together we grow · mr. abdul salam bin nasir al kharusi vice chairman mrs. ziyana bint mohamed al...

Annual Report 2019

Together We Grow

His Majesty Sultan Qaboos Bin Said (May God Rest His Soul)

His Majesty Sultan Haitham Bin Tarik

CONTENTS

Board of Directors 4

A Word from the Chairman 6

Economy of Oman 10

Technical Report on the Bank’s Performance 16

Strategy and Development Programs 20

Events 22

Empowerment and Development 30

ODB Corporate Governance Report 32

Report and Financial Statements 40

Basel II – Pillar III & Basel III Related Disclosures for the Full Year 2019 94

Annual Report 2019

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BOARD OF DIRECTORS

Interior of Kashab fort, Musandam.4

Annual Report 2019

5

H.E. Sayyid Salim bin Musallam Al Busaidi

Chairman

Mr. Abdul Salam bin Nasir Al Kharusi

Vice Chairman

Mrs. Ziyana bint MohamedAl Rashidya

Representative of the Ministry of Finance

Mr. Ali bin Mohamed binJuma Al Lawati

Independent Member

Eng. Hilal Bin Hamed Bin

Seif Al BusaidiIndependent Member

Eng. Nahla bint Abdul Wahab Al Hamdiya

Representative of the Ministry of Commerce and Industry

Eng. Saleh bin Mohammedbin Saleh Al Abri

Representative of the Ministry of Agriculture and Fisheries

Narrow archway with old, heavy wooden doors opened to show the famous frankincense monument of Muscat.6

A WORD FROM THE CHAIRMAN

On behalf of my fellow board members, I am pleased to submit to you a summary of the Oman Development Bank (ODB)’s achievements and performance during 2019, as well as its future programs and strategic initiatives.

I begin this speech by reviewing the main themes of the Bank’s performance during 2019.

First: Credit Performance

Loans approved

6,467 13%increase in loansapproved in 2019

million total loanapproved

61RO

Despite the challenging economic conditions that the Sultanate and the world are going through, ODB has achieved acceptable results. The Bank continues its efforts to achieve better results in future, in line with the ambitious plans and goals approved by the Board of Directors.

You will find below a summary of ODB’s lending activity, the main contributor of the Bank’s revenues. The Bank’s lending performance is summarized as follows:

1- Approved loans

During 2019, there has been an increase in the number loans provided by the Bank. ODB has approved 6,467 loans, an increase of 13% compared to the number of loans approved during 2018. The total value of these loans amounted to RO 61 million, a decrease in value by 6% compared to 2018.

2- Loan disbursement

The total value of loan disbursement during the year 2019 amounted to about RO 60 million, of which RO 35 million were disbursed by the branches. The value of the loans disbursed by the corporate branch amounted to RO 25 million (including working capital loans).

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H.E. Sayyid Salim bin Musallam Al BusaidiChairman

3- Loan Repayment Performance

Loan repayment indicators showed that the collection rate reached 102% as RO 51 million were collected from the Bank’s loans, including working capital loans.

4- Provision

There has been a decrease in Provision during the past five years to reach RO 14 million in 2019, a decrease of RO279,000 , or a difference of -0.02% compared to 2018.

Second: The financial situation

As per the profit and loss account, the financial statements for the year ended December 31, 2019 showed a net profit of RO 2,359,350, compared to RO 2,457,182 in 2018.

Third: Business Continuity Plan

In order to ensure that the bank is ready for any obstacles that may prevent the continuation of the work properly, in the year 2019 through a specialized consultant in this field ODB had updated its Business Continuity Plan, the same was approved by the Board of the Directors.

Also, and for several times, necessary tests were taken regarding the effectiveness of the Evacuation Plans, readiness, and preparedness of the alternative site to accommodate work in the event of disasters.

Fourth: strategy and development programs

The Bank is moving forward with the implementation of the five-year institutional strategy. 2019 was the first year of implementing the development initiatives package included in the strategy. The strategy focused on increasing lending activity and directing it towards promising development sectors such as fisheries, tourism, mining and manufacturing industries.

Within the framework of its institutional strategy, ODB seeks to finance large loans and infrastructure loans. This goal is in line with the Royal Decree expected to be issued in 2020, which will increase to increase the lending ceiling and add new development activities.

It should be noted that many planned strategic projects have been implemented, the most prominent of which are: developing a number of new products that target the micro-enterprise segment based on self-employment. OBD has obtained the necessary approvals to introduce current and savings accounts. This move will allow ODB to provide additional facilities that serve projects in all its sectors.

On the other hand, according to the directions of the strategy by adopting the best practices in risk management, the Bank has implemented the International Financial Reporting Standard IFRS9 in addition to a number of development projects such as the completion of updating the procedures manual, a project to assess the performance of the business continuity plan and a project to streamline the work processes.

Fifth: Information Technology

It is true that information technology plays a key and pivotal role in developing the services provided by the Bank. The Bank continued its efforts during 2019 to implement database projects, information management systems, the smart management reports, an electronic performance monitoring platform for the various key performance indicators in the Bank and the expansion of the automation system. The projects also include expanding the linking with the Central Bank of Oman systems to implement the scanner system, cheque automation associated with facilitating the payment of post-dated cheque and improving Banking services at the branches.

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Sixth: Human Resources

The Bank pays great attention to the development and modernization of its human resources management system. The Bank has introduced the new technical system for human resources that is compatible with the modern requirements for managing the Bank’s human resources.

Seventh: The role of marketing

In its strategic plans and programs, the Bank has also attached great importance to the marketing activities. Emphasis was also placed on participating in many seminars, workshops, specialized exhibitions and economic conferences in industrial areas and Oman Chamber Of Commerce and Industry branches throughout the Sultanate. The participation aims at spreading awareness of the facilities and services that the bank provides for medium and small projects. The Bank participated in the programs and workshops held by the Public Establishment for Industrial Estates and the Chambers of Commerce and Industry in various regions of the Sultanate.

In conclusion, I would like to express my highest gratitude and appreciation to His Majesty the Sultan and to the esteemed Omani government for the great support and care extended to the Bank. I also thank the Central Bank of Oman for its continuous cooperation with ODB.

I would like also to thank the executive management for its efforts to translate the Board of Directors policies and program into action and wish them all the best in their endeavors to achieve further growth and development for our Bank.

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ECONOMY OF OMAN

Entrance of the gate door of the town of Nizwa in Oman10

Oman | Credit Rating

The credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Oman therefore having a big impact on the country’s borrowing costs. The government debt credit rating for Oman has been reported by major credit rating agencies. Standard & Poor’s credit rating for Oman stands at BB with negative outlook. Moody’s credit rating for Oman was last set at Ba1 with negative outlook. Fitch’s credit rating for Oman was last reported at BB+ with stable outlook.

