Striving for a

Better Tomorrow
Annual Report 2022

Bank Muscat. Better Everyday.

“
Over the next stage of the Renewed Renaissance, we will take action
to transform government performance from the level of emergency

“
solutions to a more sustainable level having a set of lasting and
comprehensive solutions that place economic growth,
fiscal sustainability and social welfare at the forefront of its priorities.

Excerpt from The Royal Speech of

His Majesty Sultan Haitham Bin Tarik,

January 2022
Contents

Chairman’s Report ................................................................... 02

Members of the Board ............................................................. 05

Corporate Governance Statement ........................................... 06

Pillar III Disclosures ................................................................... 26

Meethaq Pillar III Disclosures ................................................... 72

Management Team .................................................................. 88

Management Discussion & Analysis ........................................ 91

CSR & Sustainability Summary ................................................ 99

Financial Review ...................................................................... 102

Meethaq Financial Review ....................................................... 115

Ten-Year Summary ................................................................... 124

Financial Statements ............................................................... 128

Meethaq Financial Statements ............................................... 217

Annual Report - 2022 1

 Chairman’s Report
Dear Shareholders,

I am pleased to share with you the results achieved by Bank Muscat

during the financial year ended 31 December 2022. The Bank continued
to maintain its position as the leading financial services provider in
Oman powered by its inherent business strength and strong focus on
digital transformation and customer-centricity.

Oman’s Economy
The nominal GDP for 2022, as per preliminary data released by the
National Centre for Statistics and Information, displayed a sharp rise
over the same period in the previous year as the economy continued
to benefit from high hydrocarbon prices and rising non-oil revenues.
Encouragingly, top global credit rating agencies have also recently
upgraded the Sultanate’s credit rating and revised their outlook upward
as a result of the prudent measures undertaken by the Government.

The preliminary financial results for 2022 show that Oman is expected to record its first surplus of RO 1.15 billion since
2013, compared to the budgeted deficit of RO 1.55 bn. At the same time, the Sultanate’s 2023 Budget estimates total
revenues of RO 10.05 bn and total expenditure of RO 11.35 bn, with a deficit of RO 1.3 bn or approximately 3 percent of
GDP, based on an estimated oil price of USD 55/bbl. The Budget aims to further strengthen financial, economic and social
stability through the continuation of economic diversification policies, employment generation, improved credit rating,
digital transformation and sustained spending on basic services.

Financial Overview
The Bank posted a net profit of RO 200.75 million for the year compared to RO 189.63 million reported during the same
period in 2021, an increase of 5.9 per cent.
Net Interest Income from Conventional Banking and Net Income from Islamic Financing stood at RO 344.86 million for
the year ended 31 December 2022 compared to RO 335.54 million for the same period in 2021, an increase of 2.8 per cent.
Non-interest income was RO 157.96 million for the year ended 31 December 2022 as compared to RO 139.94 million for
the same period in 2021, an increase of 12.9 per cent mainly due to higher investment income.
Operating expenses for the year ended 31 December 2022 were RO 207.30 million as compared to RO 191.46 million for
the same period in 2021, an increase of 8.3 per cent. Net Impairment for credit and other losses for the year ended 31
December 2022 amounted to RO 59.94 million as against RO 60.22 million for the same period in 2021.
Net Loans and Advances including Islamic financing receivables increased by 2.5 per cent to RO 9,417 million as against
RO 9,191 million as at 31 December 2021. Customer deposits including Islamic Customer deposits decreased by 1.5 per
cent to RO 8,647 million as against RO 8,775 million as at 31 December 2021.
The basic earnings per share was RO 0.026 in 2022 against RO 0.024 in 2021. The bank’s capital adequacy ratio stood at a
very healthy level of 21.25 per cent as on 31 December 2022 after appropriation for proposed dividend for the year 2022,
against the minimum required level of 13.25 per cent as per Basel III regulations issued by the Central Bank of Oman.
For 2022, the Board of Directors has proposed a dividend of 15% in the form of cash. Thus, the shareholders would receive
a cash dividend of RO 0.015 per ordinary share aggregating to RO 112.596 million on the Bank’s existing share capital. The
proposed cash dividend is subject to the formal approval of the Annual General Meeting of the shareholders.

2 Annual Report - 2022

Strategic Initiatives & Key Developments
In 2022, Bank Muscat celebrated 40 years of progress and contributions to Oman’s socio-economic development by
intensifying its efforts to enhance customer satisfaction and fulfil its responsibilities to society and its various stakeholders.
A new Organisational Structure was put in place on 1 January 2022 in alignment with the Bank’s strategic plans to
empower Omani talent to assume positions of greater responsibility at the Bank.
In another key development, Bank Muscat held an Extraordinary General Meeting (EGM) and an Ordinary General
Meeting (OGM) on 9 November 2022. At the EGM, shareholders approved increasing the Bank's share capital from RO
450,000,000 to RO 800,000,000. The EGM approved the issuance by way of dividend of 375,319,853 subordinated,
perpetual AT 1 bonds to the Bank’s list of shareholders at the rate of 1 bond per 10 ordinary shares held by the shareholders
on the meeting date. The OGM approved the distribution of bonus shares at the rate of 1 bonus share for every 1 share
held by the shareholders of the Bank on the meeting date. The distribution of bonus shares has resulted in an increase
in the issued share capital of the Bank from 3,753,198,531 shares (aggregating to RO 375,319,853) to 7,506,397,062 shares
(aggregating to RO 750,639,706).
The Bank has been spearheading a massive digital transformation in the banking and financial services sector in the
Sultanate of Oman by providing a complete range of technology-driven digital offerings. As a result, digital banking
continued to make excellent progress, with registered users of Mobile and Internet banking reaching the 1.4 mn mark.
In 2022, Bank Muscat launched several customer-centric initiatives, including Digital Onboarding of customers, a Soft
Token app for Internet banking customers, online re-KYC, and online applications for various products like Credit Cards
and Mutual Funds, among others to enhance the overall customer experience. Further supporting its upward trajectory,
the Bank saw tremendous growth of about 150 percent in new merchant partners and about 40 percent in acquiring
transactions.
Bank Muscat’s new innovative digital banking services are enabling government and corporate entities to make the best
use of technology and processes to supercharge their business environment. Overall, transactions processed through
Corporate Online Banking soared to an unprecedented RO 8 bn in 2022. The Bank also launched a new DigiTrade portal
and a new Visa Virtual Corporate Credit Card Solution during the year, further empowering Corporate customers with
real-time transaction security and control over their transactions.
The Bank maintained its leadership position in Project and Structured Finance, enabled by its deep sectoral expertise,
innovative structuring capabilities and sound due diligence techniques to cater to the long-term financing requirements
of various projects in critical sectors such as oil and gas, petrochemicals, renewable energy, manufacturing, telecom, real
estate, aviation and power and water.
Bank Muscat also completed several financial advisory and fundraising transactions, including US$ 495 mn (approximately
OMR 190 mn) fundraising for the acquisition of infra assets within the telecom sector in Oman, supply-chain financing for
the Government of Oman amounting to about US$ 1.5 bn (approximately OMR 595 mn), financial advisory for a leading
Government-Related Entity (GRE) in the utility sector and the IPO of Barka Desalination Company, amongst others. In
addition, achieving another significant milestone, Bank Muscat Money Market Fund’s Assets under Management (AUM)
crossed RO 90 mn during the year, making it the largest open-ended Fund in Oman.
At the same time, Meethaq, which celebrated its 10th anniversary in 2022, continued demonstrating its strong leadership
in the Islamic banking space by increasing its customer base and recording healthy growth in net and operating profit.
Other key developments during the year included the appointment of a new Shariah Supervisory Board under the
chairmanship of Sheikh Dr Abdullah bin Mubarak Al Abri and the successful redemption of Meethaq’s Sukuk Series 1
amounting to RO 44.6 mn.

