ODB has provided guarantee to 46 projects for value,

RO 2.63 million.

Strategic Initiatives for 2013

The strategic initiatives for year 2013 were mainly in:

Introduced POS machines for receiving cash for loan repayment and fee.

Introduced Electronic Cheque Clearing System.

Opened new branch at Saham. Preparations in progress to open new branches in Seeb and Rustaq.

Expansion of Loan Guarantee Program for entrepreneurs.

Introduction of Accounting and Financial Management Services to SMEs.

Developed and implemented new HR system.

1) IT Development Projects

The IT Development Projects include the following:-

1.1 Structuring and Automation of Transactions

Consultancy services for structuring transactions.

Structuring and automation of transactions systems.

Database, IT management and administrative report system (Data Warehouse and BI Tools)

1.2 Development of Electronic Services

Restructuring and redesigning of the bank’s website.

Provision of electronic services through internet and SMS.

Updating and amending the new system, and adding new subsystems for the bank’s new businesses (New

Commercial Modules.)

Strategic Initiatives 2013


Systems related to the Central Bank and its directives and updating RTGS and BCSB system.

Preparing to integrate the new HR system (Core HR System.)

Extending Electronic Cheque Clearing System by integrating the scanner system and automation of clearing of

cheques with the Central Bank in branches.

2) HR System Development Project

Taking into consideration the bank’s need to develop and update the current HR management system, the bank

acquired a new HR system that keeps up with the bank’s needs in its management of human resources. The new

system includes the integration and automation of staff, administrative and financial policies and procedures. The

system provides for the bank detailed, accurate, regular and automated information about the staff. It will be linked to

HR development systems executed by HR consultants.

2.1 Training Programs

The 2013 Training Programs covered 155 training courses and 1,022 employees have benefited from the training

program. The main courses conducted are in the following topics:

Islamic Banking Certificate

Islamic Finance Conference

IT security and technology

Legal, administrative and financial skills for strategic leadership

Feasibility study using MS Projects

Other training courses in various topics, conducted by College of Banking and Financial Studies


Corporate Governance Report

Oman Development Bank (ODB) for the fiscal year ended 31/12/2013

Pursuant to Royal Decree No. 18/2006, which has amended the Royal Decree No.18/97 stipulating the establishment

of the Bank and its annex, the Bank was converted into an SAOC company. Accordingly, ODB shall not be subject to

the Capital Market Authority’s (CMA) circular No. 16/2003 issued on 30/7/2003 concerning the joint stock company’s

articles of association. However, the Bank shall be subject to the commercial companies' law No. 74/4 and its

amendments, which grant the secretariat of commercial register the authority to monitor and supervise the work of

closed joint stock companies. In addition, ODB’s articles of association are in conformity with the said articles as the

Bank is 100% owned by the Government of the Sultanate of Oman.

In a bid by us to meet transparency requirements, we have adopted all the required measures to implement the

principles of corporate governance in our corporate governance report in compliance with CMA Circular No. 11/2002

issued on 3/6/2002 and its amending circular No. 1/2003 issued on 11/01/2003 concerning the Code of Corporate

Governance (CCG) of joint stock companies.

The ODB corporate governance report fairly reflects implementation of the CCG provisions, and is free from any

material misrepresentation. It is worth mentioning that these procedures do not constitute an audit or a review made

in accordance with the International Audit Standards (IAS).

The report was prepared in accordance with articles 26 & 27 of the CCG and is in direct relation with the Board of

Directors’ report included in the ODB annual report for the year ended on 31/12/2013. This report does not include

any financial statements of the bank.

Issued in 1/3/2014

a) ODB Philosophy

ODB is committed to implement the circular No. BM/932 issued by the Central Bank of Oman (CBO) on 4/2/2002

and CMA circular No. 11/2002 concerning the corporate governance structure, without prejudice to the provisions

of Royal Decree No. 18/97 of formation of the Oman Development Bank, which was amended by the Royal

Decree No. 18/2006 and its annex.

The Bank adopts sound corporate governance practices that are praised by all related parties. ODB is also in the

process of preparing and developing its internal regulations. Followings are ODB’s prominent characteristics of

corporate governance:

1) The role and responsibilities of the Board of Directors (BOD)

BOD is responsible for drawing the operational rules and regulations, direct and supervise the management

performance. Furthermore, the role of BOD includes the following:

a. Planning and formulation of policies.

b. Supervision of core businesses of the bank.

c. Overseeing policies implementation and ensuring their compliance with laws and regulations.

d. Ensure transparency and credibility in reporting to Government authorities.

e. Nurturing proper and ethical behavior.

f. Approving and implementing disclosure policy and monitoring its compliance with regulatory requirements.

g. Reviewing material transactions with the related parties, which are not in the ordinary course of business.

h. Nominating the members of the BOD sub committees, specifying their roles, responsibilities and authorities.

i. Appointment of General Manager and other key executives for managerial level and upwards, specify their

roles, responsibilities, powers and remuneration.

j. Evaluating the function of sub committees, General Manager and key employees.

k. Approving interim and annual financial statements.

l. Reporting annually to the government about the status of the bank and providing necessary advice on the

measures needed to promote the Bank's performance.

Corporate Governance Report


2. The role and responsibilities of the Management:

a. Assisting BOD in policy formulation

b. Implementation of laws, regulations and circulars that govern the bank business.

c. Implementation of BOD approved policies and regulations.

d. Preparing detailed programs and procedures required to implement the approved policies.

e. Drafting major contracts according to the business requirements.

f. Preparing the draft balance sheet.

g. Preparing annual activities report for the previous fiscal year.

h. Nurturing proper and ethical behavior

i. Submitting to the Board of Directors’ accurate and detailed reports on the Bank’s activities.

j. Enhancing the Bank’s brand image.

3. Internal Control Systems and their adequacy:

The Board of Directors has set up an Audit Committee, which comprises of three Directors. This committee

supervises the functions of the Internal Audit Unit to ensure compliance with the directives of the concerned

authorities like State Audit Institution, Central Bank of Oman, and Capital Market Authority as well to ensure

conformity with the approved international audit systems and procedures

The Board of Directors emphasized that no transaction in the bank can be processed by a single person but

rather through a minimum of two persons. Similarly, there is sufficient control exercised on IT security systems.

In general, all the Board of Directors’ adopted administrative control measures are adequate, practical and

sufficient.

The compliance bylaw has been approved by the Bank and it is currently in force.

b) The Board of Directors:

ODB is managed by a Board of Directors consisting of a Chairman and five directors representing the Ministry

of Finance, The National Center for Statistics and Information, Commerce & Industry and Agriculture & Fisheries.

One experienced and qualified independent member was nominated by the Annual General Assembly.

c) The Audit Committee:

The Board of Directors approved the code of audit committee by virtue of its decision No. 17/2003 issued on

16/6/2003.The most important functions and authorities of Audit Committee are:

1. Supervision of internal audit.

2. Ensure that the periodicity content and quality of internal audit is adequate.

3. Review compliance of internal / external audit reports.

4. Guide management in respect of external audit / CBO inspection.

5. Overseeing of financial statements to ensure their integrity.

6. Review assets and make periodical audit in relation to adequacy, compliance of procedures and internal

controls etc.

Details of the directors’ attendance of the Audit Committee meetings during 2013:

Meeting

No Date

Mr. Hosni bin Fuad

Tubaileh

Mr. Sabir bin Rashid

Al Harbi

Mr. Ahmed bin Ali

Al Shanfari

1st 28/1/2013 Yes Yes Yes

2nd 5/3/2013 Yes Yes Yes

3rd 4/6/2013 Yes Yes Yes

4th 23/9/2013 Yes Yes Yes




d) Risk Management Committee:

Attendance of the members for the Risk Management Committee meeting in 2013

Meeting

No Date

Mr. Sabir bin Said

al Harbi

Dr. Abdullah

al Hinai

Dr. Abdullah

al Ma'awali

Mr. Ahmed bin Ali

al Shanfari

1st 5/3/2013 Not a member Yes Yes Yes

2nd 22/4/2013 Not a member Yes Yes Yes

*Change of committee members

3rd 23/9/2013 Yes Not a member Yes Yes

4th 17/11/2013 Yes Not a member Yes Yes

* The committee formation decision has been amended as per decision of the board of directors ( No. 102/2013) reforming the committee

to be under the chairmanship of Mr. Ahmed bin Ali al Shanfari with membership of Dr. Abdullah al Ma'awali and

Mr. Sabir al Harbi.

e) Remuneration:

The following amounts were paid during 2013 to the Directors and the five senior staff of the Bank:

* The sitting fees paid for the board of directors = RO 25,050 as below

The meeting Amount paid

Board of Directors Meeting RO 17,550

Audit Committee Meetings RO 3,750

Risk Committee Meetings RO 3,750

Total RO 25,050

* The proposed remuneration for the Board of Directors = RO 40,000

* The total amount of salaries and allowances of the top five senior staff (during 2013) = RO 215,436

The fees and remunerations paid and proposed to the board of directors are in accordance with the provisions

of the Commercial Companies Law No. 4/74 and its amendments, and in particular, the amendments stipulated

by the provisions of Royal Decree No. 99/2005 promulgated on 28/11/2005.

The Board of Directors consisting of an independent chairman, and four members representing the Ministries

which are stated as members in the Royal decree, and one experienced, qualified independent member.

All Board of Directors members are highly qualified and have vast experience. Below is a list of the Board

of Directors:

Independent Member Members nominated by their employers

Hon. Ahmed bin Ali al Shanfari

Independent Member

Mr. Hosni bin Fuad bin Abdullah Tubaileh

Deputy Chairman, Representative of the Ministry of

Finance (Acting Chairman)

Sheikh Dr. Abdullah bin Ali bin Zaher Al Hinai

Representative of the Ministry of Commerce & Industry

Dr. Abdullah bin Ali Al Ma'awali

Representative of the Ministry of Agriculture and

Fisheries

Mr. Sabir bin Said bin Rashid Al Harbi

Representative of the National Centre for Statistics and

Information

Corporate Governance Report (continued)


Activities of the Board during 2013:

Members of the board

Dates of the board meetings in 2013

1st

29/1

2nd

25/3

3rd

4/6

4th

15/8

5th

16/9

6th

16/12

1 Mr. Hosni bin Fuad bin Abdullah Tubaileh Yes Yes Yes Yes Yes Yes

2 Mr. Ahmed bin Ali al Shanfari Yes Yes Yes Yes Yes Yes

3 Mr. Abdullah bin Ali bin Zaher Al Hinai Yes Yes Yes Yes No No

4 Mr. Sabir bin Said bin Rashid Al Harbi Yes Yes Yes Yes Yes Yes

5 Dr. Abdullah bin Ali Al Ma'awali Yes Yes Yes Yes Yes Yes

f) Details of non-compliance with the regulations and penalties:

During the year 2013, the Bank was in full compliance with the requirements of regulatory authorities including

State Audit Institution, Central Bank of Oman, and Capital Market Authority. It has not received any penalties or

substantial criticism from any authority during the past three years, except few observations included in CBO

inspection report for enhancing and activating the role of regulations and monitoring, which is already under

progress to reach the defined determined standards.

g) Means of communication with the shareholders (the government) and investors:

ODB is in direct contact with shareholders who is the Ministry of Finance, Sultanate of Oman.

h) Professional profile of the statutory auditor for 2013:

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning

multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte

brings excellent capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's

more than 200,000 professionals are committed to becoming the standard of excellence.

Deloitte & Touche ME is a member of Deloitte & Touche Limited, the first specialized auditing firm to be established

in the ME. The company operates in the region since 85 years. The company is a leader in providing specialized

services related to taxes, auditing, consultancy and financial services through 26 offices in 15 countries. The

company has more than 2,500 partners, directors and employees. The Oman office comprises of 3 partners and

more than 100 professionals.

i) Non-Compliance with the Code of Corporate Governance:

This bank is in full compliance with the Code of Corporate Governance, except for the articles not applicable due

to the fact that the bank is fully owned by the Government of Oman.