Oman Credit Rating ( S&P, Moody’s, Fitch)

Agency Rating Outlook Date

S&P BB Negative Apr 19 2019

Moody’s Ba1 Negative Mar 05 2019

Fitch BB+ Stable Dec 18 2018

Moody’s Baa3 Negative Mar 16 2018

Fitch BBB- Negative Dec 11 2017

S&P BB Stable Nov 10 2017

Moody’s Baa2 Negative Jul 28 2017

Fitch BBB Negative Jun 19 2017

S&P BB+ Negative May 12 2017

https://tradingeconomics.com/oman/rating

Ninth Five Year Plan (2016- 2020)

Early in the year 2016, His Majesty Sultan Qaboos bin Said issued a Royal Decree No. 1/ 2016 approving the Ninth Five-Year Plan (2016 to 2020) with a focus on diversifying the economy of Oman and partnering with the private sector in the development process. The Ninth Five-Year Plan was prepared due to a number of challenges, most notable of which are the fluctuating global oil prices, the geopolitical situation in the region and the young population structure that will pressurize the employment market in the coming years. Tanfeedh Plan is adopting to implement the Ninth Five Year Plan.

‘Tanfeedh’ Plan which is an initiative that will play an essential role in linking the different strategies of the targeted five sectors of Manufacturing, Transportation and Logistics, Tourism, Fisheries and Mining, and in providing a platform for an active participation and sustainable partnership between the stakeholders of the public and private sectors. The private sector will now get a chance to invest, either independently or in partnership with the government, in mega projects that the government earlier has planned to manage alone. The focus is therefore on achieving real Gross Domestic Product (GDP) growth to maintain a good standard of living for the people, offer increased opportunities in training and employment, increase production efficiency and stimulate scientific and cultural innovation.

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Oman | GDP

RO 10.7 billionTotal projected revenuein 2020

The International Monetary Fund expects Oman to become the fastest growing economy in the GCC region in year 2020. The IMF revised up its Oman GDP growth forecast to 3.7 per cent for 2020 from its previous estimate per according to the fund’s official website. However, the IMF sharply lowered its growth forecast for 2019, expecting Oman’s economy to grow by just 1.1 per cent this year, against its earlier forecast of 5 per cent growth. The Fund slashed its 2019 growth forecasts across the board for all GCC countries. With an estimated growth rate of 2.0 per cent this year, the Qatar and Bahrain will be the fastest growing economy in the GCC in 2019, according to the IMF as following:

GCC - Real GDP Growth Forecast (%)

2019 2020

Oman 1.1% 3.7%

Kuwait 0.6% 3.1%

UAE 1.6% 2.5%

Qatar 2.0% 2.8%

Bahrain 2.0% 2.1%

Saudi Arabia 0.2% 1.9%

According to reports from World Bank report from October 2019, following a recovery of 2.2% in 2018, Oman’s real GDP growth is estimated to decelerate to 0.3% in 2019 as oil production remains capped by the OPEC+ production cut agreement. Growth is expected to increase over 2020-21, driven in part by a large increase in gas production from new Khazzan gas project, and infrastructure spending plans in both oil and non-oil sectors. Elevated spending, however, will keep the fiscal deficit high, averaging over 8% pf GDP over the forecast period, and raise public debt to 66% of GDP. High fiscal and current account deficits and raising public debt indicate that Oman’s financing needs will be high in the coming years. Plans to boost non-oil revenues and additional financial consolidation measures are needed to reduce macroeconomic risks in the medium term. GDP growth is projected to rebound to 3.7% in year 2020 driven largely by the rise in natural gas output as production from new fields comes on stream. The potential boost of the government’s diversification efforts would continue to facilitate an increase in non-hydrocarbon growth to about 4 percent annually in the medium term. Inflation is expected to increase to almost 2% in 2020, and further accelerate to nearly 4 percent in 2021 reflecting introduction of VAT.

The current account deficit is estimated to increase to 7.7 percent of GDP in 2019 driven by the drop-in oil prices. The extensive investment program in the public and private sectors is contributing to the current account deficit. Reflecting the current account deficit, foreign reserves are estimated to drop to an estimated US$16 billion (or 5 months of imports), from US$17.4 billion in 2018 (or 5.8 months of imports), despite the recent bond issuance; the standard three-month threshold for emerging markets is some-what alleviated by liquid assets in other funds and SOEs. Persistent large fiscal and external deficits have contributed to sharply rising debt levels. Public debt-to- GDP is estimated to increase to 60 percent in 2019 from 53 percent in 2018. External debt is estimated to remain high at 106 percent of GDP in 2019, a 12.8 percent increase

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compared to 2018. These high vulnerabilities have led to a series of sovereign credit rating downgrades and an increase in funding costs.

A lack of jobs remains a key concern amongst young Omanis. Latest data from Oman’s statistical center reveals that the unemployment rate for Omani youth aged (15-24) stood at 8.5 percent as of June 2019 (versus a 2.3 percent national unemployment rate) but is more than twice higher (19 percent) among females in the same ages group. Oman has long used selective expat visa bans across various private sector industries to reduce the number of unemployed locals. The ban has been extended many times with the latest extension came into force in July 2019 to include four more professions in the private sector. According to official figures, the number of legally employed expats fell by over 5 percent between January 2018 and July 2019, and currently stands at 1.75 million, down from 1.85 million in January 2018 (100,000 expats less). The government’s long-term strategic Vision 2040 and the 2021–25 development plan, which are currently being formulated, give more prominence to spur economic diversification and job creation.

According to Oman Budget 2020, total revenue should reach 10.7 billion OMR out of which 7.7 billion OMR is coming from oil and gas source reaching 72%. The budget is running deficit 2.5 billion OMR which represents 23% of total revenue. The budget assumption is 58 USD per barrel. The 2020 budget represents the final year of the ninth five year development plan and also of Oman Vision 2020, paving the way for the tenth five year development plan and Oman Vision 2040. The 2020 budget demonstrates the government’s continued focus on controlling deficit which is expected to reduce by 11% from OMR 2.8 billion budgeted in 2019 to OMR 2.5 billion in 2020. The deficit, as a percentage of GDP, is expected to decline from 9% in 2019 to 8% in 2020. The government is seeking to achieve this in an era of declining oil revenues by enhancing revenues from gas, taxes and other non-oil revenues. Government spending aims to be kept under control with a budgeted increase of only 2% compared to the 2019 budget, which is also attributable to an increase in interest cost on borrowings.

The successful implementation of excise tax on alcohol, carbonated drinks, energy drinks, pork and pork products and tobacco and tobacco products in June 2019 is expected to continue generating revenues for the government. Similar to the United Arab Emirates (UAE) and Kingdom of Saudi Arabia (KSA), Oman is now expected to expand the scope of excise tax to sweetened drinks during 2020. The UAE and KSA introduced VAT on 1 January 2018 and Bahrain on 1 January 2019. Each of these countries have since recognized the significant contribution VAT has made to their non-oil revenues and GDP. The 2020 budget does not reflect any revenues from the introduction of VAT in Oman. The Tax Authority and the Ministry of Finance in Oman, however, remain committed to the introduction of VAT and preparations continue to get the VAT Law approved and published during 2020 with a formal announcement regarding the effective date of implementation to be made during 2020.

Banking Sector in Oman

Financial Status of Banking Sector

Outstanding credit extended by Other Depository Corporations (ODCs) increased by 4.2% to

RO 25.9 billion

Credit to private sector grew by 3.4% to

RO 22.7 billion

The banking sector continued to perform well in terms of meeting credit requirements and providing other banking services. According to Central Bank of Oman’s September monthly statistical bulletin, total outstanding credit extended by other depository corporations (ODCs), consisting of conventional banks

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and Islamic banking entities, increased year-on-year (YoY) by 4.2 percent to RO 25.9 billion at the end of September 2019. The credit to private sector grew YoY by 3.4 percent to RO 22.7 billion during this period. The sectoral composition indicates that the non-financial corporate sector received the largest share in private sector credit at 46.2 percent, followed by household sector (mainly under personal loans) with 45.2 percent, financial corporations with 5.2 percent and other sectors with 3.4 percent.