Corporate Social Responsibility and Sustainability

Moving further ahead on its strategy of improving financial inclusion to different customer segments in Oman, the Bank
expanded its network of digital banking devices like Automated Teller Machines, Cash Deposit Machines, Full-Function
Machines, Statement Printers and Multi-Function Kiosks to a total of 821 devices by December 2022. The Bank has made
significant progress in implementing new regulatory guidelines on servicing customers with disabilities and is in the
process of further upgrading disabled-friendly facilities at branches across all governorates.

Annual Report - 2022 3

 In 2022, Bank Muscat sustained its pioneering Corporate Social Responsibility (CSR) efforts through several long-running
programmes and one-off activities supporting the social investment pillars of Youth & Sports, Economy, Education,
Environment and Social Welfare.
The Bank successfully completed its Tadhamun programme for the 10th consecutive year, in partnership with the Ministry
of Social Development, with a joint team distributing household appliances to over 200 social welfare families across
different governorates. Earlier during Ramadhan, the Bank participated in the annual ‘Fak Kurba’ initiative of the Oman
Lawyers Association for the 5th consecutive year and helped secure the release of those convicted of financial default in
260 cases on humanitarian grounds.
Bank Muscat extended its strong support to an additional 20 sports teams from different governorates during the year
through the Green Sports programme, taking the total number of beneficiaries to 163 teams comprising over 50,000
members across the Sultanate. Further reinforcing its commitment to Omani youth, Bank Muscat extended support to
the School Beach Games Championship 2022, organised by the Oman School Sports Association in Salalah.
Bank Muscat continued its essential role in supporting SMEs in Oman by providing an advanced entrepreneurial
programme to 30 toppers from the Bank’s Al Wathbah SME Academy, at no cost to participants. Earlier in the year, the
Bank conducted the annual Souq Al Wathbah, which saw strong participation by over 120 Omani SMEs showcasing a
diverse range of products.
In 2022, Bank Muscat partnered with the Royal Oman Police for the third consecutive year on a unique anti-fraud
awareness campaign to make the general public vigilant about cyber-fraud. The Bank also successfully continued its free
Irshad financial coaching clinic and Maliyat financial awareness programme to spread financial awareness among the
general public.
In line with its commitment to Public-Private Partnership, the Bank extended its support to many events, including
COMEX 2022, Khareef Dhofar and the inaugural Salalah Eat Festival. In addition, the Bank continued to partner with a
number of government institutions and civil society organisations, including the Royal Hospital, Al Wafa Centre in Samail,
Al Aman Centre in Al Khoudh, the Omani Association of the Hearing Impaired, Omani Committee for Sports for the Deaf
and Oman Association for the Disabled on many one-off initiatives. The Bank also completed 6 kiosks in the Wilayat of
Bidbid for use by social welfare families and job seekers.

Awards and Accolades

The Bank’s extensive achievements continue to be recognised locally and internationally, having garnered a total of 37
prestigious awards and accolades in 2022. Bank Muscat was once again listed by Forbes Middle East among the Top
30 Banks in the Middle East and the Top 100 Companies in the region. In addition, the Bank won top honours from
Euromoney, EMEA Finance, Oman Economic Review and Alam Al Iktisaad for being the Best Bank in the Sultanate, and
from Global Finance for offering the Best Digital Banking in Oman for Retail, Corporate and Islamic banking customers.
The Bank was also honoured by the Ministry of Social Development and the Oman Association for the Disabled during
the year for its pioneering role in social responsibility.

Conclusion
In 2022, Bank Muscat celebrated 40 years of strategic contributions to the Sultanate and its people, including providing
world-class banking facilities to its retail, corporate, government and Islamic banking customers. The Bank’s numerous
achievements would not have been possible without the strong confidence and support of our shareholders, employees
and other stakeholders.
On behalf of the Board of Directors, I take this opportunity to thank the Central Bank of Oman and the Capital Market
Authority for their strong support for the financial market in the Sultanate. We would also like to express our sincere
appreciation and best wishes to His Majesty Sultan Haitham Bin Tarik, may the Almighty Allah protect him and grant
him wisdom and good health. We pledge our loyalty and support for Oman’s growth and prosperity under his visionary
leadership.

Khalid bin Mustahail Al Mashani

Chairman

4 Annual Report - 2022

Members of the Board

Sheikh Khalid bin Sheikh Ahmed bin Hamed Nasser bin Mohamed
Mustahail Al Mashani Al Sadi Al Harthy
Chairman Deputy Chairman Director

Sheikh Said bin Mohammed Sheikh Saud bin Mustahail Khalid Nasser
Al Harthy Al Mashani Al Shamsi
Director Director Director

Sunder George Dr. Saif bin Salim Dr. Faisal bin Abdullah
Al Harthi Al Farsi
Director Director Director

