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Dear Shareholders: On behalf of the Board of Directors of the National Bank of Oman (NBO), I am pleased to report the financial results for the first quarter ended March 31 2002. The net interest margin of the bank has grown by 33 per cent over the corresponding period last year. The growth in total income, at 28 per cent over the same period in 2001, indicates a healthy expansion in our business. Our operating profit for the period under review is RO7.5 million, 41 per cent more than the first quarter of 2001. Our first quarter earnings per share (EPS) was 262 baizas. Our cost to income ratio at 38.7 per cent has improved significantly over the 41.5 per cent in 2000 and 40.5 per cent recorded for 2001. Total savings grew by 32.79 per cent, from RO80.86 million in the first quarter of 2001 to RO107.37 million in the same period this year. Our popular Savings Excitement product continues to record excellent growth. Savings Excitement deposits grew from RO35.4 million in the first quarter of 2001 to RO59.64 million in the same period this year, a 68.54 per cent increase. Provisions We are in the business of lending money, and as long as we are in that business, we will always have some clients who will face difficulties in fulfilling their payment commitments, especially in a slow economy and in a country like Egypt which has been facing a severe and continuing devaluation of its currency. We continue to assess our loan portfolio and take provisions based on the evidence of our clients' behaviour. With this in mind, and as I had committed in our annual report of 2000, we are making every effort to book provisions on a quarterly basis that will reflect the risks and asset quality as we see them at the given time. Obviously, this is not an exact science, and each quarter we make every effort to exercise the best judgement possible in order to achieve as timely a disclosure as is possible when running a changing and as dynamic a business as banking in three countries. Accordingly, we have assessed the provision for the first quarter of 2002 to be RO3.7 million, which is 118 per cent more than the provision taken for the corresponding period last year. Results In spite of this high provision figure, we have made a net profit after tax (NPAT) of RO2.997 million compared to RO2.811 million in the first quarter of 2001, recording a growth of seven per cent. The ability of your bank to produce operating profit is evident from the fact that although we have booked substantially more provisions in the first quarter of this year compared to that of 2001, we have also recorded a better net profit this first quarter as against last year. Our operations in Oman and Abu Dhabi continue to provide us with strong revenues. Revenue growth in these two countries, coupled with success with our ongoing efforts to hold our cost in check, has helped to bring about the positive growth in our first quarter results for 2002. Egypt The devaluation of the Egyptian pound continues to have a negative impact on our operations in Egypt. We are taking steps to organise our clients with US dollar loans to repay these outstandings. This move has put downward pressure on our revenues in Egypt but will relieve the foreign exchange risk that our clients currently carry. The devaluation of the currency is a clear measure of uncertainty. Although the bank's books are squared, the devaluation and the continuing uncertainty increase the credit risk of our clients who are largely importers. The devaluation obviously has a broader effect on the economy and that negative impact continues to hurt our clients Ð especially the corporate ones. Given the policy decision that we took after the report from McKinsey & Company in 2000, and the subsequent devaluation of the Egyptian pound, we expect the transition to convert our loans and advances from primarily corporate outstandings to a broader based retail business to take a period of about three years. In the meantime, because