Total deposits held with ODCs increased YoY by 3.3 percent to RO 23.2 billion, with private sector deposits witnessing a growth of 6.3 percent to RO 15 billion at the end of September 2019. The households accounted for 49.5 percent of total private sector deposits, while non-financial corporations, financial corporations, and other sectors accounted for 30.3 percent, 17.9 percent and 2.3 percent, respectively.

Outstanding credit extended by conventional banks increased by

2.7%The outstanding credit extended by conventional banks increased YoY by 2.7 percent as of end September 2019, with credit to the private sector growing by 1.3 percent to RO 19 billion. Conventional banks’ total investments in securities increased YoY considerably by 11.3 percent to RO 3.6 billion at the end of September 2019 – out of which, the investment in Government Treasury Bills stood at RO 293.2 million. Aggregate deposits of conventional banks increased by 2.1 percent to RO 19.7 billion at the end of September 2019 from RO 19.3 billion a year ago. Private sector deposits increased YoY by 3.4 percent to RO 12.8 billion and constituted 65.1 percent of total deposits with conventional banks. The core capital and reserves of conventional banks stood at RO 4.9 billion as of end-September 2019.

The financing by Islamic banking entities continued to expand and stood at RO 3.9 billion at the end of September 2019, higher than RO 3.5 billion a year ago. Total deposits held with Islamic banks and windows also increased to RO 3.5 billion from RO 3.1 billion a year ago. The total assets of Islamic banks and Windows combined amounted to RO 4.8 billion, constituting 13.8 percent of the banking system assets at the end of September 2019.

With regard to monetary aggregates, the narrow money (M1) decreased YoY marginally by 0.8 to RO 5 billion at the end of September 2019, while quasi-money (Rial Omani saving and time deposits, certificates of deposit issued by banks, margin deposits and foreign currency denominated deposits) increased YoY by 7.9 percent to RO 12.4 billion during this period. Broad money supply M2 (M1 plus quasi-money) grew YoY by 5.2 percent to RO 17.4 billion during the period under review over the level a year ago.

Weighted averageinterest rate increased to

1.987%The domestic interest rates continued to follow the trends in USA reflecting the currency peg arrangement and open capital account. Nevertheless, the Central Bank of Oman ensured appropriate liquidity in the banking system to support economic activities in the Sultanate. The weighted average interest rate on RO deposits increased to 1.987 percent in September 2019 from 1.786 percent a year ago, while the weighted average RO lending rate increased to 5.463 percent from 5.294 percent during the same period. The overnight Rial Omani domestic interbank lending rate also hardened to 2.675 percent in September 2019

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as compared to 2.230 percent a year ago. The average Repo rate for liquidity injection by the CBO stood at 2.554 percent per annum during the month of September 2019. Since the Federal Reserve started cutting interest rates since the end of July 2019, the upward pressure on interest rates in Oman also eased.

There are 17 licensed foreign and local commercial banks and two specialized banks in Oman. The Central Bank of Oman licenses and regulates the local banking sector, monitors interest rates, and issues development bonds and notes.

Oman’s banking system is stable According to Moody’s

According to Moody’s, the outlook for Oman’s banking system is stable, as government borrowing, along with higher hydrocarbon output, are expected to support a healthy level of public spending and help stabilize the domestic economy.

https://corporatefinanceinstitute.com/resources/careers/companies/top-banks-in-oman/

Foreign Banks Local Banks Specialiazed banks

Commercial Banks (Conventional)

Commercial Banks(Islamic)

Standard Chartered Bank HSBC Oman Al Izz Bank Oman Housing Bank

Habib Bank Sohar International Sohar Islamic Oman Development Bank

Bank Melli Iran AL Ahli Bank AlHilal Islamic Bank

National Bank of Abu Dhabi Oman Arab Bank Al Yusr Islamic

Bank Saderat Iran Bank Muscat Bank Muscat Meethaq

Bank of Baroda National Bank of Oman Muzn Islamic Banking

State Bank of India Bank Dhofar Maisarah Islamic Banking

Bank of Beirut Bank Nizwa

Qatar National Bank

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TECHNICAL REPORT ON THE BANK’S PERFORMANCE

Abandon village on the Jebel Akhdar.16

Approvals Governorate wise

AL WUSTA GOVERNORATE

AD DAKHLIYYAHGOVERNORATE

ADH DHAHIRAHGOVERNORATE

MUSCATGOVERNORATE

AL BURAYMIGOVERNORATE

1,76116 million

9217 million

55912 million

1,94015 million

1962 million

2563 million

2022 million

2342 million

3982 million

DHOFAR GOVERNORATE

Loan Amount Number of Loans

AL BATIN

AH

NO

RTH

GO

VERNO

RATE

AL BATINAH SOUTHGOVERNORATE

ASH SHARQIYYAH SOUTHGOVERNORATE

ASH SHARQIYYAH NORTH GOVERNORATE

MUSANDAMGOVERNORATE

Madha(Sultanate of Oman)

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Industry 2702 loans worthof RO 25.4 million

Fisheries 1738 loans worth of RO10.8 million

ApprovalsSector wise

Tourism Services172 loans worthof RO 6.8 million

Health Services41 loans worth of

RO 3 million

Professional and GeneralServices 745 loans worth

of RO 6.5 million

Education Services196 loans worth of

RO 2.5 million

Mining 2 loansworth of

RO 0.5 million

Agriculture and AnimalsProducts 871 loans worth

of RO 5.5 million

19 loans RO10 million



5,483 loansRO 22 million

Micro Loans36%*

ApprovalsProduct

Wise

Working Capitaland SeasonalLoans 25%*

CorporateLoans16%*

SME Loans23%*

*Based on total approval amount.

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Collection

RO 51 millionRO 60 millionRO 61 million

DisbursementApprovals

Working Capitaland Seasonal 5%

SME30%

Corporate32%

Micro33%

Outstanding: 53.17 mPast Due: 7%

Outstanding: 49.80 mPast Due: 7% Outstanding: 56.33 m

Past Due: 5%

Outstanding: 8.06 mPast Due: 18%

The total outstanding at the end of 2019 is RO 167.36 million and the Past Dues percentage 6.79%.

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STRATEGY AND DEVELOPMENT PROGRAMS

View to Ash Sharqiyah, Jebel Akhdar, part of the Al Hajar Mountains range in Oman.20

Oman Development Bank is moving ahead with the implementation of the five-year corporate strategy. Year 2019 has been the first year of implementing the development initiatives package included in the strategy.

The bank’s strategic plan aims to make a radical change in ODB’s business model. The strategic plan seeks to enhance ODB’s ability to reach its goal related to adopting a business models consistent with those adopted by international development institutions while maintaining ODB’s sustainability. The main general objectives of the strategy are summarized as follows: -

1) To support the growth of small and medium-sized enterprises (SMEs) in various stages by offering a wide range of services and products.

2) Enhancing and promoting partnership with ODB’s clients by increasing support for large projects and end-to-end project lifecycle partnership.