Annual Report - 2022 5

6 Annual Report - 2022
Annual Report - 2022 7
 Corporate Governance Statement
Bank Muscat is committed to the best practices in the area of Corporate Governance, both in letter and in spirit. The Bank believes
that good Corporate Governance is much more than complying with legal and regulatory requirements. Bank Muscat strongly
believes in ethical values to achieve high standards of Corporate Governance. The Bank continues to strive for excellence in
business operations through transparency, and accountability to all its stakeholders. The Bank deals with customers, regulators,
employees, investors, vendors, the Government and society at large in an open and transparent manner. Corporate governance
at Bank Muscat has evolved not only by ensuring compliance with regulatory requirements but also by being responsive to
stakeholders’ needs. The Bank strives for excellence through the objectives of enhancing satisfaction both to its customers and
to shareholders. The Bank’s Board is focused on strengthening Corporate Governance and staying committed to operating in a
correct, principled and commercially astute manner while being accountable to the stakeholders. The Executive Management
helps the Board to set the tone at the top by implementing and monitoring policies that are established by the Board with respect
to Governance. The Board has also established independent control functions to ensure that the internal control system in the
Bank is functioning effectively.
The Bank’s policy provides for equal opportunities to all employees based on merit. It ensures a work environment free from
any form of discrimination – caste, religion, disability, gender, race etc. The Bank helped its employees to work confidently during
the pandemic through rigorous safety protocols and wellness resources including administering Covid-19 vaccinations free of
charge to its employees, to navigate the challenges of managing work effectively. As the flagship financial services provider
in the Sultanate, Bank Muscat has achieved 100% Omanisation in branch operations, giving priority for Omanis to occupy all
key positions. The Bank’s total employee strength is at 3,973 employees as on 31st December 2022 with 93.64% Omanisation.
The Bank’s human resources strategy is notable in maintaining gender diversity as 47.87% of employees are women holding
various positions, including senior management positions. Bank Muscat reckons its competent people as its key strength and is
focused on equipping them to make vital contributions to the Bank's growth and success. The Bank plays a prominent role in the
development of Omani talent and is committed to investing in improving their skill and expertise.
Bank Muscat has adopted a nation-wide branding of branches to maintain its unique identity and service standards. The Bank’s
brand proposition is the result of understanding the consumer better and presenting the right brand mix. In line with the Bank’s
vision “To serve you better, everyday” the brand is synonymous with innovation, reliability and trustworthiness. As reflected in the
brand, Bank Muscat is recognized as an Omani Bank focusing on the needs and requirements of customers in the Sultanate. The
brand has ensured a successful partnership to complement customer service excellence in line with the vision.
During the past 40 years, the Bank has been closely associated with the progressive growth of the nation by, participating in the
country’s development projects and complementing the government’s endeavors to boost the national economy.
The Board of Directors of Bank Muscat are committed to the highest standards of Corporate Governance. The Bank’s Board
ensures that they meet regularly, provide effective leadership and insights in business and functional matters and monitors the
Bank’s performance. The Bank is also committed to establishing clearly documented and transparent management processes for
policy development, implementation and review, decision making, monitoring, and reporting. The Bank is determined to raising
the bar even further so as to set a leading example by abiding to, letter and spirit, the Code of Corporate Governance laid out by
the Capital Market Authority (CMA) and the regulations for Corporate Governance of Banking and Financial Institutions issued
by the Central Bank of Oman (CBO). This commitment has been reflected with the Bank being awarded Corporate Governance
Excellence Awards in the Financial Sector by CMA and winning accolades a number of times from Hawkamah, the Institute for
Corporate Governance.
Reiterating its leadership role, Bank Muscat took the lead in launching Islamic banking services through Meethaq Islamic Banking.
Within 10 years of operations, Meethaq Islamic Banking has consolidated its leadership position. Notably, Meethaq has crossed a
milestone of over OMR 1.7 billion in assets. Presently, Meethaq accounts for 27.7% (as of October 2022) market share in terms of
assets and is the market leader in Islamic banking in Oman.
The revised CMA Code of Corporate Governance for Public Listed Companies issued by circular no. E/4/2015 in July 2015 (applicable
from 2016) and the CBO circular BM 932 on Corporate Governance of Banking and Financial Institutions, are the principal codes
and drivers of Corporate Governance practices in the Sultanate of Oman. Bank Muscat fully complies with the provisions of the
old and new code. In addition, due to its listing on the London Stock Exchange through its Global Depository Receipts, the Bank is
compliant of the requirements with section 7.2 of the Financial Services Authority (FSA) Handbook on Disclosure and Transparency
Rules.

8 Annual Report - 2022

Corporate Governance is also defined as the relationship of an entity to its shareholders or more broadly as its relationship
to society. Consequently, a department dedicated to Corporate Social Responsibility (CSR) was established with the vision
of adopting a new approach of addressing society’s needs through inspiring new forms of partnership among all sectors
of society to serve the community in the best way. As a forward-looking financial institution, Bank Muscat is at the forefront
in contributing to society and thereby setting a fine example for the corporate sector to develop social responsibility as a
corporate culture. The CSR and Sustainability strategy pursued by Bank Muscat is focused on delivering long-term benefits to
the community and the nation, creating a positive impact on society covering areas such as education, SMEs, youth, sports,
alternative energy and health. Bank Muscat is the pioneer of CSR initiatives in the banking sector in Oman, committed to
‘doing better’ for the economy, community and environment. The Bank was the first in the Middle East to sign the Equator
Principles for responsible banking, thereby ensuring that its projects conform to benchmark international environmental and
social standards. The Bank allocates a percentage of profit for CSR initiatives and continues to deliver skill-building support
for SMEs. Bank Muscat publishes the annual sustainability report based on Global Reporting Initiative (GRI) sustainability
reporting framework and guidelines, highlighting the impact of its activities on the economy, environment and society. The
report demonstrates that the Bank has become more open to sustainability reporting as a powerful tool in its decision-making
as well as corporate policy and strategy.
In step with innovative customer-centric strategy, Bank Muscat was the first in the banking sector in Oman to launch a
dedicated social media account for customer services. Aimed at enhancing customer service via social media, the Twitter
account is dedicated to responding to customers inquiries and receiving feedback. The Bank makes use of social media to
engage customers through surveys, questionnaires and awareness campaigns on the Bank’s products, services and activities.
As part of the Sultanate’s broad vision of enabling Financial Inclusion (FI), Bank Muscat spearheaded several programmes and
initiatives to understand the needs of different sections of the society and accordingly have provided products and services
directed towards inclusive growth, sustainable development and catering to overall market needs. Some of the key initiatives
undertaken as part of this mission include:
Secure digital solutions: In line with its customer centric vision, Bank Muscat is attentive to the needs of different sections
of the society to provide banking services and financial inclusion across all parts of the country. The Bank`s branch network
is ably supported by large base of over 476 Automated Teller Machines (ATMs), 135 Cash Deposit Machines (CDMs), 179 Full
Function Machines (FFMs), 2 Multi-Function Kiosks, 10 Bulk Cash Deposit Machine (BCDM) and 19 Statement printers. The Bank
has launched new features and services on its digital channels including Omnichannel mBanking and Internet Banking, a
state-of-art Contact Centre and its e-payment gateway to cater to varied customer requirements. The QR code scanning option
and contactless payment system enables quick and secure transactions at point of sale (PoS) terminals at merchant partners
across the country. The QR code system introduced by the Bank eliminates the probability of data-input errors and enables
transactions to be concluded quickly. The Bank’s Meethaq Islamic Window enabled digital on-boarding of customers with a
faster processing time. The initiative supports the implementation of social distancing whilst allowing customers to conduct
their banking transactions conveniently with minimal need to visit the branch.
Accessibility for Persons with Disabilities: Bank Muscat has launched a number of services to reach out to different customer
segments and address their various financial needs. The Bank continues to enhance financial inclusion amongst persons with
disabilities by providing easy access at branches and training its employees to better serve customers. The Bank has over 93
employees at select branches trained in Arabic Sign Language in partnership with the Omani Association for the Hearing-
impaired, to facilitate better communication and customer service to hearing and speech impaired customers. In 2022, the
Bank partnered with the Omani Association of the Hearing Impaired to provide a number of hearing aids to school and
university students in Oman, so as to improve financial inclusion for all.
Woqar Banking Package for Retirees and Floosi account for youth: Financial inclusion has been identified as a crucial
enabler for a number of Sustainable Development Goals and to this Bank Muscat launched the Woqar Banking Package
to extend a financial package solution for pensioners. The Woqar package helps to support pensioners including providing
moratoriums on repayments and restructuring of loans to further improve financial inclusion in the country. The Floosi account
targeted for the youth in the 15 -17 age group, educates and encourages youth to make savings a regular habit in their lives.
Parents are happy with the Floosi account which helps their children learn the importance of personal finance management
and savings for their future.
Promoting financial awareness: The Bank understands the importance of improving financial literacy amongst the general
public in Oman. The free Maliyat financial literacy programme help people in Oman improve their financial literacy, knowledge,