Issued on 01/03/2014.

24 ANNUAL REPORT ’13

Notes 2013 2012

RO RO

ASSETS

Cash and balances with Central Bank of Oman 300,422 64,235

Balances due from other banks 5 21,289,109 33,417,508

Loans and advances to customers 6 110,178,051 100,991,133

Investments 7 25,420,774 11,960,013

Staff housing loans 8 1,312,388 1,039,200

Receivable from Government 9 549,861 1,779,264

Property and equipment 10 1,480,372 1,288,042

Prepayments and other receivables 11 626,213 203,372

Total assets 161,157,190 150,742,767

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities

Customer deposits (Izdihar) 12 2,807,242 2,239,274

Payable to Government 13 3,478,120 2,665,817

Payables and accruals 14 3,545,510 2,002,465

Total Liabilities 9,830,872 6,907,556

Shareholders' equity

Share capital 16 100,000,000 100,000,000

Legal reserve 17 5,480,211 4,771,684

Special reserve 18 5,541,048 4,063,280

Changes in fair value of investments 1,394,304 988,463

Retained earnings 38,910,755 34,011,784

Total shareholders' equity 151,326,318 143,835,211

Total liabilities and shareholders’ equity 161,157,190 150,742,767

Net assets value per share 27 1.513 1.438

Husni Fouad Tubeileh Hamed Salim Al Harthi

Deputy Chairman

Chairman Audit Committee

Acting General Manager

The accompanying notes form an integral part of these financial statements.

Statement of financial positionat 31 December 2013

ANNUAL REPORT ’13 25

Notes 2013 2012

RO RO

Interest income 19 10,598,993 10,369,798

Interest expense (29,432) (35,174)

Net interest income 10,569,561 10,334,624

Fees, commission and other income 20 1,635,704 1,271,547

Investment income - net 21 2,035,393 344,961

Net operating income 14,240,658 11,951,132

General and administrative expenses 22 (6,304,155) (5,428,346)

Operating profit 7,936,503 6,522,786

Net movement in allowance for impaired loans (507,760) 866,052

Provision of bad debt – customer relationship accounts 11 (343,477) -

Net profit for the year 7,085,266 7,388,838

Other comprehensive income

Items that may be reclassified subsequently to profit or loss:

Change in fair value of available for sale investments 405,841 390,510

Total comprehensive income for the year 7,491,107 7,779,348

Basic earnings per share 30 0.071 0.074


Statement of comprehensive incomefor the year ended 31 December 2013


Share

capital

Legal

reserve

Changes in

fair value

of invest-

ments

Special

reserve

Retained

earnings Total

RO RO RO RO RO RO

At 1 January 2012 100,000,000 4,032,800 597,953 4,063,280 27,361,830 136,055,863

Profit for the year - - - - 7,388,838 7,388,838

Changes in fair value of

investments - - 390,510 - - 390,510

Total comprehensive

income - - 390,510 - 7,388,838 7,779,348

Transfer to legal reserve - 738,884 - - (738,884) -

At 1 January 2013 100,000,000 4,771,684 988,463 4,063,280 34,011,784 143,835,211

Profit for the year - - - - 7,085,266 7,085,266

Changes in fair value of

investments - - 405,841 - - 405,841

Total comprehensive

income - - 405,841 - 7,085,266 7,491,107

Transfer to legal reserve - 708,527 - - (708,527) -

Transfer to special reserve - - - 1,477,768 (1,477,768) -

As of 31 December 2013 100,000,000 5,480,211 1,394,304 5,541,048 38,910,755 151,326,318


Statement of changes in equityfor the year ended 31 December 2013


2013 2012

RO RO

Operating activities

Net profit for the year 7,085,266 7,388,838

Adjustments:

Depreciation of property and equipment 255,846 200,263

Net movement in allowance for impaired debts 507,760 (866,052)

Gain on disposal of property and equipment 108 (19,172)

Realised investment income - net (869,938) (204,009)

Change in fair value of held for trading investment (1,165,455) (141,806)

Net transfer to non-Omani end of service indemnity (56,166) 44,510

Operating profit before changes in operating assets and liabilities 5,757,421 6,402,572

Changes in operating assets and liabilities:

Loans and advances to customers (9,694,678) (5,969,765)

Staff housing loans (273,188) (65,225)

Prepayments and other receivables (422,841) 562

Customer deposit (Izdihar) 567,968 (109,800)

Receivable / (payable) to Government (net) 2,041,706 778,996

Payables and accruals 1,599,211 (377,454)

Net cash provided by operating activities (424,401) 659,886

Investing activities

Purchase of property and equipment (448,909) (373,155)

Proceeds from disposal of property and equipment 625 19,596

Realised investment income - net 869,938 204,009

Net withdrawal from / (investment in) term deposits 8,000,000 5,000,000

Balances with investment managers 866,690 (1,147,927)

Movement in investments (11,889,465) (5,911,205)

Net cash used in investing activities (2,601,121) (2,208,682)

Net changes in cash and cash equivalents (3,025,522) (1,548,796)

Cash and cash equivalents at beginning of the year 24,283,816 25,832,612

Cash and cash equivalents at end of the year 21,258,294 24,283,816

Cash and cash equivalents comprise:

Cash and balances with Central Bank of Oman 300,422 64,235

Capital Deposit with Central Bank of Oman (50,000) (50,000)

Balances due from other banks (note 5) 21,289,109 33,417,508

Fixed deposit matures more 90 days (note 5) - (8,000,000)

Balances with investment managers (note 5) (281,237) (1,147,927)

Cash and cash equivalents at end of the year 21,258,294 24,283,816


Statement of cash flows for the year ended 31 December 2013


1. Legal status and principal activities

Oman Development Bank SAOC (the Bank) was established under the Royal Decree Number 18/97, as a joint

stock company on 9 April 1997.

The Bank is principally engaged in providing loans to development projects, including the activities of

agriculture, fisheries, livestock, industrial resources, information technology, educational colleges, health,

tourism, professional activities, workshops and traditional industrial craftsmanship in the Sultanate of Oman by

granting loans, administering grants and subsidies, participating in share capital to companies registered under

the Commercial Companies Law of Oman and other enterprises, and carrying out other banking activities. In

accordance with its objectives, interest on loans and advances is charged to the customers at a rate which is

subsidized by the Government of the Sultanate of Oman. In addition the Bank also acts as agent on behalf of

the Government of Sultanate of Oman in respect of:

a) the distribution and collection of Government soft loans;

b) the disbursement of amounts from the Agriculture and Fisheries Development Fund; and

c) the disbursement and collection of SANAD Fund Loans.

Under the Royal Decree establishing the Bank, the Government of the Sultanate of Oman guarantees its

borrowings of up to four times the capital and general reserves of the Bank.

Royal Decree No. 18/2006 was issued in the year 2006 by which new avenues were opened for the bank in terms

of financial lending limits, allowing the bank to sanction soft loans up to One million Rials Omani for a single

project at a stipulated interest rate of 3% per year. The maximum limit of soft loans can be Three million Rials

Omani to Joint Stock Companies that have offered 40% of their shares for public subscription.

The new Royal Decree also allows the bank to provide non-subsidised working capital loans to new and existing

projects.

All the soft loans which were earlier handled by the Financial Support Committee of the Ministry of Commerce

and Industry have been delegated to Oman Development Bank SAOC

2. Adoption of new and revised International Financial Reporting Standards (IFRSs)

For the year ended 31 December 2013, the Bank has adopted all the new and revised standards and

interpretations issued by the International Accounting Standards Board (IASB) and the International Financial

Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the

period beginning on 1 January 2013.

2.1 Standards and Interpretations adopted with no effect on the financial statements

The following new and revised Standards and Interpretations have been adopted in these financial statements.

Their adoption has not had any significant impact on the amounts reported in these financial statements but may

affect the accounting for future transactions or arrangements.

Amendments to IFRS 7 Disclosures

- Offsetting Financial Assets and

Financial Liabilities

The amendments to IFRS 7 require entities to disclose information

about rights of offset and related arrangements (such as collateral

posting requirements) for financial instruments under an enforceable

master netting agreement or similar arrangement.

IFRS 10: Consolidated Financial

Statements

IFRS 10 replaces the parts of IAS 27 Consolidated and Separate

Financial Statements that deal with consolidated financial

statements and SIC-12 Consolidation - Special Purpose Entities.

IFRS 10 changes the definition of control such that an investor has

control over an investee when a) it has power over the investee, b)

it is exposed, or has rights, to variable returns from its involvement

with the investee and c) has the ability to use its power to affect

its returns. All three of these criteria must be met for an investor to

have control over an investee.

Previously, control was defined as the power to govern financial

and operating policies of the entity so as to obtain benefits from

its activities.

Notes to the financial statementsfor the year ended 31 December 2013


2.1 Standards and Interpretations adopted with no effect on the financial statements (continued)

IFRS 11: Joint arrangements IFRS 11, replaces IAS 31 Interest in Joint Ventures and guidance

contained in a related interpretations. IFRS 11, deals with how a

joint arrangement of which two or more parties have joint control

should be classified and account for. Under IFRS 11, investments

in joint arrangements are classified either as joint operations or

joint ventures, based on rights and obligation of parties to the

arrangements by considering the structure, the legal form of the

arrangement, the contractual terms agreed by the parties to the

arrangement, and when relevant, other facts and circumstances.

IFRS 12: Disclosure of Interests in Other

Entities

IFRS 12 is a new disclosure standard and is applicable to entities

that have interests in subsidiaries, joint arrangements, associates

and / or unconsolidated structured entities. In general, the

application of IFRS 12 has resulted in more extensive disclosures in

the consolidated financial statements.

IFRS 13: Fair Value

Measurement

IFRS 13 establishes a single source of guidance for fair value

measurements and disclosures about fair value measurements. The

scope of IFRS 13 is broad; the fair value measurement requirements

of IFRS 13 apply to both financial instrument items and non- financial

instrument items for which other IFRSs require or permit fair value

measurements and disclosures about fair value measurements,

except for share-based payment transactions that are within the

scope of IFRS 2 Share-based Payment, leasing transactions that

are within the scope of IAS 17 Leases, and measurements that

have some similarities to fair value but are not fair value (e.g. net

realisable value for the purposes of measuring inventories or value

in use for impairment assessment purposes).

Amendments to IAS 1

Presentation of Items of Other

Comprehensive Income

The amendments introduce new terminology, whose use is not

mandatory, for the statement of comprehensive income and

income statement. Under the amendments to IAS 1, the ‘statement

of comprehensive income’ is renamed as the ‘statement of profit

or loss and other comprehensive income’ [and the ‘income

statement’ is renamed as the ‘statement of profit or loss’]. The

amendments to IAS 1 retain the option to present profit or loss and

other comprehensive income in either a single statement or in two

separate but consecutive statements. However, the amendments to

IAS 1 require items of other comprehensive income to be grouped

into two categories in the other comprehensive income section:

(a) items that will not be reclassified subsequently to profit or loss

and (b) items that may be reclassified subsequently to profit or loss

when specific conditions are met. Income tax on items of other

comprehensive income is required to be allocated on the same

basis - the amendments do not change the option to present items

of other comprehensive income either before tax or net of tax.

The amendments have been applied retrospectively, and hence

the presentation of items of other comprehensive income has been

modified to reflect the changes. Other than the above mentioned

presentation changes, the application of the amendments to IAS 1

does not result in any impact on profit or loss, other comprehensive

income and total comprehensive income.