of the increase in non-performing assets due to the devaluation of the Egyptian pound and the general economic conditions, we will continue to face substantial downward pressure on revenues and profits in Egypt. Regional cross-border restructuring arrangement The restructuring arrangement put in place last year with a cross-border exposure in a neighbouring GCC country has been working satisfactorily. Some guarantor's (founder) assets have been sold and we have received more payments on the tranche of the rescheduled debt with the longest tenor. The interest charges have been paid on time, and the buoyancy of the company's cash flow has meant that the customer has not needed to make any draw down of the new money facility after an initial small withdrawal. All the scheduled payments for 2001 and the first quarter of 2002 have been received from the client. Debt collection & recovery Given the high level of provisions that we have had to take for 2001 and our promise to make every effort to recover as much as possible of our shareholder's money that is currently tied up in these provisions, collection and recovery of difficult outstandings has assumed a very heightened significance for our institution. While we have always had a competent team to handle this function, additional measures have been taken to achieve greater success in this area. The senior management team has worked together to formulate a detailed collection strategy and action plan on an account by account basis. Clear responsibility and authority has been assigned. Members in the senior management team and senior account officers have been given individual responsibility to assist in recovery from delinquent accounts. Specialised people from security agencies are being recruited to join a focused and effective recovery team that will be rewarded with performance-based incentives. This sharp focus on collection and recovery we expect to begin to bear results as the team starts to tackle the challenging targets it has been given. Moody's Financial Analyst Module In the first quarter of 2002, we have started to use Moody's Financial Analyst module to assist in credit assessment. This will add further stringency to the process and is in addition to a number of other steps that we have taken to strengthen credit control within the institution. The enhancements in credit control are working well and we expect will have a positive bearing on our provisions and financial results as we progress through the year. Corporate Services Section A new Corporate Services Section opened on January 5 2002 in the NBO Head Office building to enhance the service we give to our corporate customers. At this new section, a dedicated Relationship Manager gives personalised attention to corporate clients, enabling NBO to respond quickly to customer queries, fully understand their needs, and tailor products to suit their requirements. The section also helps ensure better monitoring and follow up on every corporate account. NBO NetB@NK NBO has continued to lead in the area of information technology (IT) and innovation. NBO NetB@NK was launched on February 21 2002, making NBO the first bank to provide Internet banking services in Oman. This product was developed in-house by NBO's own team of IT professionals. The response to this new banking medium has been overwhelming, and customers from across Oman have been signing up to use NBO NetB@NK. We extend our sincere appreciation to His Majesty Sultan Qaboos bin Said for his wisdom and resourceful leadership. We are grateful for the free enterprise economy in which we do business and the guidance and assistance of the various regulatory bodies and the government of the Sultanate of Oman. KHALFAN BIN NASSER AL WOHAIBI CHAIRMAN NATIO NAL BANK OF OMAN Page 5 Summary of results Period ended 31 March 2002 3 months 3 months ended ended Particulars 31/03/02 31/03/01 RO '000 RO '000 Loans and advances net of provisions and reserved interest 726,403 644,307 Deposits 576,684 446,812 Other