Annual Report - 2022 9

 and manage their income and savings. The Maliyat curriculum is available in Arabic and English and comprises three main
parts including understanding Oman’s economy, financial awareness and successful financial planning. The programme
provides participants with certificates upon successful completion of each module. Bank Muscat’s Irshad financial coaching
programme for SMEs and entrepreneurs and Little Investor Financial literacy training for school students are some of the other
notable programmes initiated by the Bank. Bank Muscat along with Ministry of Higher Education, Research and Innovation
signed a cooperation agreement in the field of scientific research and innovation. Under the agreement Bank Muscat will be
supporting and financing the best graduation projects for Omani students enrolled at higher education institutions within and
outside Oman. The supported projects will cover areas of national priority as per Oman Vision 2040, aiming to launch them
into startup companies.
Tailor made solutions and services for Micro, Small and Medium sized Enterprises (MSMEs): The Bank’s Al Wathbah SME
department offers a comprehensive suite of tailor made financial and non-financial services targeted to help SMEs. Support is
also extended through non-financial services in the areas of education, coaching, networking opportunities and workshops.
To further enhance Meethaq customer experience, Bank Muscat’s Meethaq launched a dedicated desk for MSMEs at select
Meethaq branches. These desks are first of its kind in Islamic Banking in the Sultanate and will help MSMEs to understand
various banking solutions and non-banking support available to grow their business.
Cybersecurity & Anti-Fraud Awareness Campaigns: The Royal Oman Police and Bank Muscat continued their partnership
on anti-fraud related awareness campaigns. The joint campaign by the Royal Oman Police and Bank Muscat advises people
to always verify the identity of counterparty that they are dealing with before conducting transactions, and also follow best
practices for their digital safety. The awareness campaign, which includes videos highlighting real life scenarios, are being
facilitated via Oman TV, radio, print, online media, and various social media channels. The campaign provides examples of how
fraudsters perpetrate fraud and the consequences of sharing personal or banking data with others. The Bank also pointed out
that fraudsters can at times pose as Bank officials and try to persuade their victims to share OTPs, CVV numbers, passwords
and PINs of Bank accounts and credit / debit cards. With digital payments building momentum over the past, especially in the
aftermath of COVID-19, fraudsters from across the globe have increased efforts to defraud the general public. Bank Muscat has
been collaborating regularly with a number of institutions and authorities to enhance public awareness about electronic fraud.
Bank Muscat plays a systemically-important role in supporting the national economy through its various activities and
contributions paving way for Financial Inclusion. The Bank also joins hands with different Ministries, Government agencies
and non-profit institutions to help implement these programs and initiatives that support different sectors, as a responsible
Corporate Citizen that contributes to the nation’s progress and development.
The Bank is thankful to the supportive measures of the Central Bank of Oman (CBO) and the Capital Market Authority (CMA)
to strengthen the financial market in the Sultanate. The Bank’s success and excellence are the results of concerted efforts
combined with a strong ambition and the will to attain the leadership position.

Board of Directors
The roles of the Chairman of the Board of Directors (the Board) and Chief Executive Officer (CEO) are separated with a clear
division of responsibilities between the Board and the Executive Management’s responsibility for conducting the day-to-day
business of the Bank. The Board of Directors are responsible for overseeing how management serves the long-term interests
of shareholders and other key stakeholders.
The Bank’s Board of Directors principal responsibilities are as follows:

• Policy formulation, supervision of major initiatives, overseeing policy implementation, ensuring compliance with laws and
regulations, nurturing proper and ethical behavior, transparency and integrity in stakeholders’ reporting;
• Approval of commercial and financial policies and the budget, so as to achieve the Bank’s objectives, preserve and enhance
the interest of its shareholders and other stakeholders;
• Preparation, review and updating of the plans necessary for the accomplishment of the Bank’s aims and the performance
of its activities, in light of the objectives for which it was incorporated;
• Adoption of the Bank’s disclosure procedures, and monitoring their application in accordance with the rules and conditions
of the Capital Market Authority and the Central Bank of Oman;
• Supervision of the performance of the Executive Management, and ensuring that work is properly attended to, so as to
achieve the Bank’s aims, in the light of the objectives for which it was incorporated;

10 Annual Report - 2022

• Appointment of the CEO, appraisal of the performance of the Executive Management and appraisal of the work carried out by
the committees affiliated to the Board; and
• Approval of the financial statements pertaining to the Bank’s business and the results of its activities which are submitted to
the Board by the Executive Management every three months, so as to disclose its true financial position and performance.

Process of nomination of the directors

The Board, with the Nomination and Compensation Committee reviews the required skills of directors to ensure they meet the “fit
and proper” criteria prescribed by the CMA and the CBO. The Directors approved by the general meeting must meet the CBO’s
requirements before they are confirmed as members on the Board. The Shareholders retain the power to elect any candidate to
the Board irrespective of whether the candidate is recommended by the Board or not.

Election process and functioning of the Board

The Board of Directors are elected by the shareholders of the Bank at an Annual/Ordinary General Meeting. The Board is elected
for a three-year term. The Board reports to the shareholders at the Annual General Meeting (AGM) or specially convened general
meetings of the shareholders. The meetings of the shareholders are convened after giving adequate notice and with detailed
agenda notes being sent to them. The AGMs are well attended by shareholders and there is healthy discussion and interaction
between members of the Board, shareholders and functionaries of the Bank. All members of the Board of Directors attend
the AGM. Any absence necessitated by urgent circumstances by any member of the Board, is conveyed to the Chairman and
shareholders.
The Board has nine members, elected by the shareholders at the Bank’s AGM on March 22, 2022, for a period of three years. All
members of the Board attended the AGM. The current term of the Board of Directors will expire before March 31, 2025 where an
election will take place at the AGM.

Changes in the Board structure, constitution and membership

The constitution of the Board, election process for Board members and shareholders’ interests are areas of prime concern for the
good governance commitment of the Bank.
No director is a member of the Board of more than four public joint stock companies or Banks whose principal place of business
is in the Sultanate of Oman, or is a Chairperson of more than two such companies.