2.1 Standards and Interpretations adopted with no effect on the financial statements (continued)

Annual Improvements

2009-2011 Cycle

Makes amendments to the following standards:

IAS 1 - Clarification of the requirements for comparative information

IAS 16 - Classification of servicing equipment

IAS 32 - Clarify that tax effect of a distribution to holders of equity

instruments should be accounted for in accordance with IAS 12

Income Taxes

IAS 34 - Clarify interim reporting of segment information for total

assets in order to enhance consistency with the requirements in

IFRS 8 Operating Segments

IAS 19 Employee Benefits

(as revised in 2011)

IAS 19 (as revised in 2011) changes the accounting for defined benefit

plans and termination benefits. The most significant change relates

to the accounting for changes in defined benefit obligations and

plan assets. The amendments require the recognition of changes in

defined benefit obligations and in the fair value of plan assets when

they occur, and hence eliminate the ‘corridor approach’ permitted

under the previous version of IAS 19 and accelerate the recognition

of past service costs. All actuarial gains and losses are recognised

immediately through other comprehensive income in order for

the net pension asset or liability recognised in the consolidated

statement of financial position to reflect the full value of the plan

deficit or surplus.

Furthermore, the interest cost and expected return on plan assets

used in the previous version of IAS 19 are replaced with a ‘net interest’

amount under IAS 19 (as revised in 2011), which is calculated by

applying the discount rate to the net defined benefit liability or asset.

These changes have had an impact on the amounts recognised in

profit or loss and other comprehensive income in prior years (see

the tables below for details). In addition, IAS 19 (as revised in 2011)

introduces certain changes in the presentation of the defined benefit

cost including more extensive disclosures.

2.2 Standards and Interpretations in issue not yet effective

At the date of authorisation of these consolidated financial statements, the following new and revised Standards

and Interpretations were in issue but not yet effective:

Effective for annual periods

beginning on or after

New IFRS and relevant amendments

Financial Instruments

IFRS 9: Financial Instruments (as revised in 2010 to include requirements

for the classification and measurement of financial liabilities and incorporate

existing derecognition requirements)

January 2015

Consolidation, joint arrangements, associates and disclosures

Amendment to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure

of Interests in Other Entities and IAS 27 Separate Financial Statements, to

provide 'investment entities' (as defined) an exemption from the consolidation

of particular subsidiaries and instead require that an investment entity measure

the investment in each eligible subsidiary at fair value through profit or loss in

accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments:

Recognition and Measurement.

January 2014

Notes to the financial statementsfor the year ended 31 December 2013 (continued)


2.2 Standards and Interpretations in issue not yet effective (continued)

Amendments to IFRSs Effective for annual periods

beginning on or after

IAS 32 : Financial instruments: presentation, Offsetting Financial Assets and

Financial Liabilities: to clarify certain aspects because of diversity in application

of the requirements on offsetting, focused on four main area (a) the meaning

of 'currently has a legally enforceable right of set-off'(b) the application of

simultaneous realisation and settlement (c) the offsetting of collateral amounts

(d) the unit of account for applying the offsetting requirements

January 2014

IAS 36: impairment of assets, Recoverable Amount Disclosures for Non-

Financial Assets to reduce the circumstances in which the recoverable amount

of assets or cash-generating units is required to be disclosed, clarify the

disclosures required, and to introduce an explicit requirement to disclose the

discount rate used in determining impairment (or reversals) where recoverable

amount (based on fair value less costs of disposal) is determined using a

present value technique.

January 2014

IAS 39: Financial Instruments: Recognition and Measurement, Novation of

Derivatives and Continuation of Hedge Accounting' makes it clear that there

is no need to discontinue hedge accounting if a hedging derivative is novated,

provided certain criteria are met.

A novation indicates an event where the original parties to a derivative agree

that one or more clearing counterparties replace their original counterparty

to become the new counterparty to each of the parties. In order to apply

the amendments and continue hedge accounting, novation to a central

counterparty (CCP) must happen as a consequence of laws or regulations or

the introduction of laws or regulations.

January 2014

New Interpretations and amendments to Interpretations:

IFRIC 21 – Levies January 2014

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no

material impact on the financial statements of the Bank’s in the period of initial application. The adoption of

these standards and interpretations has not resulted in changes to the Bank’s accounting policies and has not

affected the amounts reported for the current or prior periods except for IFRS 9: Financial Instruments 9. IFRS 9

introduces new requirements for the classification and measurement of financial assets, new criteria for amortised

cost measurement, a new measurement category - fair value through other comprehensive income, impairment

assessment only for amortised cost assets, eliminates the category available-for-sale assets, eliminates held-to-

maturity assets and tainting rules, eliminates embedded derivatives in financial assets and eliminates unquoted

equity investments measured at cost less impairment. The management is currently assessing this standard

which may have an impact on the financial statements of the Bank as described above.

3. Summary of significant accounting policies

Financial statements preparation framework

Basis of preparation

The financial statements have been prepared in accordance with the International Financial Reporting Standards

as applicable.

The financial statements have been prepared under the historical cost basis except for quoted investments in

equity securities which are measure at fair values.


3. Summary of significant accounting policies (continued)

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting

estimates. It also requires management to exercise its judgement in the process of applying the Bank’s accounting

policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and

estimates are significant to the financial statements are disclosed in note 4.

Loans and advances to customers

Loans and advances to customers are measured at amortised cost less impairment losses. A credit risk provision

for loan impairment is established if there is objective evidence that the Bank will not be able to collect all amounts

due. The amount of provision is the difference between the carrying amount and the recoverable amount, being

the present value of expected cash flows discounted at the interest rate applicable at inception, including

amounts recoverable from guarantees and collateral. The losses arising from impairment are recognized in the

income statement in ‘credit loss expense’.

Available-for-sale investments

Available-for-sale investments are initially recognised at cost, which includes transaction costs, and are, in

general, subsequently carried at fair value. Available-for-sale equity investments that do not have a quoted market

price in an active market, and for which other methods of reasonably estimating fair value are inappropriate,

are measured at cost, as reduced by allowances for estimated impairment. Unrealised gains and losses arising

from changes in the fair value of available for sale investments are recognized directly in equity until subsequent

derecognition or impairment when the Bank transfer the cumulative gain or loss to the income statement.

Investments originated by the bank

Investment securities with fixed or determinable payments and procured directly from the issuer are classified

as originated by the bank, and are stated at amortized cost. Amortised cost is calculated by taking into account

any discount or premium on acquisition which is amortised on a systematic basis to maturity using the effective

interest method.

Investments carried at fair value through profit or loss

Financial assets at fair value through profit or loss, has two sub categories namely financial assets held for

trading and those designated at fair value through profit or loss at inception. Investments typically bought with

the intention to sell in the near future are classified as held for trading. For investments designated as at fair value

through profit or loss, the following criteria must be met:

the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from

measuring the assets or liabilities or recognising gains or losses on them on a different basis; or

the assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed

and their performance evaluated on a fair value basis, in accordance with a documented risk management

or investment strategy; or

The financial instrument contains an embedded derivative, unless the embedded derivative does not

significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately

recorded.

These investments are initially recorded at fair value. Subsequent to initial recognition, these investments are

remeasured at fair value. Fair value adjustments and realised gain and loss are recognised in the statement of

comprehensive income.

Fair values of financial assets and liabilities

The fair value of available-for-sale investments is based on quoted market prices at the financial position date.

For unquoted investments, the fair value approximates their carrying value.

The fair value of short term assets and liabilities are estimated to be equal to their carrying amounts.

The fair values of loans and advances approximates to the book value adjusted for provision against impaired

loans.

The fair value of staff housing loans has been determined by using discounting cash flow techniques using

market rates currently offered for such facilities.




Financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial

position only when there is a legally enforceable right to set off the recognised amounts and the bank intends to

settle either on a net basis, or to realise the asset and settle the liability simultaneously.

Impairment of financial assets

The Bank assesses at each statement of financial position date whether there is objective evidence that a

financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired

and impairment losses are incurred if, and only if, there is objective evidence of impairment as a result of one or

more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events)

has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be

reliably estimated. Objective evidence that a financial asset or group of assets is impaired includes observable

data that comes to the attention of the Bank about the following loss events:

i) significant financial difficulty of the issuer or obligor;

ii) a breach of contract, such as a default or delinquency in interest or principal payments;

iii) the Bank granting to the borrower, for economic or legal reasons relating to the borrower’s financial difficulty,

a concession that the lender would not otherwise consider;

iv) it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

v) the disappearance of an active market for that financial asset because of financial difficulties; or

vi) observable data indicating that there is a measurable decrease in the estimated future cash flows from a

group of financial assets since the initial recognition of those assets, although the decrease cannot yet be

identified with the individual financial assets in the group, including:

– adverse changes in the payment status of borrowers in the group; or

– national or local economic conditions that correlate with defaults on the assets in the group.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are

individually significant, and individually or collectively for financial assets that are not individually significant. If

the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset,

whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics

and collectively assesses them for impairment. Assets that are individually assessed for impairment and for

which an impairment loss is or continues to be recognised are not included in a collective assessment of

impairment.

If there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has

been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount

and the present value of estimated future cash flows (excluding future credit losses that have not been

incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is

reduced through the use of an allowance account and the amount of the loss is recognised in the statement of

comprehensive income. If a loan has a variable interest rate, the discount rate for measuring any impairment

loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may

measure impairment on the basis of an instrument’s fair value using an observable market price.

Property and equipment

Property and equipment held for use in the production or supply of goods or services, or for administrative

purposes, are initially recognized at their cost being their purchase price plus any other costs directly attributable

to bringing the assets to the location and condition necessary for them to be capable of operating in the manner

intended by management.

After initial recognition, the property and equipment are carried, in the statement of financial position, at their

cost less any accumulated depreciation and any accumulated impairment. The depreciation charge for each

period is recognized in the statement of comprehensive income. Depreciation is calculated on a straight line

basis, which reflects the pattern in which the asset's future economic benefits are expected to be consumed by

the Bank over the estimated useful life of the assets as follows:

Years

Buildings 25

Vehicles 5

Furniture and fixtures and office equipment 4 - 5



Property and equipment (continued)

Land is not depreciated as it is deemed to have an indefinite life.

The depreciation charge for each period is recognized in the statement of comprehensive income. The estimated

useful lives, residual values and depreciation method are reviewed at each year-end, with the effect of any

changes in estimate accounted for on a prospective basis.

The carrying values of property and equipment are reviewed for impairment when events or changes in the

circumstances indicate the carrying value may not be recoverable. If any such indication of impairment exists,

impairments losses are recorded in the statement of comprehensive income.

On the subsequent derecognition (sale or retirement) of the property and equipment, the resultant gain or loss,

being the difference between the net disposal proceeds, if any, and the carrying amount, is included in the

statement of comprehensive income.

Interest income and expense

Interest income and expense are recognised in the statement of comprehensive income on accrual basis, taking

account of the principal outstanding and the rate applicable. If the recovery of the interest income is doubtful, its

recognition in the statement of comprehensive income is deferred until it is received.

Commission and fees

Commission and fees are recognised in the statement of comprehensive income at the time of effecting the

transaction to which they relate.

Dividend

Dividend income is recognized when the right to receive income is established.

Provisions

Provisions are present obligations (legal or constructive) resulted from past events, the settlement of the

obligations is probable and the amount of those obligations can be estimated reliably. The amount recognized

as a provision is the best estimate of the expenditure required to settle the present obligation at the statement

of financial position date, that is, the amount that the Bank would rationally pay to settle the obligation at the

statement of financial position date or to transfer it to a third party.

Provisions reviewed and adjusted at each statement of financial position date. If outflows, to settle the provisions,

are no longer probable, reverse of the provision is recorded as income. Provisions are only used for the purpose

for which they were originally recognized.