assets 220,112 189,130 Net interest income 9,671 7,247 Net profit before tax 3,732 3,677 Earnings per share 0.262 0.245 Capital adequacy ratio 12.47% 16.43% NATIO NAL BANK O F OMAN Page 6 Profit and loss account For the three months ended 31 March 2002 3 months 3 months Notes ended ended 31/03/02 31/03/01 RO '000 RO '000 Interest income 3 16,119 17,026 Interest expense 4 (6,448) (9,779) Net interest income 9,671 7,247 Administration and operational costs (4,788) (4,272) Other income 5 2,652 2,379 Operating profit before provisions 7,535 5,354 Provision for loan losses 7 (3,656) (1,677) Provision - investments (147) Net profit before tax 3,732 3,677 Provision for Taxation 9 (735) (866) Net profit after tax 2,997 2,811 Dividend per share N.A N.A. NATIO NAL BANK O F O MAN Page 7 Balance Sheet As at 31 March 2002 Notes 31/03/02 31/03/01 RO '000 RO '000 On balance sheet items Assets Cash 10.691 7.882 Treasury Bills 37.198 24.476 Due from banks and other financial institutions 70.388 66.073 Loans and advances (net) 6,7 & 13 726.403 644.307 Portfolio held for trading 12 1.664 1.720 Portfolio available for sale 12 33.496 32.182 Premises and equipment 9.063 8.715 Other assets 16 57.612 48.082 946.515 833.437 Liabilities Deposits 8 & 13 576.684 446.812 Due to banks and other financial institutions 217.730 212.103 Other liabilities 16 39.304 46.358 Taxation 4.887 5.632 838.605 710.905 Shareholders' funds and Subordinated Loan Share holders' funds Share capital 45.805 45.805 Legal reserve 15.966 15.966 Other Reserves 34.200 44.148 Retained earnings 104 3.702 Profit for the current period 2.997 2.811 99.072 112.432 Subordinated Loan 8.838 10.100 107.910 122.532 946.515 833.437 Off-balance sheet items Contingent liabilities,Commitments 295.570 267.606 & Derivatives NATIONAL BANK OF OMAN Page 8 Statement of Changes in Equity RO ' 000 Period ended 31 March 2002 Share Proposed issue Share Premium Legal General Non Revaluation Subordinated Retained Profit for the Total capital of bonus shares reserve reserve reserve Distrubutable reserve loan reserve earnings Current period reserve Balance at 31 December 2000 45,805 0 9,458 15,966 16,111 15,267 2,050 1,263 12,903 118,823 Net loss for the year -7,467 -7,467 Restatement in accordance with IAS 39 -9,464 -9,464 Dividends paid during the year -6,871 -6,871 Revaluations during the year 0 Transfer to Legal reserve 0 Trasnfer to General reserve 1,263 -1,263 0 Transfer to Subordinated Loan reserve 0 Directors remuneration 0 Bonus share issue 0 Release of impairment losses on assests previously recognised on adoption of IAS 39 1,054 1,054 Transfer to Retained earnings -9,949 9,949 0 Balance as at 31 December 2001 45,805 0 9,458 15,966 7,425 15,267 2,050 0 104 96,075 Dividend paid 0 Transfer to Retained earnings - Transfer to General Reserve - Net profit for the period 2,997 2,997 Adjustment relating to impaired assets 0 Balance as at 31st March 2002 45,805 0 9,458 15,966 7,425 15,267 2,050 - 104 2,997 99,072 NATIO NAL BANK O F O MAN Page 9 Statement of cash flows As at 31 March 2002 3 months 3 months ended ended 31/03/02 31/03/01 RO '000 RO '000 Cash flow from operating activities Tax paid (956) (926) Interest and commission received 15,115 17,728 Interest paid (6,448) (9,779) Staff and supplier payments (4,238) (3,735) 3,473 3,288 Change in operating assets 18,805 (33,254) Change in operating liabilities (27,603) 16,973 Net cash used in investing activities (32) 1,251 Net increase/(decrease) in cash and cash equivalents (5,357) (11,742) Cash and cash equivalents brought forward 29,964 10,072 Cash and cash equivalents carried forward 24,607 (1,670) Representing Cash and Balances with Central bank 18,927 20,779 Deposits and balances with other banks (net) (33,182) (48,645) Treasury bills 37,198 24,476 Govt Devt Bonds - OTC 1,664 1,720 Total 24,607 (1,670) NATIO NAL BANK O F O MAN Page 10 For the thre e months ended 31 March 2002 Notes 1- Legal status and principal activities National Bank of Oman S.A.O.G ("the Bank") was established in the