3) Achieving double-digit growth in the lending portfolio while increasing the financially independence through the diversification of financing and income sources.

4) Ensuring financial sustainability and reducing dependence on government subsidy.

5) Providing technical and knowledge support to the beneficiaries of the bank by “establishing the data bank”

ODB’s strategic goals are focused on increasing lending activity and directing it towards promising development sectors such as fisheries, tourism, mining, manufacturing and logistics the prioritized sectors in the ninth five-year plan.

Within the framework of the corporate strategy, ODB aspires to enhance the growth of the economic sectors by financing large institutions and infrastructure projects. This goal is in line with awaited issuance of ODB Royal Decree, which will increase the ceiling of lending and add new development activities

It should be noted that ODB has implemented several strategic projects, the most notable of which are developing several new products to regulate the lending activity of the micro-segment loans and SME enterprises. ODB has also obtained the necessary approvals to provide current and savings accounts, a move that will allow ODB to provide additional facilities that serve projects in all its sectors.

On the other hand, and according to the directions of the strategy which encourages adopting the best practices in risk management, ODB has applied IFRS9 and implemented several development projects such as completing the updating of its procedures manual. ODB has also implemented a project to evaluate the performance of the business continuity plan (BCP) and the workflow-structuring project.

ODB realizes the importance of information technology in the development of the services offered by it, therefore during 2019 ODB has continued the implementation of data base upgrading and Management Information Systems (MIS) and the smart e-platform for monitoring the key performance indicators. It also expanded the system for automating the conduct of banking business. ODB has also expanded the project to link with the systems of the Central Bank of Oman to implement the scanner system and Electronic Cheque Clearing (ECC) to facilitate the settlement of the post-dated checks and improve the banking services in branches.

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EVENTS

22

24

Annual symposium of the Association of Development Finance

Institutions in Asia and the Pacific (ADFIAP)

The Third Global Entrepreneur Forum

Membership Agreement with the Oman Center for Credit and Financial

Information (Mala’a)

ODB Staff Open day

The Annual Excellence Competition Ceremony for

Branches 2018 - Fifth Edition

March 2019

November 2019

November 2019

February 2019

October 2019

November 2019

Events

Marking the Omani Women Day

in Rustaq

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Panel Discussion on means of attracting investment

and financing

Entrepreneurship Award

The “Start Your Business” Forum

October 2019

November 2019

December 2019

June 2019

November 2019

Events

Exhibition “Omani Creations”, the seventh edition

Riyada Talk

Seminar on agricultural insurance, livestock and fisheries

December 2019

26

Hosting and organizing the annual seminar for Association of Development Financing Institutions in Asia and the Pacific (ADFIAB) (February 2019)

The Symposium reviewed the role of development financial institutions in

developing the national economy and supporting entrepreneurship.

Membership agreement with Oman Center for Credit and Financial Information (November 2019)

Oman Development Bank signed a membership agreement with the Oman Center for Credit and Financial Information

(Mala’a) in November, with the aim of providing ODB with credit statements and exchanging financial information to

help make credit decisions.

2019 EVENTFUL YEAR2019 EVENTFUL YEAR

27

1st version of “ Start Your Business Forum’ October 2019.

Oman Development Bank sponsored the first edition of the “Start your Business” Forum organized by the Public Authority for Small and Medium Enterprises Development (Riyada) in October 2019.

“Omani Creations’ Expo, 7th edition (November 2019)

ODB has sponsored “Omani Creations” exhibition and “Riyada Hadith’ program to market and promote financed projects in November 2019.

Taking part at the 4th Entrepreneurship Award for the best financing agency award promoted by the Public Authority for SMEs Development, Riyada, December 2019

ODB has been shortlisted alongside with to other organizations to the final stage of the fourth edition of the Entrepreneurial Award t, which is given to the best finance institution (December 2019).


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Taking part at the ‘Agriculture, animal and fish insurance ‘seminar organized by OCCI in cooperation with the Ministry of Agriculture and Fisheries (December 2019).

ODB participated in the “Symposium on Agricultural Insurance, Livestock and Fisheries” organized by Oman

Chamber of Commerce and Industry (OCCI) in cooperation with the Ministry of Agriculture and Fisheries in

December 2019.


Employee Open Day, November 2019

ODB has organized ODB Staff Open day under the title “A Good Gathering” in November 2011. The event program included a number of activities and programs to meet the taste of different ages and groups.

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Branch Excellence Award for 2018 ( March 2019)

ODB honored the winning branches and recognized employees in various professional fields in the fifth edition of the competition in March 2019.

Sponsoring the Ministry of Social Development celebration of the Omani Woman’s Day in Rustaq (October 2017)

ODB has sponsored the event organized to mark the Omani Women’s Day on October 17. The event was held this year in the Al Batinah South Governorate under the patronage of HH Hajija Bint Jaffer Al Saeed.


2nd ‘ Riyada’ event, November 2019

ODB has sponsored a Riyada Talk program to support and enhance the participating projects. (November 2019)

EMPOWERMENT AND DEVELOPMENT

Beautiful dome of Mutrah Souq.30

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31

Within the efforts made to develop and empower national capabilities and competencies and in line with the Oman Vision 2040, Oman Development Bank (ODB) has provided more than 148 training programs and courses. The growth rate of the number of training programs stood at 147% in 2019.

Annual Excellence Competition among departments at ODB’s headquarters

Competition goals:

• Integrating the culture of excellence and quality at work

• Achieving quality and perfection in performance, practice and implementation.

• Improving the performance of ODB employees

• Creating a business-friendly environment to achieve ODB’s strategic goals

The total number of employees

257

The total number of training courses

148The number of training courses in the Sultanate

130The number of training courses outside the Sultanate

18The total number of trainees

659Growth rate in the number of training programs

147%

The employees appointed

24

The targeted departments and units

14

The competition targeted

131

ODBCorporate Governance ReportFor the Financial Year Ended on 31/12/2019

Lighthouse and traditional boat in the bay of Sur.32

Introduction:

7Board meetingsin 2019Oman Development Bank was established as a public joint stock company (SAOC) under the Royal Decree No. (18/97) and the attached annex thereto. The Government owns its total capital in the bank. On 11/3/2006, the Royal Decree No. 18/2006 was issued, which has stated the amendments of some of the provisions of the Royal Decree referred to above, whereby the Bank was transferred from a public shareholding company to a closed shareholding company (SAOC). The amendments resulted in accepting the Bank from being subject to CMA’s Circular No. (16/2003) issued on 30/7/2003, and the guiding statute of public shareholding companies. However, the provisions of the Bank’s Articles of Association are matching with the provisions of the guiding statue referred to above.

The Bank is also subject to the Commercial Companies’ Law No. 4/74 and its amendments, which gave the Ministry of Commerce and Industry the control and supervision of organizing the work of closed joint stock companies, accept some provisions governing the activities of those companies.

All procedures related to the application of the principles of corporate governance were also taken into consideration in the preparation of this report, along with its consistency with the Corporate Governance Charter of the Public Shareholding Companies, issued in July 2015.

The Bank’s organization and management report reflects the Bank’s implementation of the provisions of the above-mentioned Charter, and the procedures described in the report are not considered as an audit or review in accordance with international auditing standards.