Contingent liabilities

Contingent liabilities are possible obligations depending on whether some uncertain future events occur, or they

are present obligations but payments are not probable or the amounts cannot be measured reliably. Contingent

liabilities are not recognized in the financial statements.

Employees’ terminal benefit

The terminal benefits for all eligible Omani employees are provided in accordance with Social Insurance Law

of 1991. For all others, provision for employees’ terminal benefits is based on the liability which would arise in

accordance with the terms of the employment and the Labour Laws of the Sultanate of Oman.

Deposits

All money market and customer deposits are carried at amortised cost.

Translation of foreign currencies

Transactions in foreign currencies are translated into Rials Omani at the rates prevailing on the date of the

transactions. Assets and liabilities denominated in foreign currencies are translated to Omani Rials at year end

rates. Any gain or loss arising from changes in exchange rates subsequent to the date of the transaction is

recognized in the statement of comprehensive income.




Fiduciary assets

Assets held in trust or in a fiduciary capacity are not treated as assets of the Bank and accordingly are not

included in these financial statements.

Cash and cash equivalents

For the purpose of preparing the statement of cash flows, cash equivalents comprises of highly liquid assets

which are readily convertible into known amount of cash and which are subject to an insignificant risk of change

in value. Cash and cash equivalents comprise all balances with Central Bank of Oman and deposits with banks

and other financial institutions, except for balances held by investment funds managers, with a maturity of three

months or less from the date of placement.

Directors’ remuneration

Directors’ remuneration is calculated in accordance with the Commercial Companies Law of 1974, as amended,

of the Sultanate of Oman.

4. Use of estimates

The preparation of the financial statements requires management to make estimates and assumptions that

affect the reported amount of financial assets and liabilities at the date of the financial statements and the

resultant provisions and changes in fair value for the year. Such estimates are necessarily based on assumptions

about factors involving varying, and possibly significant, degrees of judgment and uncertainty and actual results

may differ from management’s estimates resulting in future changes in estimated assets and liabilities.

Significant areas where the management has used estimates, assumption or exercised judgements are as

follows:

Impairment losses on loans and advances

The Bank reviews its loan portfolios to assess impairment on a quarterly basis. In determining whether an

impairment loss should be recorded in the statement of comprehensive income, the Bank makes judgments

as to whether there is any observable data indicating an impairment followed by measurable decrease in the

estimated future cash flows from a portfolio of loans before the decrease can be identified within that portfolio.

This evidence may include observable data indicating that there has been an adverse change in the payment

status of borrowers and or economic conditions that correlate with defaults on assets in the Bank.

Management uses estimates based on historical loss experience for assets with credit risk characteristics and

objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The

methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed

periodically to reduce any difference between loss estimates and actual loss experience. For individually

significant loans and advances which are impaired, the necessary impairment loss is considered based on the

future cash flow estimates.

Individually significant loans and advances which are not impaired and all individually insignificant loans and

advances are then assessed collectively considering historical experience and observable data on a portfolio

basis, in groups of assets with similar risk characteristics to determine whether collective impairment loss to be

made. In determining collective impairment loss, the Bank takes into account several factors including credit

quality, concentration risk, levels of past due, sector performance, available collateral and macro-economic

conditions.

Impairment of available-for-sale equity instruments

The Bank determines that available-for-sale equity investments are impaired when there has been a significant

or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged

requires judgement. In making this judgement, management evaluates among other factors, the normal volatility

in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial

health of the investee, industry and sector performance, changes in technology and operational and financing

cash flows.


5. Balances due from other banks

2013 2012

RO RO

Current accounts 21,289,109 25,417,508

Term deposit - 8,000,000

21,289,109 33,417,508

Current accounts include an amount of RO 281,237 held by investment managers as of 31 December 2013.

(2012 - RO 1,147,927)

Bank balances were placed with commercial banks located in the Sultanate of Oman. Term deposits carry an

interest rate of Nil (2012 - 2.25%).

6. Loans and advances to customers

2013 2012

RO RO

Loans and advances to customers 114,540,997 107,319,350

Loan against trust receipts / working capital loans 3,447,207 1,480,438

Interest receivable 4,987,056 4,878,710

Gross loans and advances 122,975,260 113,678,498

Allowances for impaired debts (note 6) (8,095,466) (8,000,829)

Reserved interest (note 6) (4,701,743) (4,686,536)

110,178,051 100,991,133

Loans and advances were granted to projects within the Sultanate of Oman. The concentration of gross loans

and advances by sector is as follows:

2013 2012

Economic sector RO RO

Agriculture and fisheries 42,233,232 39,873,932

Services 36,324,776 32,216,991

Manufacturing 15,238,538 14,666,308

Mining and quarrying 29,178,714 26,921,267

122,975,260 113,678,498

a) Allowances for impairment losses for loans and advances to customers is as follows:

2013 2012

RO RO

Opening balance 8,000,829 9,513,082

Charge for the year 2,004,127 1,616,771

Released during the year (1,496,367) (2,482,823)

Written off during the year (413,123) (646,201)

8,095,466 8,000,829

Loans and advances within 1 to 89 days category (“Standard” and “Special mentioned”) are not impaired. The

bank provides collective provision towards these loans and advances. The collective provision as of December

31, 2013 is RO 1,614,688 (2012- RO 1,480,598).



6. Loans and advances to customers (continued)

b) Reserved interest for loans and advances to customers is as follows:

2013 2012

RO RO

Opening balance 4,686,536 5,225,342

Charge for the year 700,777 726,035

Released during the year (243,011) (405,045)

Written off during the year (442,559) (859,796)

4,701,743 4,686,536

c) At 31 December 2013, the total outstanding amount of non-performing loans and advances on which interest

has been reserved amounted to RO 15,840,804 (2012: RO 15,305,762).

d) A further analysis of above is set out below:

2013 2012

RO RO

Neither past due nor impaired 91,414,425 82,857,988

Past due but not impaired 15,720,031 15,514,748

Impaired 15,840,804 15,305,762

Gross loans and advances 122,975,260 113,678,498

Less: impairment allowance (12,797,209) (12,687,365)

110,178,051 100,991,133

e) Gross impaired loans

December 31, 2013 Large projects

Small and

medium

projects Total

RO RO RO

Substandard 655,983 2,723,440 3,379,423

Doubtful 734,339 1,622,872 2,357,211

Loss 7,317,794 2,786,376 10,104,170

8,708,116 7,132,688 15,840,804

December 31, 2012

Substandard 836,915 1,745,589 2,582,504

Doubtful 1,204,606 1,304,471 2,509,077

Loss 6,898,621 3,315,560 10,214,181

8,940,142 6,365,620 15,305,762

f) Fair value of qualified collaterals - large projects RO 74,906,722 against loan outstanding of RO 61,508,259

(2012: RO 72,588,537 against loan outstanding of RO 57,625,776).

Loans and advances renegotiated

Restructuring activities include extended payment arrangements, modification and deferral of payments.

Restructuring policies and practices are based on indicators or criteria which, in the judgment of local

management, indicate that payment will most likely continue. These policies are kept under continuous review.

Restructuring is most commonly applied to term loans, in particular customer finance loans. Renegotiated loans

that would otherwise be past due or impaired totalled at December 31, 2013 RO Nil (2012: RO Nil).


7. Investments

2013 2012

RO RO

Available-for-sale 2,142,420 1,736,579

Held for trading 6,575,544 4,001,989

Originated by bank 16,702,810 6,221,445

25,420,774 11,960,013

Available-for-sale investments

At beginning of the year 1,736,579 1,346,069

Change in fair value of available-for-sale investments 405,841 390,510

At end of the year 2,142,420 1,736,579

Quoted investments

The analysis of market value based on the most recent bid price and cost of quoted available-for-sale investments

by economic sector is as follows:

Market value Cost

2013 2012 2013 2012

RO RO RO RO

Banking and investment 949,976 581,298 351,634 351,634

Industrial 1,149,156 1,126,068 382,400 382,400

Services 42,288 28,213 13,082 13,082

2,141,420 1,735,579 747,116 747,116

Unquoted investments

Included in available-for-sale investments is RO 1,000 (2012 – RO 1,000) being the value of unquoted Omani

shares.

Details of the Bank’s available-for-sale investments for which the Bank’s holding exceeds 10% of the market

value of the Bank’s available-for-sale investment portfolio, are as follows:

Investment

portfolio

No of

shares Market value Cost

2013 2012 2013 2012

% RO RO

Quoted equity and fund

investments

Oman National Investment

Corporation Holding SAOG 35.00 1,546,068 757,573 442,175 465,541 465,541

Oman Cement Company SAOG 38.00 1,000,000 824,000 645,000 200,000 200,000

Majan Glass Company SAOG 15.00 1,062,600 325,156 481,068 182,400 182,400

Originated by bank

2013 2012

RO RO

Government development bonds 16,702,810 6,221,445



8. Staff housing loans

Staff housing loans are recoverable over periods of up to twenty years. A significant portion of the loans is

interest free while the others are charged at interest rates below the prevalent market rates for such borrowings.

9. Receivable from Government

2013 2012

RO RO

Ministry of Finance 549,861 1,779,264

In accordance with Royal Decree No.18/2006, interest on loans and advances is subsidized by the Government

of the Sultanate of Oman. The above balance represents the interest subsidies receivable an amount of RO

660,223 (2012: RO 690,369) and interest accrued of RO (110,362) credit balance (2012: RO 1,088,895 debit

balance).

10. Property and equipment

Land Buildings

Vehicles

Furniture

and

fixtures

Office

equip-

ment

Capital

work-in-

progress Total

RO RO RO RO RO RO RO

Cost

At 1 January 2012 34,943 1,219,372 388,550 464,578 724,072 78,644 2,910,159

Additions - - 151,389 35,342 146,784 39,640 373,155

Disposal - - (82,250) (2,709) (34,904) - (119,863)

Transfer - - - 108,032 10,252 (118,284) -

At 1 January 2013 34,943 1,219,372 457,689 605,243 846,204 - 3,163,451

Additions - - 72,000 47,691 156,637 172,581 448,909

Disposal - - - (45,227) (77,663) - (122,890)

At 31 December

2013 34,943 1,219,372 529,689 607,707 925,178 172,581 3,489,470

Depreciation

At 1 January 2012 - 546,297 281,554 403,275 563,459 - 1,794,585

Charge for the year - 48,909 50,607 23,476 77,271 - 200,263

Disposal - - (81,955) (2,686) (34,798) - (119,439)

At 1 January 2013 - 595,206 250,206 424,065 605,932 - 1,875,409

Charge for the year - 57,060 70,981 27,419 100,386 - 255,846

Disposal - - - (44,784) (77,373) - (122,157)

At 31 December

2013 - 652,266 321,187 406,700 628,945 - 2,009,098

Net carrying value

At 31 December

2013 34,943 567,106 208,502 201,007 296,233 172,581 1,480,372

At 31 December

2012 34,943 624,166 207,483 181,178 240,272 - 1,288,042


10. Property and equipment (continued)

a) The capital work-in-progress as of 31 December 2013 represents designing cost of new branches.

b) Land consists of five plots, out of which Buraimi and Salalah plots are jointly registered with the Government

of Oman.

11. Prepayments and other receivables

2013 2012

RO RO

Customer relationship accounts – net 325,102 -

Prepaid expenses 49,482 55,883

Staff loans 24,010 20,593

Other receivables 230,017 130,294

Provision against staff loans and other receivables (2,398) (3,398)

626,213 203,372

Customer receivables consist of gross debit balances of RO 668,579 and provision for doubtful debts of

RO 343,477

12. Customer deposits (Izdihar)

2013 2012

RO RO

Term deposits 2,807,242 2,239,274

The deposits with maturity from 1-12 months are at a fixed interest rate ranging from (0.15% - 1.75%) per annum

(2012: 0.15% - 1.60%) per annum.