Sultanate of Oman in 1973 as a joint stock company and is principally engaged in corporate and and retail banking activities within the Sultanate of Oman with Branches in the United Arab Emirates and Egypt. T he bank operates in Oman under a banking license issued by the Central bank of Oman and is covered by its deposit insurance scheme. T he registered office of the company is P O Box 751, Ruwi, Postal Code 112, Muscat, Sultanate of Oman 2 -Basis of accounting T he financial statements have been prepared in accordance with the prescribed format of the Capital Market Authority and the International Accounting Standards along with the Interpretations of the Standing Interpretations Committee of the International Accounting Standard Committee 3- Interest income 8.31 % for the three Interest bearing assets earned interest at an overall rate of months ended 31 March 2002 (2001 : 8.14 %) . T his equates to an annual rate of interest of 8.31 % per annum. 4- Interest expense For the three months ended 31 March 2002 the average overall cost of funds was 3.28 %. (2001 : 6.14 % ).T his equates to annual cost of funds of 3.28 % per annum. 5- O ther income Other income comprises income on investment, fees, service charges, sundry account charges and miscellaneous income . Other income excludes amounts released from reserved interest. For details on investment income refer to note no. 11 6- Loans and advances Loans and advances can be analysed as follows : 3 months 3 months ended ended 31/03/02 31/03/01 RO '000 RO '000 Corporate lending 439,552 366,195 Personal lending 271,851 211,900 Overdrafts 116,314 132,114 Gross Loans and advances 827,717 710,209 Less : Provisions and reserved interest (101,314) (65,902) Net Loans and advances 726,403 644,307 Gross loans and advances include RO 22.47 M as due from related parties as at 31 March 2002 (RO 18.7 M as at March 2001). NATIO NAL BANK OF OMAN Page 11 For the three months ended 31 March 2002 Notes - contd. The maturity of these can be analysed as follows : 3 months 3 months ended ended 31/03/02 31/03/01 RO '000 RO '000 0-6 months 211,573 225,479 6-12 months 36,820 36,252 1-2 years 63,195 26,809 2-3 years 35,031 76,292 3-4 years 42,328 41,936 more than 4 years 438,770 303,441 827,717 710,209 The average effective interest rate on gross loans and advances as at March 2002 was 7.64 % (March 2001 : 9.21 %). The fair value is the net present value calculated by discounting the expected future repayments ( including interest ) by the average rates of interest. The estimated fair value of performing loans and advances is not significantly different from the book value of the loans. In terms of the requirements of IAS 39 all impaired loans and advances have been provided for as indicated in Page 12. NATIO NAL BANK OF OMAN Page 12 For the three months ended 31 March 2002 Notes - contd. 7 - Provisions and reserved interest The movement on provisions and reserved interest for the period can be analysed as follows : 3 months 3 months Loan loss provision ended ended 31/03/02 31/03/01 RO '000 RO '000 Balance as at January 1 76,830 49,266 Provided during the period 3,656 1,676 Released/recovered during the period (61) Written off during the period (58) (481) Transfers during the period - - Balance as at March 31 80,428 50,400 Reserved interest Balance as at January 1 19,244 14,326 Reserved during the period 1,681 1,271 Released/recovered during the period - Written off during the period (39) (95) Transfers during the period Balance as at March 31 20,886 15,502 NATIONAL BANK O F O MAN Page 13 For the three months ended 31 March 2002 Notes - contd. In line with the IAS 39 requirements, the estimated provision has been made by the bank as at March 2002. Interest is reserved on all non-performing loans and advances where recovery is considered doubtful. At 31 March 2002, loans and advances on which interest had been reserved amounted to RO 138.4 M (2001 : RO 84.191 M). 