Details of Board members are outlined in “Table 1”

Independence of Board members
There are no executives of the Bank who are members of the Board. Six members of the Board are independent in terms of the
parameters prescribed by the Code of Corporate Governance for Muscat Stock Exchange listed companies and its amendments.
All Directors are non-executive and do not exercise substantial authority over the day-to-day functioning of the Bank. Furthermore,
the Capital Market Authority has announced a revised Code of Corporate Governance for Publicly Listed Companies in July 2015.
According to the revised CMA Code of Corporate Governance a director shall be deemed non-independent including but not
limited to the following cases:

• Holding ten per cent (10%) or more of the company shares, its parent company, or any of its subsidiary or associate companies;
• Representing a juristic person who holds ten per cent (10%) or more of the company shares, its parent company, or any of its
subsidiary or associate companies;
• Had been, during the two years preceding candidacy or nomination to the board, a senior executive of the company, its parent
company or any of its subsidiary or associate companies;
• Being a first degree relative of any of the directors of the company, its parent company or any of its subsidiary or associate
companies;
• Being a first degree relative of any of the senior executives of the company, its parent company or any of its subsidiary or
associate companies;
• Being a director of the parent company or any of the subsidiary or associate companies of the company being nominated for
its board membership;
• Being, during the two years preceding candidacy or nomination to the board, an employee of any of parties contractually
engaged with the company (including external auditors, major suppliers or civil society organisations (“CSO”) where the latter
received a support in excess of 25% of the annual budget of such CSOs);

Annual Report - 2022 11

 • Being, during the two years preceding candidacy or nomination to the board, an employee of the parent company or any of
its subsidiary or associate companies;
• Holding about 20% of the shares of any of the above-mentioned parties during the two years preceding candidacy or
nomination to the board.

Remuneration to the Board and Top Management

The sitting fees paid to the directors in 2022 amounted to Rial Omani 86,275/- in addition to a total remuneration being paid to
Directors amounting to Rial Omani 300,000/-. As all members of the Board are Non-Executive Directors, no fixed remuneration
or performance linked incentives are applicable.
The total remuneration paid/accrued to the top five executives of the Bank for the year 2022 was Rial Omani 2.844 million. This
includes salary, allowances and performance related incentives. This remuneration was approved by the Board of Directors.

Committees of the Board and their functioning

During the year 2022, there were three committees of the Board which provided able and effective support to the full Board in
carrying out its responsibilities. The three committees and their primary responsibilities were as follows:

1. Board Risk Committee

Risk management is the overall responsibility of the Board of Directors and is managed through the Board Risk Committee (BRC).
The Board reviews and approves risk management strategy and defines the risk appetite of the Bank, which is cascaded down to
the various business segments. The Board Risk Committee (BRC) supervises the risk management function and ensures that the
Bank achieves its business plans in compliance with the risk appetite set by the Board of Directors. It provides recommendations
to the Board of Directors on the risk-reward strategy, risk appetite, risk policies, capital management and the framework for
managing various risks.
Its key responsibilities are as follows:

• Engage in the formulation of risk policy covering credit, market, liquidity, operational risks, and protective services with a view
to achieve the strategic objectives of the Bank and to ensure these policies are in compliance with the relevant laws and
regulations;
• Review risk appetite framework and recommend the same for Board approval;
• Oversees risk policy implementation;
• Monitor Bank’s capital, liquidity, profitability and asset quality;
• Fosters transparency and integrity in stakeholder reporting;
• Assess the adequacy and effectiveness of the risk management practices and risk governance in the Bank.
• Monitor and ensure adherence to requirements of Domestically Systematically Important Banks (DSIB) framework.

The following areas, inter-alia, were discussed at the BRC meetings during 2022 and the appropriate recommendations were
presented to the Board of Directors for their approval:

• BRC received and reviewed the Risk Policy Compliance Report at quarterly intervals. These reports provide a status of compliance
against the Board approved risk appetite thresholds. The key issues from the report were discussed in detail and appropriate
feedback / guidance was provided by the members;
• BRC received the Internal Capital Adequacy Assessment Process (ICAAP) of the Bank. This was followed by a review of capital,
based on stress testing and forward-looking business plan. It also discussed the Bank’s stress test scenarios and considered
the results of different stress assumptions;
• BRC reviewed the compliance with the indicators designed under the Recovery & Resolution Planning (RRP) relating to D-SIB
framework. It also reviewed the changes in the RRP document and the action points following the meeting with Central Bank;
• BRC reviewed Bank’s portfolio of Investments, Country and Bank exposures and the business strategy in light of the evolving
economic scenario;
• BRC discussed the overall market risk of the Bank and reviewed the interest rate risk, FX risk, investment risk and commodity
risk along with the market factors impacting the global economy;
• BRC discussed the systemic liquidity position, liquidity risk management in the Bank, and also compliance to the Basel III
liquidity ratios;
• BRC reviewed the corporate banking portfolio of the Bank with in-depth focus on top corporate relationships. BRC reviewed
selected large corporate exposures;

12 Annual Report - 2022

• BRC reviewed the portfolio of key sensitive economic sectors in conventional and Meethaq portfolios affected by COVID-19
pandemic and the current operating environment;
• Review of the performance of the retail credit portfolio was done by BRC focusing on asset quality, risk cost and yield along
with new initiatives taken to grow the portfolio and improve portfolio quality;
• BRC reviewed the adequacy of IFRS 9 provisions for Corporate, Retail, Meethaq and other portfolios;
• BRC reviewed the Operational Risk Management framework;
• BRC reviewed the Protective Services framework and an update on Information Security and physical security;
• BRC reviewed “risk transfer” under the various insurance programs of the Bank;
• BRC reviewed the 2023 Operational Resilience plan of the Bank, Business Continuity Plan and the results of the Business
Continuity Testing;
• BRC reviewed the Business Plan of Risk Management function for 2023;
• BRC members met the Chief Risk Officer without the presence of other Management executives for an independent and
bilateral discussion.

In the joint meeting of Board Risk and Audit Committees the following topics were covered:
• Key risks, challenges and action due to regulatory guidelines, competition, major economic challenges, credit, technology and
cybersecurity risk.

2. Board Audit Committee

The primary responsibilities and functions of the Board Audit Committee (BAC) are to provide assistance to the Board of Directors
in fulfilling its responsibilities of monitoring/overseeing the financial reporting process, the adequacy and effectiveness of the
systems of internal control, the effectiveness of the audit process and the Bank’s process of complying with the relevant laws
and regulations. The Board Audit Committee meets frequently to review the work of the Internal Audit Department, challenge
the Bank’s management and to assess the overall control environment prevailing in the organization. It reviews the reports
presented by Internal Audit Department and other bodies in its deliberations and offers guidance and direction in the area of risk
management, including fraud and related controls.
The Board Audit Committee reviews on a biannual basis the Audit Committee Charter, Management Control Policy, and Internal
Audit Activity Charter, and has approved a Code of Ethics policy for all internal auditors within the department. These are key to
reinforce the organisational independence of internal audit and to establish their rules of engagement throughout the Bank. The
Board Audit Committee has adopted a risk-based approach and accordingly reviews and approves the Annual Audit Plan on that
basis. The Audit Plan contains sufficient flexibility to adapt to new and emerging risks, changing circumstances, business strategy,
products and services.
In line with CMA regulations and best practices, the Internal Audit department and the Board Audit Committee commissioned
KPMG, a global network of professional firms, to perform an External Quality Review (EQR) during 2020. This review provided
an independent assessment of the Internal Audit Department’s (IAD) positioning, processes, people and perception in line with
the Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing (“IIA Standards”) and
IIA’s Code of Ethics. This review must be performed at least once every four years. The IIA Quality Assessment scale is: Generally
Conforms, Partially Conforms, and Does Not Conform. Bank Muscat’s IAD was rated as ‘Generally Conforms’ to the Institute of
Internal Auditors’ (IIA) International Professional Practices Framework (IPPF) standards and Code of Ethics.
The Board Audit Committee places high importance on the professional development of all internal audit staff to ensure that
they are able to perform their duties to the highest level possible. Adequate financial and other resources are made available to
the function and, in particular, to support the attainment of relevant qualifications and certifications in areas such as Accounting,
Internal Audit, Fraud, Risk Management, Information Security, Islamic Finance, Compliance and Anti-Money Laundering. Both
the Board Risk Management Committee and the Board Audit Committee met as per schedule during the year 2022 and have
performed the responsibilities delegated to them.