13. Payable to Government

2013 2012

RO RO

Ministry of Finance 2,609,159 2,524,699

Sanad Fund 868,961 140,560

Agriculture & Fisheries Development Fund - 558

3,478,120 2,665,817

Above balance of RO 2,609,159 (2012: RO 2,524,699) represents recovery of Government soft loan on behalf of

Ministry of Finance for the month of December 2013.

14. Payables and accruals

2013 2012

RO RO

Accrued expenses 127,801 198,380

Provision for leave salary, gratuity and air ticket 396,985 524,537

Provision for bonus 463,754 326,220

Provision for directors’ remuneration 40,000 65,000

Other payables 2,516,970 888,328

3,545,510 2,002,465



15. Trust activities

The Bank acts as a trustee for the following funds:

(a) Agriculture and Fisheries Development Fund

The Bank acts as a trustee for the fund which is utilised for the development of agriculture and fisheries sectors.

The movement of the fund is as follows:

2013 2012

RO RO

Balance at beginning of the year 6,332,212 6,882,559

Contribution from the Government of Oman 3,334,000 2,972,000

Interest received on balances held on behalf of the fund

in commercial banks

148,660

274,690

Payments made for development work (3,578,692) (3,797,037)

Bank balances at end of the year 6,236,180 6,332,212

(b) SANAD Fund

Commencing in 2002, the Bank acts as trustee for SANAD Fund established for the development of national

labour force and to provide job opportunities to Omanis. The movement of the fund is as follows:

2013 2012

RO RO

Balance at beginning of the year 964,981 2,826,681

Contribution from the Government of Oman 3,500,000 1,000,000

Repayments received 2,410,086 2,285,801

Interest received on balances held on behalf of the fund

in commercial banks 1,236 336

Balance under reconciliation (762,579) (1,057,430)

Payments made from the Fund (4,658,065) (4,035,395)

Insurance (72,992) (55,012)

Bank balances at end of the year 1,382,667 964,981

These are not assets of the Bank and, therefore, are not included in the statement of financial position.

16. Share capital

2013 2012

RO RO

Authorized share capital

(100 million (2012 – 100 million) ordinary shares of RO. 1 each) 100,000,000 100,000,000

Issued and fully paid

(100 million (2012 – 100 million) ordinary shares of RO. 1 each) 100,000,000 100,000,000

The Bank has one class of ordinary shares which carry no right to fixed income.

17. Legal reserve

The Legal Reserve, which is not available for distribution, is being accumulated in accordance with Article 106 of

the Commercial Companies Law of 1974. The annual appropriation shall be 10% of the profit of the Bank until

such time when the Legal Reserve amounts to at least one-third of the capital.

18. Special reserve

In accordance with the Article of Association of the Bank, an amount could be transferred to a special reserve at

the discretion of annual general meeting. This reserve may be utilised to cover credit and other losses.


19. Interest income

2013 2012

RO RO


Cash and term deposits 320,538 510,583

Others 4,573 5,015

10,598,993 10,369,798

Interest income from loans and advances includes around RO 7.6 million (2012 : RO 7.2 million) represents

government subsidy provided by Ministry of Finance to projects that obtained loans from the Bank . The

subsidy is only applicable on those projects which fulfil their obligations in repaying their instalments, in the

event of default the interest is fully charged on borrowers.

20. Fees, commission and other income

2013 2012

RO RO

Fees and commission 497,844 391,163

Management fee – SANAD Fund 741,386 634,209

Grants disbursement fees 15,000 72,196

Bad debts recovered 10,590 80,561

Gain on sale of fixed assets - 19,172

Other income 370,884 74,246

1,635,704 1,271,547

21. Investment income

2013 2012

RO RO

Realised income:

Income from available-for-sale investments

Dividend income 71,485 67,782

Income from held for trading investments

Dividend income 262,469 -

Income from originated investments

Interest income from Government Development Bonds 280,579 127,266

Income from held for trading investments

Profit on sale of investments 377,227 8,961

Total realised income 991,760 204,009

Unrealised income:

Change in fair value of investment held for trading 1,165,455 141,806

2,157,215 345,815

Portfolio manager charges (121,822) (854)

2,035,393 344,961



22. General and administrative expenses

2013 2012

RO RO

Employees’ costs (Note 23) 4,672,091 4,131,832

Depreciation 255,846 200,263

Training expenses 198,893 178,756

Office expenses 181,612 149,114

Travelling expenses 96,166 95,207

Communication costs 147,467 79,734

Rent 147,625 110,889

Board meeting expenses and sitting fees 24,300 29,219

Proposed directors’ remuneration (Note 25) 40,000 65,000

Professional fees 44,184 56,765

Fees and contribution to local institutes 20,158 17,693

Direct write-off of loans and advances 78,146 7,361

Miscellaneous expenses 397,667 306,513

6,304,155 5,428,346

23. Employees costs

2013 2012

RO RO

Salaries and allowances 3,433,980 3,300,420

Bonus 966,719 510,100

Social security costs 207,105 181,011

Other benefits 64,287 140,301

4,672,091 4,131,832

24. Taxation

The Bank is exempted from tax, in accordance with the Royal Decree 18/2006.

25. Related party transactions

The Bank provides loans and other banking services to entities in which the Bank and its directors and senior

management have an interest. These transactions are entered into in the normal course of the Bank’s business,

at normal interest and commission rates.

2013 2012

RO RO

Deposit of senior members - 10,365

The expenses in respect of related parties included in the financial statements are as follows:

2013 2012

RO RO

Director’s sitting fees 24,300 29,219

Proposed director’s remuneration ** 40,000 65,000

** The remuneration approved by the AGM for the year ended 31 December 2012 was RO 40,000. The excess

amount of RO 25,000 had been reversed during 2013 and included in other income.


25. Related party transactions (continued)

Compensation of key management personnel

Key management personnel are those persons having authority and responsibility for planning, directing and

controlling the activities of the Bank, directly or indirectly, including any Director (whether executive or otherwise).

Compensation of key management personnel during the year were as follows:

2013 2012

RO RO

Salary and benefits to key management personnel 268,296 335,958

26. Commitments and contingencies

The following summarises the significant commitments and contingencies as of December 31:

2013 2012

RO RO

Loans and advances approved but not draw down 17,272,601 8,058,228

Commitments for acquisition of property and equipment 35,605 5,198

Letter of guarantees 2,423,018 12,052,083

The Bank guarantees the performance of customers by issuing guarantees to third parties in respect of loans

approved by the Bank. The risk involved is essentially the same as the credit risk involved in extending loan

facilities to customers and, therefore these transactions are subjected to the same credit organisation, portfolio

maintenance and collateral requirements as for customers applying for loans. As the facilities sometimes expire

without being drawn, the notional amounts do not necessary reflect future cash requirements.

The credit risk of these facilities may be less than the notional amounts, but as it cannot be accurately determined,

the credit risk has been taken to be the contract or notional amount.

27. Net assets value per share

Net assets value per share is calculated by dividing the net assets at the year-end by the number of shares

outstanding as follows:

2013 2012

Net assets (RO) 151,326,318 143,835,211

Number of shares outstanding at 31 December (Nos.) 100,000,000 100,000,000

Net assets value per share (RO) 1.513 1.438

28. Assets and liabilities maturity profile

31 December 2013

Maturities Assets Liability Mismatch

RO RO RO

Less than 6 months 43,228,272 8,623,045 34,605,227

6 – 12 months 13,079,109 365,654 12,713,455

1 – 3 years 48,270,175 - 48,270,175

3 – 5 years 34,392,050 - 34,392,050

More than 5 years 22,187,584 152,168,491 (129,980,907)

161,157,190 161,157,190 -



28. Assets and liabilities maturity profile (continued)

31 December 2012

Maturities Assets Liability Mismatch

RO RO RO

Less than 6 months 42,913,490 5,721,849 37,191,641

6 – 12 months 19,992,721 396,436 19,596,285

1 – 3 years 40,923,080 19,992 40,903,088

3 – 5 years 30,576,810 29,988 30,546,822

More than 5 years 16,336,666 144,574,502 (128,237,836)

150,742,767 150,742,767 -

29. Assets and liabilities re-pricing profile

Interest

rate

%

Less than

six

months

RO

Six months

to twelve

months

RO

Over twelve

months

RO

Non-interest

sensitive

RO

Total

RO

2013

Assets

Cash and balances

with Central Bank

of Oman 1.5 - - 50,000 68,094 118,094

Balances due from

other banks 1 21,471,437 - - - 21,471,437

Loans and advances

to customers 9 13,816,000 12,178,000 84,184,051 - 110,178,051

Investments 3 to 5.5 - - 16,702,812 8,717,962 25,420,774

Staff housing loans 5 7,646 7,083 37,375 1,260,284 1,312,388

Received from

government - - - 549,861 549,861

Property and

equipment - - - 1,480,372 1,480,372

Prepayment and other

receivables - - - 626,213 626,213

Total assets 35,295,083 12,185,083 100,974,238 12,702,786 161,157,190

Liabilities

Customer

deposits

0.15 to

1.75 2,287,836 519,406 - - 2,807,242

Payable to

Government - - - 3,478,120 3,478,120

Payables and accruals - - - 3,545,510 3,545,510

Total liabilities 2,287,836 519,406 - 7,023,630 9,830,872

Total shareholders’

funds - - - 151,326,318 151,326,318

Total liabilities and

shareholders’ funds 2,287,836 519,406 - 158,349,948 161,157,190


29. Assets and liabilities re-pricing profile (continued)

Interest

rate

%

Less than

six months

RO

Six months

to twelve

months

RO

Over twelve

months

RO

Non-interest

sensitive

RO

Total

RO

2012

Assets

Cash and balances

with Central Bank of

Oman 1.5 - - 50,000 14,235 64,235

Balances due from

other banks

1 to

2.25 24,269,584 8,000,000 - 1,147,924 33,417,508

Loans and advances

to customers 9 11,390,000 11,293,000 78,308,133 - 100,991,133

Investments

3.25 to

5.5 - - 6,221,445 5,738,568 11,960,013

Staff housing loans 5 9,455 9,455 42,993 977,297 1,039,200

Received from

government - - - 1,779,264 1,779,264

Property and

equipment - - - 1,288,042 1,288,042

Prepayment and other

receivables - - - 203,372 203,372

Total assets 35,669,039 19,302,455 84,622,571 11,148,702 150,742,767

Liabilities

Customer deposits

0.15 to

1.6 1,683,000 556,274 - - 2,239,274

Payable to

Government - - - 2,665,817 2,665,817

Payables and accruals - - - 2,002,465 2,002,465

Total liabilities 1,683,000 556,274 - 4,668,282 6,907,556

Total shareholders’

funds - - - 143,835,211 143,835,211

Total liabilities and

shareholders’ funds 1,683,000 556,274 - 148,503,493 150,742,767



30. Basic earnings per share

2013 2012

Profit for the year (RO) 7,085,266 7,388,838

Weighted average number of shares on issue 100,000,000 100,000,000

Basic earnings per share (RO) 0.071 0.074

The basic earnings per share is calculated by dividing the net profit for the year by the weighted average number

of shares outstanding during the year.

31. Capital adequacy

The capital adequacy, calculated in accordance with the Bank for International Settlements guidelines, was as

follows:

2013 2012

RO’000 RO’000

Capital base (Tier 1 & 2) 152,174 144,773

Risk weighted assets

Credit risk 130,491 130,164

Market risk 17,434 11,476

Operational risk 23,400 21,647

Total risk weighted assets 171,325 163,287

Capital adequacy ratio 88.82% 88.66%

32. Employees terminal benefits

The Bank contributes to the Government of Oman Social Insurance Scheme, which is a defined contribution

retirement plan. During the year ended December 31, 2013 the Bank’s contribution amounted to RO 207,105

(2012 - RO 181,012).