8- Deposits Deposits can be analysed as follows : 3 months 3 months ended ended 31/03/02 31/03/01 Current and call 85,016 47,059 Savings 107,071 89,967 Time 384,597 309,786 576,684 446,812 Deposits include RO 3.081 M as due to related parties as at March 31 2002. (RO 4.5 M as at March 31, 2001). The maturity of deposits are as follows : 3 months 3 months ended ended 31/03/02 31/03/01 RO '000 RO '000 0-6 months 445,643 316,753 6-12 months 79,718 106,560 1-2 years 6,450 859 2-3 years 23,173 6,464 3-4 years 9,613 4,938 more than 4 years 12,087 11,238 576,684 446,812 The average effective interest rate of deposits as at 31 March, 2002 was 3.29 % . (31 March 2001 : 5.56 %). NATIO NAL BANK OF O MAN Page 14 For the three months ended 31 March 2002 Notes - contd. 9 - Provision for Taxation Taxation has been provided at 12 % on the net profits of the bank in Oman, 20% on the profit of the Abu Dhabi operations of the bank and 42 % on the profit of the Egyptian operations of the bank. 10- Asset liability mismatch The asset liability mismatch can be analysed as follows : 31-Mar-02 31-Mar-01 Maturities Assets Liabilities Mismatch Assets Liabilities Mismatch RO ' 000 RO ' 000 RO ' 000 RO ' 000 RO ' 000 RO ' 000 0-6 months 343,804 605,548 (261,744) 300,249 431,022 (130,773) 6-12 months 45,596 79,718 (34,122) 65,722 110,544 (44,822) 1-2 years 69,195 45,000 24,195 34,814 22,053 12,761 2-3 years 36,031 42,448 (6,417) 82,292 64,288 18,004 3-4 years 46,328 9,613 36,715 42,936 4,938 37,998 More than 4 years 405,561 164,188 241,373 307,424 200,592 106,832 946,515 946,515 - 833,437 833,437 - The above analysis is based up on residual maturity dates. However the bank does not expect its deposits retention to deteriorate significantly in the immediate future. 11. Investment Income Investment income can be analyzed as follows: 31-Mar-02 31-Mar-01 RO ’000 RO ’000 Realized - Unrealized - - Dividends - 8 Interest on Govt. Devt. Bonds 493 555 Interest on Other Bonds(CD) 8 61 501 624 NATIO NAL BANK O F O MAN Page 15 For the three months ended 31 March 2002 Notes - contd. 12. Investments 12.a. Investment in associates and subsidiaries Associates NIL Subsidiaries NIL 12.b. Investments(continued) Investments include all long term and short term investments of the company, excluding only those associates and subsidiaries listed in Note 12.a. All marketable securities are carried at their cost . net of provisions Unquoted investments are carried at cost adjusted for any permanent diminutions in value. All the investments held as available for sale can be analysed as follows: Market Market Book Book Value Value Value Value 31-Mar-02 31-Mar-01 31-Mar-02 31-Mar-01 Cost ** RO ’000 RO’000 RO ’000 RO’000 RO ’000 Marketable securities - Oman Banking 17 13 17 13 55 Investment 911 1,613 911 1,613 4,434 Insurance - - - - - Services 2,950 2,558 2,950 2,558 4,176 Industrial 557 545 557 545 1,619 Certificate of Deposits 4,000 4,000 4,000 Government bonds 20,669 24,816 20,669 24,816 20,669 29,104 29,545 29,104 29,545 34,953 Marketable securities – Foreign by Sector Banking - - - - - Industrial 93 127 93 131 306 Bonds 1,542 1,542 1,066 1,542 1,893 Insurance 13 6 13 6 28 Government bonds 1,430 1716 1,430 1,716 1,430 3,078 3,391 2,602 3,395 3,657 Unquoted and other investments Unquoted Omani shares 3146 260 3146 Investment fund units - - - Term deposits - - - Unquoted foreign shares 611 702 702 Other - - - 3,757 962 3848 35,463 33,902 42,458 ** Cost of investments held on 31 March 2002. NATIO NAL BANK O F O MAN Page 16 For the three months ended 31 March 2002 Notes - contd. 12.c. Investment held for trading represents Government bonds purchased from Over The Counter (OTC) Exchange for trading purposes. 