This report has been prepared pursuant to Articles 27 & 26 of the above-mentioned Charter, which requires that the Board of Directors shall add a separate chapter in its annual report of organizing and managing the joint stock company.

In light of the above- mentioned, the report of organizing and managing Oman Development Bank (SAOC) for the fiscal year ended on 31/12/2019 has been prepared.

First: The foundations and rules of the organization and management in the bank:

The Bank is committed to implement the rules and regulations of organizing and managing the companies (corporate governance), issued by the Central Bank of Oman under Circular No. 932, on February 4, 2002, concerning the governance of banking and financial institutions and the circular issued by the Capital Market Authority No. (7 / 2015) in this regard, in a manner consistent with the Royal Decree No. (18/97) concerning the establishment of the bank and amended by the Royal Decree No. (18/2006) and the accompanying annex thereto.

The Bank is adopting good practices in organization and management, and it is working on preparing and developing the regulations for the next phase. The following are the outstanding features of the Bank’s governance and management rules:

1. The role and responsibilities of the Board of Directors:

Setting the rules and regulations governing the work of the bank, directing, and accounting the management on the bank’s performance, the role of the Board in details is as follows:

• Adopting the financial and banking policies.

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33

• Adopting the estimated budget of the Bank.

• Supervising the Bank’s main activities.

• Monitoring the performance of the executive management, to ensure that the bank’s work is functioning properly, in order to achieve the objectives of the bank.

• Adopting the principles of the charter of Good Professional behavior at the Bank.

• Adopting and implementing the disclosure policy and monitoring its compliance with the regulatory requirements.

• Reviewing the significant transactions with the related parties, that are not normal transactions.

• Nominate the members of the subsidiary board committees and define their roles, responsibilities and powers.

• Appointing the Chief Executive / General Manager and the senior executive and technical officers, and defining their roles, responsibilities, competencies and rewards.

• Evaluate the functions and responsibilities of the subcommittees, the CEO and the senior officers in the Bank.

• Approving of annual and interim financial statements.

• Informing the Government of the Bank’s status through the annual report and providing advice on any matter that might raise the level of the bank’s work.

• Approving internal regulations and systems that are governing the bank’s activities and the affairs of its employees.

2. The role and responsibilities of the executive management of the Bank:

• Managing the Bank’s affairs according to the policies and strategy approved by the Board of Directors.

• Assisting the Board in designing and formulating the policies.

• Applying the laws, regulations and circulars that govern the Bank’s work.

• Applying the policies and regulations approved by the Board of Directors.

• Preparing detailed and procedural programs to implement the approved policies.

• Preparing the contracts of the projects according to the work’s requirements.

• Preparing of the draft balance sheet.

• Preparing a report on the Bank’s activity during the previous financial year.

• Complying with the principles of the charter and the system of the professional behavior.

• Responsible for reporting full and true data on the Bank’s activities to the Board of Directors.

3. Procedures and systems of internal control:

The Board of Directors formed an Audit Committee consisting of three members of the Board of Directors. This committee oversees the functions of the Internal Audit Department and verifies the compatibility of these functions with the rules and regulations of the regulatory bodies such as the Financial and Administrative Control Authority of the State, the Central Bank of Oman and the Capital Market Authority, as well as being compatible with internationally approved auditing systems, policies and standards.

The Bank follows the utmost diligence and applies the principle of security in its financial transactions where no transaction of the bank transactions is signed by one person alone but must be signed by at least two persons. Moreover, there are safe procedures acceptable to the computer’s operations and programs. In general, the administrative controls in the bank are good and practical.

• The compliance officer regulation has been approved and it is currently in force.

34

Second: The Board of Directors

The Bank is managed by a Board of Directors consisting of a Chairman and four members representing the Ministry of Finance, the Ministry of Commerce and Industry, the Ministry Agriculture and Fisheries, as well as two independent members of the competent and experienced candidates, nominated by the General Assembly of the Bank, in accordance with the provisions of the Royal Decree No. (18/97) of establishing Oman Development Bank, and its amendments.

Third: The Audit Committee

• The committee includes three members of the Board of Directors

• The Charter of the Committee was adopted by the Board of Directors on 16/6/2003 under the Board of Directors Resolution No. (17/2003) which has been amended by the Board of Directors Resolution No. (22/2010), issued on 10/1/2010.

The main objective of the Audit Committee is to assist the Bank’s Board of Directors in the performance of its supervisory duties and to discharge its responsibilities according to the following:

1. Ensuring the Bank’s commitment to the applicable laws and regulations and that it is applying the principles of professional ethics, set by the Bank.

2. The role of the Audit Committee is a regulatory and supervisory role. The Committee is responsible for maintaining an effective professional relationship between the Board of Directors, the Executive Management, internal and external auditors.

3. Enhancing the communication with the external auditors by working effectively with them and ensuring that they carry out their duties professionally and independently without any influences from any entity in the bank.

Details of the Audit Committee’s members’ attendance in the meetings during 2019:

Meeting No. Date Mr. Abdul Al Salam bin Nassir Al Kharousi

Eng. Nahla bint Abdul Al Wahab Al Hamdiya

Mr. Ali bin Mohammed bin Jumaa‘ Al Lawati

First 24/1/2019 Attended Attended Attended

Second 19/3/2019 Attended Did not attend Attended

Third 19/3/2019 Attended Attended Didn’t attend

Fourth 7/5/2019 Attended Attended Attended

Fifth 22/7/2019 Attended Attended Attended

Sixth 23/10/2019 Attended Attended Attended

Seventh 25/12/2019 Attended Attended Attended

Fourth: Risks Committee:

The main objective of the Risk Committee is to implement the circulars and guidelines of the Central Bank of Oman, which requires the appointment an authority derived from the board of directors, to ensure that all internal regulations, adopted by the Board of Directors, are applied, in terms of identifying, measuring and monitoring the various types of risks, that may have an impact on the Bank.

Annual Report 2019

35

The main tasks and responsibilities assigned to this Committee are as follows:

• Understanding the extent and magnitude of the risks facing the Bank and ensure that it is properly managed.

• Developing risk management policies, in the light of the Bank’s ability to withstand these risks.

• Reviewing the types of potential risks, in the light of the evolution of the banking system and identifying the risks and reviewing the policies and the procedures’ feasibility, to protect the interests of the bank.

• Ensuring that risk management policies include all quantitative elements in the Bank’s various operations, and in accordance with the relevant laws and regulations.

• Studying and evaluating the market changes that may have an impact on the Bank’s position.

• Monitoring the adherence to the risk measures across the bank’s operations.

• Assigning the executive management in the bank to follow the risks that fall within the scope of its responsibilities and providing studies and proposals on this.

• Overseeing the implementation of the policies and the Central Bank of Oman’s recommendations, within the same framework.

• Adopting the loans’ allocations raised from the risk management.

• Supervising the bank’s compliance function.

• Supervising of loan review function (LRM)

• Overseeing the Bank’s full implementation of the anti-money laundering and anti-terrorism related issues.

The committee includes three members of the board of directors.

Details of the attendance of the members of the Risk Committee for the Meetings during 2019:

Meeting No.