The provision for employees terminal benefits for non-Omani employees is made in accordance with the

requirements of Omani Labour Law. This is an un-funded defined benefits retirement plan and the movements

during the year is as follows:

2013 2012

RO RO

At January 148,057 103,303

Charge for the year 30,675 44,754

Paid during the year (86,841) -

At December 91,891 148,057

33. Fair value information

Off-financial position financial instruments

No fair value adjustment is made with respect to credit-related off-statement of financial position financial

instruments, which include commitments to extend credit, standby letters of credit and guarantees, as the

related future income streams materially reflect contractual fees and commissions actually charged at the

statement of financial position date for agreements of similar credit standing and maturity.

Foreign exchange contracts are valued based on market prices. The market value adjustments in respect of

foreign exchange contracts are included in Prepayments and Accruals.


33. Fair value information (continued)

Fair value versus carrying amounts

2013 2012

Carrying

amount

Fair value Carrying

amount

Fair value

Assets RO RO

Cash and balances with

Central Bank of Oman

300,422 300,422 64,235 64,235

Balances due from other banks 21,289,109 21,289,109 33,417,508 33,417,508

Loans and advances to customers 110,178,051 110,178,051 100,984,349 100,984,349

Investments 25,420,774 25,420,774 11,960,013 11,960,013

Staff housing loans 1,312,388 912,698 1,039,200 736,837

Receivable from Government 549,861 549,861 1,779,264 1,779,264

Prepayments and other receivables 626,213 626,213 201,774 201,774

Liabilities

Customer deposits 2,807,242 2,807,242 2,239,274 2,239,274

Payable to Government 3,478,120 3,478,120 2,665,817 2,665,817

Payables and accruals 3,545,510 3,545,510 1,994,081 1,994,081

Interest rates used for determining fair value

The interest rates used to discount estimated cash flows, where applicable, are based on the government yield

curve at the reporting date plus an adequate credit spread, and were as follows:

2013 2012

Staff loans 6% 6%

34. Risk management

Oman Development Bank is owned by the Government of the Sultanate of Oman. It provides assistance

to development projects in the Sultanate of Oman by granting loans, administering grants and subsidies,

participating in share capital and providing technical assistance to companies. In accordance with its objectives,

interest on loans and advances is charged to customers at rates which are subsidised by the Government.

The Bank’s activities expose it to a variety of financial risks including the effects of changes in interest rates. The

Bank borrows money from the Government and foreign financial institutions and local commercial banks at both

fixed and floating interest rates and for various periods and seeks to earn above average interest margins by

investing these funds. The Bank seeks to increase these margins by consolidating short term funds and lending

for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due.

Capital risk

The bank manages its capital to ensure that the bank will be able to continue as a going concern while maximising

the return to shareholders through the optimisation of the debt and equity balance. The bank’s overall strategy

remains unchanged from 2012.

The capital of the bank consists of equity attributable to shareholders of the bank comprising issued capital,

reserves and retained earnings as disclosed in the statement of changes in equity.

Credit risk

Credit risk is the risk that the borrower of a loan fails to adhere to the terms of borrowing, causing the Bank to

suffer a loss in terms of cash flow or market value.

The Bank deals with creditworthy parties to lessen its risk on each individual credit exposure. The credit

worthiness of a party and the business viability of a project are assessed by the appropriate committee before an

exposure is undertaken. The Managers evaluate and monitor their respective portfolios and are held responsible

for follow up of credit/ follow up and recovery of defaulting clients.



34. Risk management (continued)

Credit risk (continued)

Concentration of loans by economic sectors as shown in Note 6 to the financial statements, shows the

diversification of the loans, thereby reducing the possibilities of losses in the event of a reduction in activity in

one sector.

The below table details the bank’s maximum exposure to credit risk without taking account the value of any

collateral obtained, which represents the carrying amount of financial assets recorded in the financial statements,

net of impairment losses.

2013 2012

RO RO


Staff housing loans 1,312,388 1,039,200

Receivable from Government 549,861 1,779,264

Prepayments and other receivables 626,213 203,373

Off financial position exposures - guarantees 2,423,018 12,052,083

115,089,531 116,065,053

Liquidity risk

Liquidity risk is the risk an enterprise will face in obtaining funds to meet its obligations at any given time.

The Bank’s liquidity management policies are designed to ensure that even under adverse conditions the Bank

would be in a position to meet its obligations.

The Board of Directors and the management monitor the Bank’s liquidity requirements.

The Bank endeavours to obtain low cost borrowings either locally or internationally, on both a short and long

term basis to finance its loans, within guidelines stipulated by the Central Bank of Oman.

Interest rate risk

Interest rate risk is the sensitivity of the Bank’s financial condition to movements in interest rates. In order to

minimise this risk, the bank borrows locally, under arrangements which have a tenor of less than six months.

Currency risk

The foreign currency risk is minimal as all the transactions are incurred in Rials Omani or United States Dollar

which is pegged to Rials Omani.

Price risk

The Bank is exposed to equity price risks arising from equity investments. Equity investments are held for

strategic rather than trading purposes. The Bank does not actively trade these investments.

The sensitivity analyses below have been determined based on the exposure to equity price risks at the reporting

date. If equity prices had been 5% higher / lower:

The profit for the year would have increased / decreased by RO 328,777 (2012 - RO 200,100) as a result of

change in fair value of held for trading investments.

Change in fair value reserves would increase / decreased by RO 107,071 (2012 : increase by RO 87,829) as a

result of the changes in fair value of available-for-sale investments.

35. Proposed dividend

No cash dividend has been proposed by the Board of Directors (2012: Nil).

36. Approval of financial statements

The financial statements were approved by the Board of Directors and authorised for issue on 29 January 2014.


1. Disclosure Policy

The bank has in place a “Disclosure Policy” approved by the Board of Directors. The policy is reviewable

periodically. The policy framework covers the extent of disclosures as well as the internal control processes

required to ensure that such disclosures are consistent and reliable.

The Basel Committee on Banking Supervision (BCBS) first issued measures to strengthen the Basel II accord

in 2009 (popularly known as Basel 2.5) and then issued a regulatory framework for increasing the resilience of

banks and the banking system in December 2010, which was revised in June 2011.This framework is called

Basel III.

The Basel Committee has since issued its rules text on “composition of capital disclosure requirements . This

document is available at http://www.bis.org./publ/bcbs221.htm. Accordingly, Pillar 3 disclosure requirements

under Basel III are introduced for banks by the Central Bank of Oman. Banks are required to comply with the

disclosure requirements from the date of publication of their first set of financial statements relating to a balance

sheet date on or after June 30, 2013. In Oman, the roadmap for implementation of Basel III has indicated

that there would be a gradual phase-in of the standards beginning from 2013 until 2019.The higher capital

requirements will be implemented gradually from 2013 through 2015.

This document takes into account the requirements of Pillar 3 disclosure under Basel III.

2. Scope of Application (Subsidiaries /Groups)

a) Qualitative Disclosures

ODB is not a part of any group either as a member or as the top corporate entity in the group. The bank does

not hold investments in any of the other banks.

b) Quantitative Disclosures

The financial statements do not include consolidation of accounts of any other entities.

Name of the entity (ies) N.A.

Country of Incorporation N.A.

Shareholding (%) N.A.

Other Major Shareholders (Name and % shareholding N.A

Main activity of the entity N.A

Total assets N.A.

Capital Adequacy Ratio(%) if applicable N.A.

Short fall in capital, if any, vis-à-vis the regulatory requirements. N.A

3. Range of Disclosures

a) Capital Structure

i) Qualitative Disclosures

The Bank’s equity comprises of issued and fully paid up share capital, Legal/Statutory Reserves (created

by transferring 10% of yearly net profits-this reserve is not available for distribution), Special/Voluntary

Reserves(created by transferring 20% of yearly net profit, as voluntary provision, to mitigate unexpected

increase of provision due to high growth of loan provision during previous years), Investment Revaluation

Reserves and Retained Earnings. The capital is fully contributed by the Ministry of Finance of Sultanate of

Oman.

The Bank does not have any innovative, complex or hybrid capital instruments.

Extract from Disclosure template for main features of regulatory capital instruments

1 Issuer Oman Development Bank SAOC

2 Unique identifier (eg CUSIP, ISIN or Bloomberg

identifier for private placement) 3

NA

3 Governing law(s) of the instrument Regulatory

treatment

Common Shares. Omani Companies Law

4 Transitional Basel III rules Common Equity Tier 1

BASEL III – PILLAR 3 DISCLOSURES for the full year 2013


5 Post-transitional Basel III rules Common Equity Tier 1

6 Eligible at solo/group/group & solo Solo

7 Instrument type (types to be specified by each

jurisdiction)

Common Shares. Sultanate of Oman

8 Amount recognised in regulatory capital

(Currency in mil, as of most recent reporting date)

RO 100 million

9 Par value of instrument RO 1 per share

10 Accounting classification Shareholder's Equity

11 Original date of issuance 2006

ii) Quantitative Disclosures

The table below has been extracted from ‘Basel III common disclosure template to be used during the

transition of regulatory adjustments (i.e. from 1 January 2013 to 1 January 2018)’ for the year ending 31-12-

2013

Sl. No. of

Disclosure

template

Elements of Regulatory Capital Amount

(RO ‘000)

Common Equity Tier 1 capital: instruments and reserves

1 Directly issued qualifying common share capital 100,000

2 Retained earnings 38,911

3 Accumulated other comprehensive income (and other reserves) 11,021

4 Directly issued capital subject to phase out from CET1 0

Public sector capital injections grandfathered until 1 January 2018 0

5 Common share capital issued by subsidiaries and held by third parties

(amount allowed in group CET1) 0

6 Common Equity Tier 1 capital before regulatory adjustments 149,932

28 Total regulatory adjustments to Common equity Tier 1 0

29 Common Equity Tier 1 capital (CET1) 149,932

36 Additional Tier 1 capital before regulatory adjustments 0

43 Total regulatory adjustments to Additional Tier 1 capital 0

44 Additional Tier 1 capital (AT1) 0

45 Tier 1 capital (T1 = CET1 + AT1) 149,932

51 Tier 2 capital before regulatory adjustments 2,242

57 Total regulatory adjustments to Tier 2 capital 0

58 Tier 2 capital (T2) 2,242

59 Total capital (TC = T1 + T2) 152,174

60 Total risk weighted assets (60a+60b+60c) 171,325

60a Of which: Credit risk weighted assets 130,491

60b Of which: Market risk weighted assets 17,434

60c Of which: Operational risk weighted assets 23,400

Capital Ratios

61 Common Equity Tier 1 (as a percentage of risk weighted assets) 87.5%

62 Tier 1 (as a percentage of risk weighted assets) 87.5%

63 Total capital (as a percentage of risk weighted assets) 88.8%

64 Institution specific buffer requirement (minimum CET1 requirement plus

capital conservation buffer plus countercyclical buffer requirements plus

G-SIB/D-SIB buffer requirement expressed as a percentage of risk weighted

assets) 9.50%

65 of which: capital conservation buffer requirement 2.50%

66 of which: bank specific countercyclical buffer requirement 0%

67 of which: D-SIB/G-SIB buffer requirement 0%

68 Common Equity Tier 1 available to meet buffers (as a percentage of risk

weighted assets) 78.0%

National minima (if different from Basel III)

69 National Common Equity Tier 1 minimum ratio (if different from Basel 3

minimum) 9.50%

70 National Tier 1 minimum ratio (if different from Basel 3 minimum) 11.50%

71 National total capital minimum ratio (if different from Basel 3 minimum) 14.50%


b) Capital Adequacy

i) Qualitative Disclosures

Summary Discussion:

The capital adequacy of the bank is being calculated every quarter, considering various types of Risks

(Credit, Market and Operational) and as per the guidelines of the Central Bank of Oman. The bank has

considered that level of capital is sufficient not only to meet future business plans but also to cushion any

unexpected losses. The bank has adopted Standardized Approach for assessing capital adequacy for

Credit and Market Risks and Basic Indicator Approach for Operational Risks.