12.d. Details of Significant Investments Details of investments exceeding 10% of the market value of the portfolio as at 31 March 2002 is as follows : Market Book Holding % to Number of Value Value Cost total cost of inv. Securities RO ’000 RO’000 RO’000 MSM Q uoted securities Government bonds 48.68% 206,692 20,669 24,816 20,669 206,692 20,669 24,816 20,669 Foreign Listed securities - - - - Market Value as of 31 March 2002 206,692 20,669 24,816 20,669 MSM Unquoted securities - - - - Foreign Unlisted securities - - - - Totals as of 31 March 2002 206,692 20,669 24,816 20,669 13. Related Parties and Holders of 10% of the company’s shares a) In the ordinary course of business the bank conducts transactions with certain of its directors / shareholders and companies in which they have a significant interest. These transactions are conducted at an arm's length and are approved by the management. The nature of significant transactions involving related parties or holders of 10% or more of the company’s shares, or their family members, and the amounts involved during the period were as follows: Nature of transaction 31-Mar-02 31-Mar-01 RO ’000 RO ’000 Deposit 3,081 4,593 Advances 22,471 18,699 Interest expense 32 50 Interest income 228 424 Other Income 1 2 Capital expenditure 6 35 Revenue expenditure 2 3 NATIONAL B ANK OF OMAN Page 17 For the three months ended 31 March 2002 Notes - contd. b) Expense Items - Items of expense which were paid to related parties or holders of 10% or more of the company’ s shares, or their family members, during the period can be further analysed as follows: Interest Expense : 31-Mar-02 31-Mar-01 Identity RO’000 RO’000 A M Al Barwani - 8 Al Fajer Furnishing Co - 1 Arv ind Aiy er 1 1 H E Khalf an Nasser Al Wohaibi 3 6 MB Petroleum 16 15 NBO Capital Guaranteed Fund 2 5 Pushottam Kanji 7 8 R.Ramaswamy 1 1 Tawf iq Ahmed Sultan 1 2 W.J. Towell 1 3 32 50 c) Loans, Advances, Receivables Due, P rovisions & Write-offs Loans, advances or receivables due from related parties or holders of 10% or more of the company’ s shares, or their family members, minus all provisions and write-offs which have been made on these accounts at any time, can be further analysed as follows: Identity 31-Mar-02 31-Mar-01 RO’000 RO’000 A M Al Barwani 18 368 Abul Hamid Ahmed Mohd Al Balushi 18 20 Adel Abdullah Al Raisi 28 28 Al Arkan Trading 729 704 Al Balushi.Abdul Aziz 12 12 Auby n Hill 28 30 Col. Baqer Saleh 1 30 Desert Palm LLC 656 Golden Village 484 483 H E Khalf an Nasser Al Wohaibi - 22 Hamed Khamis Abdullah 1 Harsh Munjal 1 2 Hy dro Chemical 1 Jawahir Ali Sultan - 98 Khimji Ramdas 2,121 33 M B Petroleum 12,580 12,601 Mohd Ali Barwani 6 10 Murtadha Sultan 180 212 Pankaj Khimji 4,651 3,620 Pushottam Kanji Exchange Co. 107 214 Ramaswamy 1 - Taqi Ali Sultan 22 26 Tawf iq Ahmed Sultan 23 71 W J Towell 804 114 22,471 18,699 LESS : P rovisions - - LESS : Write Offs - - Total receivable from related parties 22,471 18,699 NATIO NAL BANK O F O MAN Page 18 For the three months ended 31 March 2002 Notes - contd. 14. Shareholders All those shareholders of the company who own 10% or more of the company’s shares, whether in their name, or through a nominee account, and the number of shares they hold are as follows: a) Common Share Holders: 31-Mar-02 31-Mar-01 Identity RO’000 RO’000 Abna Sultan Trading Co. 4,427 4,550 Al Barwani Investment Co. 4,712 4,712 Public Authority for Social Insurance 4,711 4,711 Civil Service Employees Pension Fund 4,709 4,709 b) Preferred Share Holders: - - 18,559 18,682 15. Segment Reporting The revenue and result for the company’s reportable segments after adjusting for interbranch transactions for the period ended 31 March 2002 are as follows: Identity of Segments: Oman Abu Dhabi Egypt Totals Segment Revenue 14,234 1,756 2,766 18,756 Segment Expenses (10,919) (1,413) (3,427) (15,759) Segment Results 3,315 343 (661) 2,997 16. O ther Assets & Other Liabilities Included in Other Assets is a sum of RO 38.4 M receivable from BCCI which is guaranteed by the Government of the Sultanate of Oman, unconditionally, of all and any sums which are due to the bank by the Bank of Credit and Commerce International (BCCI). BCCI is in liquidation. Upto March 2002 the bank has received RO 23.2 M from the liquidators which is recorded separately in Other Liabilities pending the final notification of settlement by the BCCI liquidators.
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