Date Mr. Ali bin Mohammed bin

Jumaa‘ Al Lawati

Mr. Saleh bin Mohammed bin

Saleh Al Abri

Miss. Zayana bint Mohammed bin

Khamis Al Rashdi

First 19/3/2019 Attended Attended Attended

Second 13/5/2019 Attended Attended Attended

Third 22/7/2019 Attended Attended Attended

Fourth 23/10/2019 Attended Attended Attended

Fifth 25/12/2019 Attended Attended Attended

Fifth: The restructuring committee:

A committee derived from the Board of Directors has been formed by virtue of Resolution No. (A: 65/2018) entitled “Restructuring Committee”, which includes four members of the Board of Directors.

The Committee shall undertake the following tasks:

1. Supervising the completion of the housing process.

2. Studying the necessary budget to complete the housing process according to the current grades and seminars and submit the recommending to the Board of Directors for approval.

36

3. Studying the new grade scale and submitting the recommending to the Board of Directors, with a statement of the total financial impact on the financial position of the Bank when settling the new scale.

4. Approving the review of the final draft of the new Human Resources Regulations and submitting the recommendations, thereon, to the Board of Directors as a final draft for approval.

5. Supervising the selection of qualified persons applying for leadership positions that have not yet taken place in the organizational structure and selecting the competencies both inside and outside the bank.

6. Considering the employees’ grievances resulting from the structuring process.

7. Any other subjects assigned by the Board.

Details of the attendance of the members of the Re-structuring Committee for the Meetings during 2019:

Meeting No. Date Eng. Nahla bint Abdul

Al Wahab Al Hamdiya

Eng. Hilal bin Hamad Al

Busaidi

Mr. Ali bin Mohammed

bin Jumaa’ Al Lawati

Eng. Saleh bin

Mohammed Al Abri

First 13/1/2019 Attended Didn’t attend Attended Attended

Sixth: Financial allocations:

The following amounts were disbursed during the year 2019 to the members of the Board of Directors:

1- Remuneration paid to BoD members for attending the meeting

Meeting Amount paid

BoD meeting RO21,900

Audit committee RO4750

Risk committee meeting RO3750

Restructuring committee RO750

Total amount RO31,150

2- The allowances and bonuses paid and proposed to the Board of Directors within the limits of the Commercial Companies Law No. (4/74) and its amendments, specifically the amendments issued by the Royal Decree No. (99/2005) dated 28/11/2005.

3- The total salaries, allowances and remunerations paid for the top five senior employees of the Bank during the year 2019 amounted to RO487434.000

Seventh: The Board of Directors:

The Board of Directors consists of a Chairman and four members representing the governmental entities, as defined by the Royal Decree, establishing the Bank. Those members shall have two independent members with expertise (all members of the Board are highly qualified and experienced).

Annual Report 2019

37

This is a list of the boards’ members is as follows:

Independent members Members representing the governmental entities

Sayyid Salem bin Musalam Al BusaidiChairman

Eng. Hilal bin Hamad bin Saif Al BusaidiBoard Member

Mr. Ali bin Mohammed bin Jumaa’ Al LawatiBoard Member

Mr. Abdul Al Salam bin Nassir bin Abdullah Al KharousiDeputy Chairman of the BoardRepresentative of the Ministry of Finance

Eng. Nahla bint Abdul Al Wahab bin Ahmed Al HamdiBoard MemberRepresentative of the Ministry of Commerce and Industry

Eng. Saleh bin Mohammed bin Saleh Al AbriBoard MemberRepresentative of the Ministry of Agriculture and Fisheries

Mrs. Zayana bint Mohammed Al RashdiBoard MemberRepresentative of the Ministry of Finance

Sayyid Salem bin Musalam Al Busaidi has been appointed as Chairman of the board of directors as per the Council of Ministers’ decision No Finance/T/99030/MSB/5/61/2019/2433 dated 25/3/2019.

Details for BoD meetings attendance during 2019

Meeting

No. and

Date

Sayyid

Salem bin

Musalam

Al Busaidi

Mr. Abdul

Al Salam

bin Nassir

Al Kharousi

Eng. Nahla

bint Abdul

Al Wahab

bin Ahmed

Al Hamdi

Eng.

Saleh bin

Mohammed

bin Saleh

Al Abri

Mrs.

Zayana bint

Mohammed

Al Rashdi

Mr. Hilal

bin Hamad

bin Saif Al

Busaidi

Mr. Ali bin

Mohammed

bin Jumaa’

Al Lawati

1st

13/9/2019

Did not

attend

Attended Attended Attended Attended Attended Did not

attend

2nd

24/2/2019

Did not

attend

Attended Did not

attend

Attended Attended Attended Attended

3rd

25/3/2019

Did not

attend

Attended Attended Attended Attended Attended Attended

4th

19/5/2019

Attended Attended Attended Attended Attended Attended Attended

5th

5/8/2019

Attended Attended Attended Attended Attended Did not

attend

Did not

attend

6th

28/10/2019

Attended Attended Attended Attended Attended Attended Did not

attend

7th

29/12/2019

Attended Did not

attend

Attended Attended Attended Attended Attended

38

Eighth: Regulations and sanctions imposed:

During the past year (2019), the Bank has complied with all organizational and regulatory requirements (the State Financial and Administrative Control Agency, the Central Bank of Oman and the Capital Market Authority). The Board of Directors is keen to direct the Bank’s board, to address the comments received from the aforementioned regulatory authorities continuously. These directives are continuously updated by the Board of Directors and the Internal Audit and Risk Committees through regular follow-up reports prepared for this purpose. The Board is kept informed of the steps taken to ensure that the observations and irregularities reported in these reports are solved.

Ninth: Means of communication with shareholders (government) and other concerned authorities:

The Bank maintains direct communication and the results and financial statements of the Bank are also published in two main newspapers in Arabic and English. Moreover, Periodic results are also sent via electronic means to the Capital Market Authority.

Tenth: The bank’s auditors during the year 2019:

About Deloitte:

The name “Deloitte” is used to denote one or more companies licensed by Deloitte Touche Tohmatsu Limited, a global group of licensed member companies and associated entities, the latter and each of the licensed companies having their own independent legal personality.

Deloitte is a global leader in auditing, reviewing, management and financial consulting, risks consulting, taxations and related services. It provides services to four out of five companies on Fortune global magazine of top-500 companies, thanks to an interconnected global network from the authorized member companies from more than 150 countries.

About Deloitte & Touche (Middle East):

Deloitte & Touche (Middle East) is a member company licensed by Deloitte Touche Tohmatsu Ltd., one of the leading professional consultancy services provider that has been established in the Middle East and has been active in the region since 1926. The presence of Deloitte & Touche (Middle East) in the Middle East is established through companies licensed by it to provide services, in accordance with the laws and decrees of the country of which it has an independent legal personality. Companies and entities licensed by Deloitte cannot oblige each other and / or oblige Deloitte & Touche (Middle East). When providing services, each licensed company or entity licensed by Deloitte & Touche (the Middle East) contracts independently with its own customers (without reference to Deloitte & Touche (Middle East) and these companies and entities are solely responsible for their actions or shortcomings.