3. Board Nomination and Compensation Committee

The Board Nomination and Compensation Committee (BN&CC) is responsible for:

• Leading the process for Board and Management appointments, through the identification and nomination of relevant
candidates for Board approval.
• Setting the principles, parameters and governance framework of the Bank’s Performance and Rewards Policy. In 2022, this
involved:

Annual Report - 2022 13

 • Succession and Development Plan.
• An approval of performance-based reward distribution criteria for Management Team members.
• Reviewed applications of the candidates for the Board new term of office (2022-2025)

The shareholding structure of the Bank is as follows:

Investor Name Ownership Percentage (%)
Royal Court Affairs 23.63
Dubai Financial Group LLC 11.77
Jabreen International Development Company S.A.O.C. / Ubhar Capital S.A.O.C. 9.42
Civil Services Employees Pension Fund 7.87
Ministry of Defence Pension Fund 6.49
Public Authority for Social Insurance 6.05
Muscat Overseas Group 4.04
Oman Holdings International Co. S.A.O.C. 3.80
Royal Oman Police Pensions Trust LLC 1.94
Diwan of Royal Court Pension Fund 1.34
Others 23.65
Total 100.00
Source: Muscat Clearing & Depository Co. (S.A.O.C.) as on 31 December 2022.
st

The fully paid up 7,506,397,062 shares, are held by 7,405 Muscat Clearing and Depository (MCD) registered shareholders. There is
no individual shareholder holding more than 15% (excluding Royal Court Affairs) of the paid-up capital of the Bank.

Rights of shareholders
All the Bank’s shares shall carry equal rights which are inherent in the ownership thereof, namely the right to receive dividends
declared and approved at the general meeting, the preferential right of subscription for new shares, the right to a share in the
distribution of the Bank’s assets upon liquidation, the right to transfer shares in accordance with the law, the right to inspect the
Bank’s statement of financial position, statement of comprehensive income and register of shareholders, the right to receive
notice of and the right to participate and vote at general meetings in person or by proxy, the right to apply for annulment of any
decision by the general meeting or the Board of Directors, which is contrary to the law or the Articles of the Bank or regulations,
and the right to institute actions against the directors and auditors of the Bank on behalf of the shareholders or on behalf of
the Bank pursuant to the provisions of Article (121) of the Commercial Companies Law No. (18/2019). Issuance of new shares
for shareholders as bonus shares does not require the approval of the Extraordinary General Meeting (EGM), whereas private
placement requires EGM.
To this end, Bank Muscat gives minority shareholders prime importance in terms of safeguarding their interests and ensuring that
their views are reflected in shareholders meetings. The “one share one vote” principle applies to all shareholders so that minority
shareholders can nominate members of the Board and can take action against the Board or the management if the actions of
the Board or management are in any way prejudicial to their interests.

Related party transactions and dealings

Related party dealings, processes and procedures are followed in the matters of all loans, advances given to directors and their
related parties and also any transactions with companies in which directors have a significant/ controlling interest.
Details of loans and advances, if any, given to any Director or his related parties are furnished with full details in the notes to
the financial statements given in the annual report as public disclosures. Other transactions with Directors carried in the normal
course of business and without any preferential treatment are disclosed to the shareholders along with the agenda notes for the
Annual General Meeting (AGM).

Affirmations
• The Board of Directors and management affirm that the Bank is in strong financial health and is expected to meet current
growth and expansion plans;
• The Board reviews the effectiveness of the Bank’s system of internal controls at least once every year and finds the systems
effective;
• There is a well laid down procedure for write-off of loan dues and write off is resorted to only after all other means of retrieval
have exhausted;

14 Annual Report - 2022

• All financial statements are prepared after proper scrutiny of the books of accounts and the Bank follows the International
Financial Reporting Standards (IFRS) in the preparation and presentation of its accounts;
• The Bank has implemented a robust internal check and control environment to ensure accurate and timely financial reporting
and financial consolidation. The Bank’s financial performance and business performance are reported to the Board of Directors
regularly after a detailed review and analysis by the Finance Department. Financial statements are prepared using appropriate
accounting policies which are consistently applied. The Bank has established necessary operational procedures and controls
to ensure accurate and timely processing of transactions and accounting. The interim financials are reviewed by the Internal
Audit Department before presenting to the Board Audit Committee and the Board of Directors for final approval, thereafter;
• There are well designed policies and procedures in place for all Bank operations as expected of a large Bank with an international
presence;
• For insurable matters, the Bank has taken adequate cover to ensure insurance protection for properties and insurable assets;
• The Bank complies fully with the Capital Market Authority (CMA) Code of Corporate Governance for Public Listed Companies
and amendments;
• The Bank meets the requirements of Basel Pillar 3 market disclosure standards and Basel III capital and liquidity disclosures as
mandated by CBO;
• The Bank meets the Capital Adequacy Standards (Capital Adequacy Ratio-CAR) prescribed by the Basel Committee and the
CBO;
• In the Extraordinary General Meeting held on 9th November 2022, shareholders of the Bank approved the increase of the
authorised share capital of the Bank to Rial Omani 800,000,000/-. The shareholders approved the issuance by way of dividend
of 375,319,853 subordinated, perpetual AT1 bonds to the Bank’s shareholders list at the rate of 1 bond per 10 ordinary shares
held by the shareholders on the meeting date. At the Ordinary General Meeting held on 9th November 2022, shareholders
approved the distribution of bonus shares at the rate of 1 bonus share for every 1 share held by the shareholders of the Bank on
the meeting date, from the share premium reserves of the Bank for the financial year ended 31st December, 2021. The approval
of the distribution of bonus shares resulted in an increase in the issued share capital of the Bank from 3,753,198,531 shares
(aggregating to Rial Omani 375,319,853) to 7,506,397,062 shares (aggregating to Rial Omani 750,639,706);
• For 2022, the Board has proposed a 15% dividend. Continuing the Bank’s dividend payment track record, the Board of Directors
has proposed a 15% cash dividend for the year 2022. The Bank’s Capital Adequacy Ratio (CAR) after the cash dividend payout
will be 21.25% which is well above the regulatory minimum. Shareholders would receive cash dividend of Rial Omani 0.015
per ordinary share aggregating to Rial Omani 112.596 million on Bank’s existing share capital. The proposed cash dividend is
subject to the formal approval of the Annual General Meeting of the shareholders;
• The Bank prepares a Management Discussion and Analysis report which is included as a separate section in the Annual Report.