Credit Risk:

For Credit Risk, Bank has assigned following Risk Weights:

100% for all Corporate and Retail exposures without regard to external ratings and without availing Risk

Weight of 75% allowed for Retail exposures meeting pre-defined criteria respectively.

150% Risk Weight for Net Unsecured Portion of all NPLs (net of specific provisions and reserve interest).

50% Risk Weight for Cash and Deposits with local banks.

20% Risk Weight for short term placement with local banks

0% Risk Weight for CBO Government Development Bonds.

100% Risk weight for Fixed Assets and all Other Assets.

100% Risk Weight for Guarantees issued to banks for establishing LCs/ LPOs on behalf of Bank’s

customers.

0% Risk Weight to off-balance sheet items, such as, Agriculture and Fisheries Development Fund and

SANAD Fund as the Bank acts as a Trustee for these items.

100% Risk Weight for all other unquoted Commercial Investments

50% Risk Weight for undrawn loan commitments with respect of loans approved

100% Risk Weight for commitments for acquisition of property and equipment

100% Risk Weight for financial guarantees issued to third parties with respect to approved loans.

CRM techniques for reduction in Risk Weighted Assets against collaterals have not been applied.

Market Risk:

Bank’s Trading Book comprises of only a small position in equities. Bank has assigned 8% Risk Weight for

Specific Risk and 8% Risk Weight for General Market Risk for the Equities held in the Trading Book.

Operational Risk:

For calculation of Capital Adequacy Ratio for Operational Risks, the bank has used average positive Operating

Profit for last three years (net interest income + other recurring income) excluding provisions and operating

expenses, staff expenses, depreciation and recoveries, profit/loss on sale of assets and extraordinary items.

ii) Quantitative Disclosures

a) Risk Weighted Assets (RO ‘000s)

Sl No Details

Gross

Balances

(Book Value)

Net Balances

(Book Value)*

Risk Weighted

Assets

1 On-balance sheet items 176,616 161,157 160,229

2 Off-balance items 19,732 19,732 11,096

3 Derivatives 0 0 0

4 Total 196,348 180,889 171,325

* Net of Provisions, reserve interest and eligible collaterals

BASEL III – PILLAR 3 DISCLOSURES for the full year 2013 (continued)


b) Capital

Sl No. Details (RO 000s)

1 Tier I Capital 149,932

2 Tier 2 Capital 2,242

4 Total Regulatory Capital 152,174

5 Capital Requirement for credit risk 15,659

6 Capital Requirement for market risk 2,092

7 Capital Requirement for operational risk 2,808

8 Total required capital 20,559

9 Tier I Ratio (as a percentage of risk weighted assets) 87.5%

10 Total Capital Ratio (as a percentage of risk weighted assets) 88.8%

b) Risk Exposure and Assessment

Credit Risk - General Disclosures

Qualitative Disclosures

i) Risk Management Objectives and policies

The Bank has established Risk Management Policy approved by Board of Directors (BOD). The primary responsibility for ensuring that the risks are appropriately managed is with the BOD, which shall set and approve the overall risk policies, limits, procedures and provide framework for Risk Management of the Bank. The bank has set up an independent Risk Management Committee approved by the BOD to monitor and review the implementation of risk management procedures approved by the Board. The formation and the composition of the Risk Management Committee have been approved by the Central Bank of Oman. The day-to-day management of risk, such as, identifying, monitoring, controlling, reporting, etc., lies with the Risk Management Department and the line management. The risk policy addresses risks relevant to areas of Credit, Market, Liquidity, and Operational Risks to which the bank is exposed.

The Board of Directors has approved implementation of Integrated Risk Management Framework and Risk Based Internal Audit and the bank is in the process of changing over to the framework.

Credit Risk:

The Risk Policy covers the management of various areas of Credit Risk, such as, maximum prudential exposure limits, exposure concentrations, credit sanctioning , approval norms, facility tenors, loan classification and provisioning norms, management of problem loans, credit origination, due diligence process, target sectors, credit assessment and underwriting standards, collateral management, risk rating framework, disbursals, monitoring and follow-up, credit reviews, pricing, reporting and post sanction loan review. The Credit Committee/ Board of Directors assess the credit worthiness of parties and business viability, before an exposure is approved. The exposures are monitored through periodic site visits as well as system generated MIS reports. Proactive action is taken by respective managers for exposures requiring remedial /recovery action.

With regard to income recognition, assets classification and provisioning requirements, the bank follows the relevant guidelines of Central Bank of Oman, especially the circular No.BM 977. The bank considers an asset or an exposure to be impaired if in its opinion the realizable value of the assets or the exposure is less than the accounting carrying value. A past due exposure arises when the customer / counterparty fails to meet the contractual obligation to the bank towards payment of interest or principal or part thereof on due date. As per CBO norms, the bank considers an exposure (non- retail) as non-performing if it continues to remain past due for a period of 90 days or more.

The bank does not grant any consumer loans. All ODB loans up to and RO 50,000 are categorized as Retail Portfolio and loans above RO 50,000 are treated as Corporate Portfolio. (The maximum loans is RO 1 Million per project).

In the case of Retail Portfolio, the bank uses the following ageing criteria to classify impaired exposures. Exposures that are over 59 days past due but less than 90 days are classified as specially mentioned. Exposure that are over 89 days past due but less than 180 days are classified as sub-standard. Exposures past due for 180 days up to 364 days are classified Doubtful and exposures past due for 365 days or more are classified as Loss.

In the case of Corporate Portfolio, the bank uses the following ageing criteria to classify impaired exposures. Exposures that are over 59 days past due but less than 90 days are classified as specially mentioned. Exposures that remain past due for 90 days or more but less than 270 days are classified as sub-standard. Exposures remain past due for 270 days or more but less than 630 days are classified as Doubtful and exposures past due for 630 days or more are classified as Loss.


The bank makes two types of provisions – specific provisions (for sub-standard, doubtful and loss classified exposure) and general provision (for specially mentioned and standard exposure), as per CBO norms. The bank makes a provision of 25%, 50% and 100% for loans classified sub-standard, doubtful and loss respectively, with a minimum cash provision of 25% and the balance cash provision, as appropriate, net of eligible collateral. The bank makes general provision for retail loans (below and RO 50,000) @ 2% and @1% for loans above RO 50,000 as per regulatory requirements.

The bank also calculates provision under IFRS requirements at the portfolio level. Under the CBO norms, the requirement of provision was RO 11,182,520 (including reserve interest, but excluding general provision), whereas as per IFRS requirement it was RO 10,762,775 as on 31-12-2013. The higher of the provision requirement is taken.

In addition, the bank has created a non-distributable special/voluntary reserve by transferring a part of its profits in order to meet any future contingencies or sudden losses. This has been approved by bank’s Annual General Body. The special reserve was RO 4,063,280 as of 31/12/2012. As a prudent measure, a portion of current year income is also proposed to be allocated to special reserve to meet future provisions required for new lending of the bank, subject to approval of bank’s Annual General Body. Thus the special reserve as on 31-12-2013 is RO 5,541,048.

From 2009 onwards, the bank is lending short term specific working capital credit facilities. The provisioning policy is same as that is adopted for existing term loans and is in line with CBO guidelines.

Market risk:

The bank does not have a Trading Book comprising of debt securities, foreign exchange, commodities, derivatives and other positions. The bank has Available-for Sale Equity Investments in the local market.

Operational Risk:

The Risk Policy deals with the various areas of Operational Risk. It covers procedures and controls to be followed by each department, compliance functions, internal audit functions, policies and procedures for managing human resources of the bank, money laundering, procedures for back-up and storage of data, disaster recovery plan and security policies for access rights on the core banking system.

Banking Book Interest Rate Risk:

The interest rate risk in the banking book arises due to maturity / re-pricing mismatches of the assets and liabilities in the banking book. Bank need to manage this risk by analyzing the residual contractual maturities of all interest bearing assets and liabilities. Interest rate risk is managed by the Assets and Liability cum Investment Committee of the bank.

Till 2008, the bank’s interest bearing assets (mainly project loans) were on the fixed rate terms (interest rate of 9% p.a. including government subsidy), which were funded by its own capital and reserves. Therefore there was no impact of Interest Rate Risk in the Banking Book. In 2009, the bank resorted to occasional short term borrowings from banks to meet short term needs. With the injection of fresh share capital, there was no outstanding bank borrowing in subsequent years.

The bank is lending working capital loans at variable rates (market rates). The bank is accepting Fixed Term Deposits (FTDs) at market rates. These have necessitated monitoring of interest rate risks. The ALCO was set up for the purpose of analyzing the situation and taking adequate measures to manage the risks and bring in mitigations to prevent any negative impact on the profitability. The situation in the future will change with increase in commercial borrowings and the bank will face interest rate risk.

Liquidity Risk:

Liquidity risk is the risk the bank will face in obtaining funds to meet its obligations at any given time. The bank’s liquidity management policies are designed to ensure that even under adverse conditions the bank would be in a position to meet its obligations. Liquidity Risk is managed by the Assets and Liability Cum Investment Committee which analyzes the Asset and Liability mismatches and ensures a positive gap.

From June 2009, the bank has started collecting fixed term Deposits from customers with the approval of Central Bank of Oman. The bank is also working towards mobilizing resources through long term Bonds as and when the need arises. The aim is to raise the funds for working capital lending by fixed term deposits and find resources for long term loans from equity and long term bonds. However, as and when the bank resorts to commercial borrowings for funding assets the bank might face liquidity risk, like any financial intermediary institutions. The management is aware of the risk and will actively pursue steps to mitigate this risk.

d) Equity:

Quoted Equity Investments are measured at market value. Unquoted investments are recognized at cost and carried at fair value. These investments are managed under the guidance of the Asset and Liabilities cum Investment Committee.



Quantitative Disclosures

ii) Total gross credit risk exposures, plus average gross exposures over the period broken down by major types of credit exposure

Amount (RO.000s)

Sl. No Type of Credit Exposure

Average Gross

Exposure Total Gross Exposure

Current

Year

Previous

Year

31-Dec-

2013

31-Dec-

2012

1 Overdraft 0 0 0

2 Staff Loan (Personal) 25 20 26 23

3 WC- Loans +LTR+ Pre-shipment Loans 2,462 837 3,443 1,480

4 Other Loans (Term Loans) 115,865 110,450 119,532 112,198

5 Bills Purchased / Discounted 0 0 0

6 Any Other (Staff Housing Loan) 1,234 1,062 1,371 1,096

7 Total 119,586 112,369 124,372 114,797

iii) Geographic distribution of exposures, broken down in significant areas by major types of credit

exposure(RO.000s)

Sl No

Type of Credit

Exposure Oman

Other GCC

countries

OECD

Countries* India Pakistan Others Total

(1) (2) (3) (4) (5) (6) (7)

1 Overdraft 0 0

2

Personal Loans

(Staff Loan) 26 26

3

WC- Loans +LTR+

Pre-shipment

Loans 3,443 3,443

4

Other Loans (Term

Loans) 119,532 119,532

5

Bills Purchased /

Discounted 0 0

6

Any Other (Staff

Housing Loan) 1,371 1,371

7 Total 124,372 0 0 0 0 0 124,372

* excluding countries included in column 2 [includes staff personal loans and staff Housing Loans)

iv) Industry or counterparty type distribution of exposures, broken down by major types of credit exposure.