Prepared by

The Legal Advisor to the Board of Directors

Annual Report 2019

39

OMAN DEVELOPMENT BANK SAOCReport and financial statements

for the year ended 31 December 2019

Nakhal Fort 40

Statement of financial positionat 31 December 2019

2019 2018

Note RO RO

Assets

Cash and balances with Central Bank of Oman 889,170 1,912,730

Balances with banks 5 28,211,920 42,794,113

Loans and advances to customers - net 6 150,683,345 139,147,811

Investments 7 19,472,846 16,572,480

Staff housing loans 8 1,158,667 1,309,691

Receivable from Government 9 6,161,671 3,811,347

Property and equipment 10 963,714 1,122,776

Prepayments and other receivables 11 1,730,368 1,803,036

Total assets 209,271,701 208,473,984

Liabilities and shareholders’ equity

Liabilities

Customer deposits (Izdihar) 12 435,106 500,993

Payable to Government 13 254,101 182,278

Payables and accruals 14 6,047,154 7,542,843

Borrowings 15 38,693,990 38,654,216

Total liabilities 45,430,351 46,880,330

Shareholders’ equity

Share capital 17 100,000,000 100,000,000

Legal reserve 18 7,471,080 7,235,145

Investment revaluation reserve 560,879 672,533

Special reserve 19 5,541,048 5,541,048

Impairment reserve 20 776,057 776,057

Retained earnings 49,492,286 47,368,871

Total shareholders’ equity 163,841,350 161,593,654

Total liabilities and shareholders’ equity 209,271,701 208,473,984

Net assets value per share 29 1.638 1.616

Commitments and contingencies 28 19,529,932 22,408,914

H.E. Sayyid Salim bin Musallam Al BusaidiChairman

Dr. Abdulaziz Bin Mohammed Al Hinai Chief Executive Officer

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

Annual Report 2019

43

Statement of profit or loss and other comprehensive incomefor the year ended 31 December 2019

2019 2018

Note RO RO

Interest income 21 11,042,262 9,904,764

Interest expense (827,876) (455,253)

Net interest income 10,214,386 9,449,511

Fees, commission and other income 22 3,514,796 2,812,024

Net operating income 13,729,182 12,261,535

General and administrative expenses 23 (8,818,439) (8,585,269)

Operating profit before loan impairment charges and allowance for customer relationship account 4,910,743 3,676,266

Investments loss – net 25 (95,313) (349,997)

Impairment for credit losses 6 (2,323,965) (828,583)

Impairment charge for customer relationship accounts 11 (132,115) (40,504)

Profit for the year 2,359,350 2,457,182

Other comprehensive income

Items that may not be reclassified subsequently to profit or loss:

Change in fair value of investments at fair value through other comprehensive income 7 (111,654) (282,069)

Total comprehensive income for the year 2,247,696 2,175,113

Basic and diluted earnings per share 32 0.024 0.025


44

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tate

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Annual Report 2019

45

Statement of cash flowsfor the year ended 31 December 2019

2019 2018RO RO

Operating activitiesProfit for the year 2,359,350 2,457,182Adjustments:Depreciation of property and equipment 322,648 379,339Exchange loss - 149,000Interest expense 827,876 455,253Employees terminal benefits 108,750 19,266Impairment for credit losses 2,323,965 828,583 Direct write-off of loans and advances 8,159 486,673Gain on disposal of property and equipment - (17,630)Realised investment income - net (450,396) (729,855)Premium amortised - Bonds & Sukuk 106,359 114,435Impairment provision for bonds and fixed deposits 13,397 42,920Change in fair value of investments at fair value through profit or loss 439,350 965,417Net movement in allowance for customer relationship accounts 132,115 40,504Operating profit before changes in operating assets and liabilities 6,191,573 5,191,087Changes in operating assets and liabilities:Loans and advances to customers (13,867,658) (14,741,492)Staff housing loans 151,024 (15,576)Prepayments and other receivables (59,448) (214,955)Customer deposit (Izdihar) (65,887) (38,199)Receivable from Government - net (2,278,501) (1,847,358)Payables and accruals (1,604,438) 1,651,795Net cash used in operating activities (11,533,335) (10,014,698)Investing activitiesPurchase of property and equipment (163,586) (307,902)Proceeds from disposal of property and equipment - 19,300Placement of deposits - net 12,000,000 (13,000,000)Realised investments income – net 450,396 729,855Net disposals / (purchases) of investments at fair value through profit or loss 584,687 (353,885)Bonds matured 5,000,000 2,000,000Bonds and Sukuk purchased (9,151,000) (500,000)Net cash generated from / (used in) investing activities 8,720,497 (11,412,632)Financing activitiesBorrowings - 19,101,000 Interest paid (788,102) (397,021)Net cash (used in) / generated from financing activities (788,102) 18,703,979Net decrease in cash and cash equivalents (3,600,940) (2,723,351)Cash and cash equivalents at the beginning of the year 9,693,843 12,417,194Cash and cash equivalents at the end of the year 6,092,903 9,693,843Cash and cash equivalents comprise:Cash and balances with Central Bank of Oman 889,170 1,912,730Capital deposit with Central Bank of Oman (50,000) (50,000)Balances with banks (note 5) 5,253,733 7,831,113Cash and cash equivalents at end of the year 6,092,903 9,693,843


46

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 operates in Oman under a banking license issued by the Central Bank of Oman (CBO). The Bank has 18 (2017 - 18) branches within the Sultanate of Oman. The registered address of the Bank is P.O. Box 3077, Ruwi, Postal Code 112, Sultanate of Oman. The Bank is 100% owned by the Government of the Sultanate of Oman.

The Bank is principally engaged in providing loans to development projects, primarily involved in 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. The Banks achieves its objective 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:

• the distribution and collection of Government soft loans;

• the disbursement of amounts from the Agriculture and Fisheries Development Fund; and

• the disbursement and collection of Al RAFAD Fund (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.

Further, 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 (IFRS)

2.1 New and revised IFRSs that are effective for the current year

The following new and revised IFRSs, which became effective for annual periods beginning on or after January 2019, have been adopted in these financial statements.

The Bank applies, for the first time, IFRS 16 Leases. The impact of the initial application of these standards is disclosed in Note 2.3 to these financial statements.

The following new and revised IFRSs, which became effective for annual periods beginning on or after 1 January 2019, have been adopted in these financial statements. The application of these revised IFRSs has not had any material impact on the disclosures or on the amounts reported in these financial statements.

Notes to the financial statements for the year ended 31 December 2019

Annual Report 2019

47

2. Adoption of new and revised international financial reporting standards (IFRS)

2.1 New and revised IFRSs that are effective for the current year (continued)

New and revised IFRSs Effective for annual periods beginning on or after

Amendments to IFRS 9 Prepayment Features with Negative Compensation and Modification of financial liabilities

The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the SPPI condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features with negative compensation do not automatically fail SPPI.

The amendment applies to annual periods beginning on or after 1 January 2019, with earlier application permitted. There are specific transition provisions depending on when the amendments are first applied, relative to the initial application of IFRS 9.

1 January 2019

Amendments to IAS 28 Investment in Associates and Joint Ventures: Relating to long-term interests in associates and joint ventures. 1 January 2019

Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs

1 January 2019

Annual Improvements to IFRSs 2015-2017 Cycle Amendments to IFRS 3 Business Combinations, IFRS 11 Joint Arrangements, IAS 12 Income Taxes and IAS 23 Borrowing Costs

The Annual Improvements include amendments to four Standards.

1 January 2019

IAS 12 Income Taxes

The amendments clarify that an entity should recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised the transactions that generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits.