Dividend Policy
The Board follows a conservative dividend policy so as to provide adequate reserves and provisions to meet any circumstances
that may arise due to internal or external contingencies. The policy seeks to reward shareholders yet looks at future growth in
terms of capital adequacy through profit retention.

Disclosures, disclosure policy and investor information

• Bank Muscat attaches the utmost priority to shareholder rights and disclosure of information. All the Banks’ news and
developments, including the financial statements, are available to any shareholder who seeks this information. Any shareholder
seeking any information about the Bank may approach the Bank for same;
• The latest news and information about the Bank are also available on its website, www.bankmuscat.com;
• There is a comprehensive Disclosure Policy and nominated spokespersons for disclosure of information news and data relating
to the Bank to shareholders, stakeholders and the public. All material information is disclosed in a timely and systematic
manner to shareholders and stakeholders;
• Items of investor information are posted simultaneously on the Bank’s website www.bankmuscat.com and all interested are
encouraged to access this information at convenience;
• During the last three years, no fines were imposed on the Bank by the Capital Market Authority (CMA). A penalty of Rial Omani
90,000/- and Saudi Arabian Rial 604,100/- were imposed by Central Bank of Oman (CBO) and Central Bank of Saudi Arabia
(SAMA) respectively. In 2022 the fines from the CBO were in relation to their 2021 examination report that highlighted non-
adherence by the Bank in the areas related to Bancassurance business. From SAMA perspective for the same year, the fine
was in relation to KSA Branch IT related connectivity issues. Further, a fine of Saudi Arabian Rial 10,000/- was imposed by KSA
Ministry of Human Resources in relation to a report file upload.

Annual Report - 2022 15

 • During the year 2022, an amount of Rial Omani 293,878/- was accrued/paid to the Bank’s external auditors against the audit
and assurance related work. The Bank uses different external auditors in different jurisdictions it operates. The payments to
external auditors are for the Bank’s operations in Oman, KSA and Kuwait for audit and other assurance related work;
• The Bank presented to a number of analysts and investors from local, regional and international jurisdictions during the year.

Bank Muscat’s equity share price and price band in the Muscat Stock Exchange
Kindly see Table 6 given at the end of this report for a month-wise listing of share prices of Bank Muscat’s shares on the Muscat
Stock Exchange.

Ernst & Young LLC (EY) – The Bank’s External Auditors

EY is a global leader in assurance, tax, transaction and advisory services. EY is committed to doing its part in building a better
working world. The insights and quality services which EY delivers help build trust and confidence in the capital markets and in
economies over the world.
The MENA practice of EY has been operating in the region since 1923. For over 100 years, EY has grown to over 7,500 people united
across 26 offices and 15 countries, sharing the same values and an unwavering commitment to quality. EY MENA forms part of
EY’s EMEIA practice. Globally, EY operates in more than 150 countries and employs 365,000 professionals in 700 offices. Please
visit ey.com for more information about EY.

Board of Directors and Executive Management profiles

Sheikh Khalid bin Mustahail Al Mashani
Sheikh Khalid bin Mustahail Al Mashani is the Chairman of the Board of Directors of the Bank and the Chairman of the Board's
Nomination and Compensation Committee since April 2011. He served as Deputy Chairman of the Board of Directors since March
1999 until his appointment as Chairman in April, 2011. Sheikh Khalid bin Mustahail Al Mashani has a BSc. in Economics from the UK
and a Master Degree in International Boundary Studies from the School of Oriental and African Studies, the University of London,
U.K.

Sheikh Ahmed bin Hamed Al Sadi

Sheikh Ahmed bin Hamed bin Hilal Al Sadi is the Deputy Chairman of the Board of Directors since February, 2020 and member of
the Board Risk Committee. Sheikh Ahmed Al Sadi is Director General of Audit at the Royal Court Affairs. He is a Chairman of Oman
Fixed Income Fund, a Chairman of Izdihar Real Estate Fund and Deputy Chairman of Nahdha Al Duqum Holding Co. “SAOC”. He
has a Bachelor’s degree in Commerce from Egypt and a Master Degree in Business Administration from Liverpool University of
London, UK.

Mr. Nasser bin Mohammed Al Harthy

Mr. Nasser bin Mohamed bin Salim Al Harthy (Retired Brigadier General), is a Director of the Bank since March 2007, and Chairman
of the Board’s Audit Committee. During his Military Service in the Ministry of Defence, he assumed several key positions notably
Head of Internal Audit, General Manager of Organization and Plans, General Manager of Administration and Human Resources.

Sheikh Said bin Mohammed Al Harthy

Sheikh Said bin Mohamed bin Ahmed Al Harthy is a Director on the Board of Directors of the Bank since July 2011 and a member of
the Board’s Audit Committee. Sheikh Said is the Director General of support services at Royal Flight Oman. He is a Board member
at Oman National Investments Development Company (Tanmia), Gulf Chlorine “W.L.L.” Qatar, and Chairman of Oman Chlorine
Co. “SAOG”. He has Master of Business Administration from Victoria University, Melbourne, Australia and a Bachelor’s degree in
Business Administration (Management), Minor in Computer Information Systems (CIS) from California State University Stanislaus,
USA.

Sheikh Saud bin Mustahail Al Mashani

Sheikh Saud bin Mustahail Al Mashani is a Director on the Board of Directors of the Bank since March 2013 and a member of the
Board’s Risk Committee. Sheikh Saud is a Director of Marketing and Business Development in Muscat Overseas Group since 2008.
Muscat Overseas Group is a diversified group of companies that has interests in the financial sector, real estate, trading, travel,
insurance, joint venture projects and others. In 2011, Sheikh Saud joined the Ministry of Foreign Affairs-International Organizations.
Sheikh Saud is holding a Master Degree on International Diplomacy from University of East Anglia (UK) in 2015. He is a graduate
in Business Management from the Staffordshire University (UK) in 2010.

16 Annual Report - 2022

Mr. Khalid Nasser Al Shamsi
Mr. Khalid Nasser Humaid Al Shamsi is a Director on the Board of Directors of the Bank since October 2015, and Chairman of the
Board’s Risk Committee and member of the Board’s Nomination and Compensation Committee. Mr. Khalid Al Shamsi’s experience
varies across public and private assets, real estate and alternative investments. He serves on the boards of several publicly listed
and private companies. Mr. Khalid Al Shamsi is an executive graduate from Harvard Business School and INSEAD Business School.
He holds a Bachelor’s Degree, magna cum laude, in Accounting, Economics and International Business. He is “IDP-C” certified, an
internationally renowned directorship program in corporate governance from INSEAD Business School, France. He is also certified
in Board Governance by Harvard University and Hawkamah Institute of Directors.