(RO.000s)

Sl.

No.

Economic Sector Overdraft Loans WC loans Others Total Off B/S

Exposure

1 Import Trade

2 Export Trade

3 Wholesale & Retail Trade

4 Mining & Quarrying 0 27,326 1,852 29,179 4,136

5 Construction 0

6 Manufacturing 0 14,022 1,217 15,239 3,040

7 Electricity, Gas and Water 0

8 Transport & Communication 0 7,496 0 7,496 1,513

9 Financial Institutions 0

10 Services 0 28,775 53 28,828 8,102

11 Personal Loans (Staff loan) 0 26 26

12

Agriculture & Allied

activities 0 41,912 321 42,233 2,905

13 Government 0

14 Non-Resident Lending 0

15

All others (Staff Housing

Loan) 0 1,371 1,371

16 Total 0 119,532 3,443 1,397 124,372 19,696


v) Residual contractual maturity breakdown of whole portfolio, broken down by major types of credit exposure.

(RO.000s)

Sl.

No.

Time Band Overdraft Loans WC loans Others Total Off B/S

Exposure

1 Up to 1 month 0 7,278 897 78 8,253 3,418

2 1- 3 months 0 4,072 1,608 30 5,710 2,154

3 3-6 months 0 5,916 938 35 6,889 3,274

4 6-9 months 0 6,646 30 6,676 2,739

5 9-12 months 0 7,149 30 7,179 1,818

6 1-3 years 0 48,371 310 48,681 6,293

7 3-5 years 0 29,108 260 29,368 0

8 Over 5 years 0 10,992 623 11,615 0

9 Total 119,532 3,443 1,397 124,372 19,696

vi) By major industry or counter party type: (RO.000s)

Sl.

No.

Economic

Sectors

Gross

Loans

Of

which

NPLs

General

Provision

Held

Specific

Provision

Held

Reserve

Interest

Provision

made

during

the year

Advances

Written off

during the

year

1 Import Trade

2 Export Trade

3 Wholesale &

Retail

Trade

4 Mining &

Quarrying29,179 4,468 292 1,801 1,817 98 5

5 Construction

6 Manufacturing 15,239 2,646 186 762 1,031 -86 392

7 Electricity, Gas

and Water

8 Transport &

Communication7,496 599 106 297 29 -42 67

9 Financial

Institutions

10 Services 28,828 4,098 288 1,584 1,540 -132 114

11 Personal Loans

(staff)26 2 2 0

12 Agriculture &

Allied Activities42,233 4,030 743 2,037 285 -211 355

13 Government

14 Non-Resident

Lending

15 All others (Staff

Housing Loan1,371 59 30 29

16 Total 124,372 15,902 1,615 6,513 4,731 -374* 934

* Specific provision made, less specific provision released. The negative figure indicates that there is net

specific provision release to the extent of RO 374K during 2013.



vii) Amount of impaired loans , if available, past due loans provided separately broken down significant

geographic areas including if practical , the amounts of specific and general allowances related to each

geographical area. (RO.000s)

Sl.

No.

Countries Gross

Loans

Of which

NPLs

General

Provisions

Held

Specific

Provisions

Held

Reserve

Interest

Provisions

made

during the

year

Advances

Written

Off during

the year

1 Oman 124,372 15,902 1,615 6,512 4,731 -374* 934

2 Other GCC

countries0 0 0 0 0 0 0

3 OECD

countries0 0 0 0 0 0 0

4 India 0 0 0 0 0 0 0

5 Pakistan 0 0 0 0 0 0 0

6 Others 0 0 0 0 0 0 0

7 Total 124,372 15,902 1,615 6,513 4,731 -374* 934

viii) Movement on Gross Loans

ODB has been submitting BOSS reports from June 2008, after the implementation of the new core banking

system.

Movement of Gross Loans during the quarter ending 31/12/2013 - (RO ‘000)

Sr.

No.

Details Performing Loans Non-Performing Loans Total

Standard S.M Sub-

Standard

Doubtful Loss

1 Opening Balance 97,262 7,256 4,669 1,858 10,059 121,104

2 Migration/changes

(+/-)

-1,065 819 -50 82 214 0

3 New Loans 14,004 1,829 2,597 1,472 339 20,241

4 Recovery of Loans 8,414 4,557 3,836 1,055 469 18,331

5 Loans written off 39 39

6 Closing Balance 101,787 5,347 3,380 2,357 10,104 122,975

7 Provision Held * 837 977 4,667 6,481

8 Reserve Interest 32 47 4,623 4,702

* Indicate the general provisions held under performing loans and specific provisions under non-performing

loans.

e) Credit Risk: Disclosures for Portfolios subject to the Standardized Approach


a) For portfolio under standardized approach, bank has not used assessments by External Credit Assessment

Institutions (ECAIs) for claims on corporates and banks, but has instead used 100% risk weight for them

considering the nature of Bank’s operations and size.

b) Quantitative Disclosures

c) The bank has not reduced exposure / applied risk mitigation based on external (ECAI) ratings.

f) Credit Risk Mitigation: Disclosures for Standardization Approaches Qualitative Disclosures

a) The bank has not used Credit Risk Mitigation through collaterals for reducing the Risk Weighted Assets.

b) The bank has not used on and off-balance sheet netting.

c) The bank has a Collateral Policy, which covers types of eligible collaterals, valuation, maintenance procedures

and management. In accepting collaterals, the bank considers the ease of enforceability, and liquidity

for tangible collaterals as well as creditworthiness and financial strength of guarantors. The bank makes


an endeavor to avoid concentration of collaterals (credit and market) as far as possible. While accepting

collaterals the bank evaluates the correlation, if any, between the value of collateral and the credit quality of

the counterparty.

d) The bank endeavor’s to obtain acceptable collateral cover for its exposures as far as commercially practicable.

The primary collateral for loan exposures is project assets financed by the bank. However, where feasible

and required, the bank accepts other collaterals to mitigate the credit risk. The eligible collaterals include

Pledge of Cash/ Deposit, Bonds& Shares; Bank Guarantees, Mortgage over Real Estate, Commercial Charge

over Assets, Joint Registration over Assets, Personal / Corporate Guarantees, Assignment of Insurance

Policies (Life/ Fire, etc.).

e) These collaterals are integrated in internal risk rating model to quantify the risk and assess the Loss Given

Default (LGD)

f) Collaterals, such as, real estate and shares are valued periodically. Values of Shares are updated based on

the latest market value. Real estate is valued by reputed valuers every three years.

g) Documentation for perfection of security interest in the collateral is verified by the legal department. The

security documentation is maintained in fire proof cabinets.

h) The bank periodically checks and updates the documentation and ensures continuity of enforceability by

keeping the related documents (life insurance, fire insurance, etc.) up to date.


The bank has not used Credit Mitigation for reducing the Risk Weighted Assets.

g) Market Risk in Trading Book: Disclosures for Banks using the Standardized duration Approach


a) As far as the Market Risk is concerned, Bank’s Trading Book comprises of only a small position in equities.

The bank is not exposed to commodity risk and foreign exchange risk as it neither deals in commodities nor

in foreign currencies. Bank has assigned 8% Risk Weight for Specific Risk and 8% Risk Weight for Market

Risk for the Equities held in the trading Book.


a) The capital requirement of Equity Position Risk is the following:

Market Value of Equity

(RO 000s)

(A)

Specific

Risk (8%)

(B)

General

Market

Risk (8%)

(C)

RWA

[(A) + (B)]*12.5

Capital Requirement

[12% of (C)]

8,717 697 697 17,434 2,092

h) Interest Rate Risk in the Banking Book (IRRBB)

Qualitative Disclosure

a) Till 2008, the bank’s interest bearing assets (mainly project loans) were on the fixed rate terms (interest rate

of 9% p.a. including government subsidy), which were funded by its own capital and reserves. Therefore

there was no impact of Interest Rate Risk in the Banking Book. In 2009, the bank had resorted to short term

borrowings from banks to meet short term needs. With the injection of fresh equity, there was no much

impact on the profitability. During the later years, the bank has not availed bank borrowings due to infusion

of additional share capital.

b) From 2009, the bank started disbursing working capital loans at variable rates (market rates) to its existing

clients in a small way. The bank also started accepting Fixed Term Deposits (FTDs) at market rates. These

have necessitated monitoring of interest rate risks. The situation in the future will change with increase

in commercial borrowings and the bank will face interest rate risk. The ALCO set up for the purpose of

analyzing the situation and taking adequate measures to manage the risks will bring in any mitigation to

prevent negative impact on the profitability.

Quantitative Disclosure

As mentioned above, there was no impact of upward or downward rate shock as interest bearing assets were at

fixed rates and the bank funded its asset portfolio mostly from its own capital and reserves. In the coming 2- 3

years, the bank will be able to operate with own equity and the bank’s cost of fund is expected to be higher in



later years if costly funds are raised, This will impact profitability.

As of 31/12/2013, the bank has outstanding fixed term deposits liability of RO 2.807Million. The weighted

average rate of interest as of 31/12/2013 is 1.42% p.a.

As of 31/12/2013, there are no outstanding bank borrowings.

i) Liquidity Risk


Liquidity Risk is managed by the Assets and Liability cum Investment Committee of the bank. Asset Liability

mismatches are analyzed and a positive gap is ensured. As all long term assets of the bank were funded by

Equity plus reserves and there was no Liquidity Risk arising out of Asset and Liabilities mismatches.

During the year 2009, to manage short term liquidity, the bank did resort to short term interbank borrowings.

The bank has also started collecting fixed term Deposits from the customers with the approval of Central Bank

of Oman. The bank will consider mobilizing resources through long term Bonds when the need arises. The aim

is to raise the funds for working capital lending by fixed term deposits and find resources for long term loans

from equity and long term bonds. However, as and when the bank resorts to commercial borrowings for funding

assets, the bank will face liquidity risk. The management is aware of the risk and will actively pursue steps to

mitigate them.

Quantitative Disclosure

As mentioned above, there was no impact of liquidity risk arising out of mismatches in assets and liabilities as

all assets were mostly funded by the bank’s equity. As of 31/12/2013, the deposits outstanding in the bank are

worth RO 2.807Million. However, there was no outstanding bank borrowing as of that date.

j) Operational Risk


The Risk Policy of the bank specifies the policies relating to Operational Risks and covers areas, such as, Human

Resources, IT, Operational Procedures, Compliance, Internal Audit, Money Laundering, etc.

The bank has used the Basic Indicator Approach for calculating the capital adequacy for Operational Risk. The

bank has considered average positive Gross Income for last three years. The Gross Income is the aggregate of

Net Interest Income and non-interest Income and excludes extra ordinary income and realized profit on Held to

Maturity or Available for Sale investments. The Gross Income also excludes provisions and operating expenses

and also staff expenses, depreciation and recoveries.

There are no major regulatory/supervisory actions taken against the bank during the year. No penalties have

been imposed.

4. Overview and Conclusion

The bank’s BIS capital adequacy ratio was 88.8% at as at the end of December 2013, as against a minimum of

14.5% (including capital conservation buffer under Basel III) required by regulatory authorities.

Against the CBO stipulation of CET1, Tier 1 and Total Capital levels of 9.5%, 11.5% and 14.5% respectively, the

actual ratios as of 31-12-2013 are 87.5%, 87.5% and 88.8% respectively.

The bank has created and implemented a risk management control and evaluation system that is responsive to

current requirements, is compliant with Basel II requirements of Central Bank of Oman and generally meets the

objectives for the complexity and size of the bank.

ANNUAL REPORT 2013 - odb.com.omodb.com.om/AnnualReports/AR-ODB-2013-ENG.pdf · We would also like...

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