1 January 2019

48

Notes to the financial statements for the year ended 31 December 2019 (continued)

2. Adoption of new and revised international financial reporting standards (IFRS) (continued)



IAS 23 Borrowing costs

The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.

1 January 2019

IFRS 3 Business Combinations

The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, the entity applies the requirements for a business combination achieved in stages, including re-measuring its previously held interest (PHI) in the joint operation at fair value. The PHI to be re-measured includes any unrecognised assets, liabilities and goodwill relating to the joint operation.

1 January 2019

IFRS 11 Joint Arrangements

The amendments to IFRS 11 clarify that when a party that participates in, but does not have joint control of, a joint operation that is a business obtains joint control of such a joint operation, the entity does not re-measure its PHI in the joint operation.

1 January 2019

Amendments to IAS 19 Employee Benefits Plan Amendment, Curtailment or Settlement The amendments to IAS 19 Employee Benefits clarify the accounting for defined benefit plan amendments, curtailments and settlements.

1 January 2019

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers:

• Whether tax treatments should be considered collectively;

• Assumptions for taxation authorities’ examinations;

• The determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and

• The effect of changes in facts and circumstances

1 January 2019

49


Annual Report 2019

2. Adoption of new and revised international financial reporting standards (IFRS) (continued)



Definition of Material - Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

The new definition states that, ‘Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’

1 January 2019

Definition of a Business – Amendments to IFRS 3 Business Combinations

The amendments clarify that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. IASB also clarify that a business can exist without including all of the inputs and processes needed to create outputs. That is, the inputs and processes applied to those inputs must have ‘the ability to contribute to the creation of outputs’ rather than ‘the ability to create outputs’.

1 January 2020

Amendments to References to the Conceptual Framework in IFRS Standards

Amendments to References to the Conceptual Framework in IFRS Standards related IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32 to update those pronouncements with regard to references to and quotes from the framework or to indicate where they refer to a different version of the Conceptual Framework.

1 January 2020

IFRS 7 Financial Instruments: Disclosures and IFRS 9 - Financial Instruments

Amendments regarding pre-replacement issues in the context of the IBOR reform

1 January 2020

50


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

2.2 New and revised IFRS in issue but not yet effective

The Bank has not yet applied the following new and revised IFRSs that have been issued but are not yet effective:


IFRS 17 Insurance Contracts

IFRS 17 requires insurance liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 Insurance Contracts as at 1 January 2022.

1 January 2020

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) relating to the treatment of the sale or contribution of assets from and investor to its associate or joint venture.

Effective date deferred indefinitely. Adoption is still permitted.

The management anticipates that these new standards, interpretations and amendments will be adopted in the Banks’s financial statements as and when they are applicable and adoption of these new standards may have no material impact on the financial statements of the Bank in the period of initial application.

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

2.3 Adoption of IFRS 16 Leases

The Bank for the first time has applied IFRS 16 Leases (as issued by the IASB in January 2016) as of 1 January 2019, same date as the effective date of the standard. IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to the lease accounting by removing the distinction between operating and finance leases. It requires the recognition of a right-to-use asset and a lease liability at the commencement date for all leases, except for short term leases (i.e., leases with a lease term of 12 months or less) and leases of ’low-value’ assets (e.g., personal computers). In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. There is no material impact on the initial application of this standard on the amounts reported in these financial statements.

3 Summary of significant accounting policies

Statement of compliance

The financial statements of the Bank at 31 December 2019 have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB), the disclosure requirements and the applicable regulations of the Commercial Companies Law of 2019.

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

The financial statements have been prepared on the historical cost basis except for investments at fair value through profit or loss and investment at fair value through other comprehensive income which are measured at fair value.

The statement of financial position is presented in the order of liquidity as this presentation is more appropriate to the Bank’s operations.

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3 Summary of significant accounting policies (continued)

Functional and presentation currency

The financial statements are presented in Rials Omani (RO), which is the functional currency of the primary economic environment in which the Bank operates.

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 Rials Omani at year end rates. Any gain or loss arising from changes in exchange rates subsequent to the date of the transaction is recognised in the statement of comprehensive income.

Financial assets and financial liabilities

(i) Recognition

The Bank initially recognises loans and advances to customers, due from / to banks, customer deposits, debt securities and other borrowings on the date at which they are originated. All other financial assets and liabilities are initially recognised on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

(ii) Classification and initial measurement

Financial assets

On initial recognition, a financial asset is classified as measured at: amortised cost, Fair value through other comprehensive income (FVOCI) or Fair value through profit or loss FVPL.

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVPL:

- The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVPL:

- The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis.

All other financial assets are classified as measured at FVPL.

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Annual Report 2019


Financial assets and financial liabilities (continued)

(ii) Classification and initial measurement (continued)

Financial assets (continued)

In addition, on initial recognition, the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Business model assessment

The Bank makes an assessment of the objective of a business model in which a financial asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes:

- The stated policies and objectives for the portfolio and the operation of those policies in practice;

- How the performance of the portfolio is evaluated and reported to the Bank’s management;

- The risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; and

- The frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity.

Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

Assessment of whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Bank considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Bank considers contingent events that would change the amount and timing of cash flows, prepayment and extension terms, terms that limit the Bank’s claim to cash flows from specified assets and features that modify consideration of the time value of money.

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(ii) Classification and initial measurement (continued)

Reclassifications

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Bank changes its business model for managing financial assets.

Financial liabilities

The Bank has classified and measured its financial liabilities at amortised cost.

(iii) Derecognition

Financial assets

The Bank derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred, or in which the Bank neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any new asset obtained less any new liability assumed) and any cumulative gain or loss that had been recognised in OCI is recognised in the income statement.

Cumulative gain / loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in the income statement on derecognition of such securities.

The Bank enters into transactions whereby it transfers assets recognised on its statement of financial position but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised.

In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Bank continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

In certain transactions the Bank retains the obligation to service the transferred financial asset for a fee. The transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.

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Annual Report 2019



(iii) Derecognition (continued)

Financial liabilities (continued)

The Bank derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

(iv) Modification of financial assets and liabilities

Financial assets

If the terms of a financial asset are modified, the Bank evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value.

If the cash flows of the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Bank recalculates the gross carrying amount of the financial asset and recognises the amount arising from adjusting the gross carrying amount as a modification gain or loss in the income statement. If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income.

Financial liabilities

The Bank derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognized in profit or loss.

(v) Impairment

The Bank recognises loss allowances for expected credit losses (ECL) on the following financial instruments that are not measured at FVPL:

- Financial assets that are debt instruments; and

- Loan commitments and financial guarantee contracts.

No impairment loss is recognised on equity instruments. Impairment and ECL are used interchangeably throughout these financial statements.

The Bank measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:

- Debt investment securities that are determined to have low credit risk at the reporting date; and

- Other financial instruments on which credit risk has not increased significantly since their initial recognition.

12-month ECL are the portion of ECL that result from default events on financial instruments that are possible with the 12 months after the reporting date.

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(v) Impairment (continued)

Measurement of ECL

ECL are a probability-weighted estimate of credit losses. They are measured as follows:

- Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Bank expects to receive);

- Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

- Undrawn loan commitments: as the present value

together we grow · mr. abdul salam bin nasir al kharusi vice chairman mrs. ziyana bint mohamed al...

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