Mr. Sunder George

Mr. Sunder George is a Director on the Board of Directors of the Bank since March 2016, a member of the Board’s Risk Committee
and member of the Board’s Nomination & Compensation Committee. He is an experienced banker who has over 40 years of
banking experience with more than 36 of those years in Oman. Mr. Sunder George is an Omani national of Indian origin. He
was conferred Omani citizenship in the year 2001 considering his dedicated services to Oman in general and banking sector
in particular. Mr. Sunder George is a science graduate from Madras University, India and holds an MBA from IMD, Lausanne,
Switzerland. He is also a Fellow of the Chartered Institute of Bankers, London and an Associate of the Indian Institute of Bankers.
Mr. Sunder George also sits on the Boards of Renaissance Services “SAOG”, Halcyon Capital “SAOC”, Oman Fixed Income Fund,
Integrated Telecommunication Company (TeO) “SAOC” and Jabreen International Development Co. “SAOC”. He is also on the
Board of Trustees of Middle East College (Oman).

Dr. Saif bin Salim Al Harthi

Dr. Saif bin Salim Al Harthi is a Director on the Board of Directors of the Bank since March 2019 and a member of the Board’s Audit
Committee. Dr. Saif Al Harthi was an advisor at the Ministry of Defense. He has Ph.D. in Human Resource Development and its
relation with intensive development in the Sultanate of Oman from Egypt as well as fellowships of the International Arab Society
of Certified Accountants (ASCA) of Jordan and the National Defense College at Nasser Higher Military Academy in Egypt. He has
a Bachelor degree in Military Science from State of Kansas, USA. He has also completed a number of accounting and finance
courses including a Higher Diploma in Account Management from the University of Oxford (1995) UK. Dr. Saif bin Salim Al Harthi
has experience varies across in accounting and financial auditing. He is the Chairman of Al Maha Petroleum Products Marketing
Co. “SAOG”. He has been a board member of several Joint Stock Companies.

Dr. Faisal bin Abdullah bin Shaban Al Farsi

Dr. Faisal bin Abdullah bin Shaban Al Farsi is a Director of the Bank since March, 2022 and member of the Board Audit Committee.
Dr. Faisal Al Farsi is currently the General Manager of the Public Authority of Social Insurance, a Director of Ooredoo Oman Board,
United GCC Fund and he has been a board member of several General Joint Stock Companies. Dr. Faisal Al Farsi holds a Master’s
Degree in International Business Law and a PhD in Business and Commercial Law.

Top (5) Management Profiles

Sheikh Waleed K. Al Hashar (Chief Executive Officer)
Sheikh Waleed K. Al Hashar is the Chief Executive Officer of Bank Muscat. He is also a member of the Board of Directors of the
College of Banking and Financial Studies, Oman Banks Association, Securities and Investment Company (SICO) B.S.C, Bahrain
and a Member of the Board of Trustees of the Royal Academy of Management. His experience of over 29 years spans Banking
as well as the Oil and Gas sectors. Before joining Bank Muscat, he held senior positions in a number of leading corporates
including Petroleum Development Oman and HSBC Bank Middle East. Sheikh Waleed K. Al Hashar joined Bank Muscat in 2004
and has since held various senior positions including Group General Manager – Corporate Services and Deputy Chief Executive
Officer. He assumed the role of Chief Executive Officer of the Bank in January 2019. He holds a postgraduate diploma in General
Management from Harvard Business School as well as a BSc and Masters in Business Administration from California State
University in Sacramento, USA.

Mrs. Sheikha Yousuf Al Farsi (Chief Operating Officer)

Mrs. Sheikha Yousuf Al Farsi is the Chief Operating Officer of the Bank. Prior to becoming Chief Operating Officer, she served as
Chief Strategy & Corporate Services Officer. Her responsibility covers Strategy Management, Information Technology, Operations,
Credit and Legal function, Enterprise Project Management & Innovation, Human Resources, Corporate Communications and CSR
and Customer Experience. Prior to this role, she served as General Manager - Strategy and Organizational Development and
Assistant General Manager - Financial Control and Strategy at Bank Muscat. She received her BSc in Commerce and Economics,
majoring in Marketing, from the Sultan Qaboos University in 1999. Mrs. Sheikha Yousuf Al Farsi holds an MSc in Finance from Bayes
Business School (formerly known as Cass Business School) City, University of London (2005). She holds a General Management

Annual Report - 2022 17

 Program Certificate from Harvard Business School, USA and has also completed the Advanced Management Program from
INSEAD, France. Before joining the Bank, she worked at the Omani Centre for Investment Promotion and Export Development
(earlier known as Ithraa’) as Acting Director General of Investment Promotion.

Mr. Ahmed Faqir Al Balushi (Chief Banking Officer)

Mr. Ahmed Faqir Al Balushi is the Chief Banking Officer of the Bank responsible for leading the Corporate Banking, Retail Banking,
Treasury & Global Financial Institutions (TGFI), Project & Structured Finance, and the International Branches (in KSA and Kuwait) of
Bank Muscat. Prior to becoming the Chief Banking Officer, Mr. Ahmed served as the Chief Corporate Banking Officer presiding over
the Corporate Banking, Project and Structured Finance, Small and Medium Enterprises, and Transaction Banking departments. He
has also served as the Deputy General Manager (DGM) Human Resources Department and before moving back to Oman, he was
located in KSA as the Chief Executive Officer (CEO) of Bank Muscat’s International Businesses.
Mr. Ahmed, started his career with Bank Muscat in October 1994 as an Internal Auditor and with a rich experience spanning over
28 years. He has worked across different functions and roles within the Bank including Internal Audit, Operations, IT, Human
Resources, and Corporate banking. Mr. Ahmed is a Fellow member of the Association of Certified Chartered Accountant (ACCA),
UK and holds an EMBA from HEC Paris. He has also completed an Advance Management Program in INSEAD Business School.

Mr. T. Ganesh (Chief Financial Officer)

Mr. Ganesh Thangavel is the Chief Financial Officer of the Bank and is responsible for Group Finance and Business Planning,
Treasury and Investment Operations. In addition, he is also responsible for Investment Banking, Asset Management businesses
and Enterprise Growth of the Bank. Ganesh has a post-qualification experience of 27 years, out of which 25 years have been in
the banking industry. He is a qualified Chartered Accountant (ACA) from the Institute of Chartered Accountants of India, Certified
Management Accountant (CMA) from the Institute of Management Accountants, USA and Cost Accountant (ICWA) from the
Institute of Costs and Works Accountant of India. He also holds a postgraduate diploma in General Management from Harvard
Business School.

Mr. Shamzani Md Hussain (General Manager – Meethaq Islamic Banking)

Mr. Shamzani has 28 years of banking experience in various roles across Asia Pacific, Middle East and Africa. He has served in a
number of international and leading financial institutions which include HSBC, AIG, FGB and FAB. His professional experience in
the financial institutions spans across Retail, Wholesale and Islamic Banking. Mr. Shamzani joined Bank Muscat in May 2019 as
General Manager – Meethaq Islamic Banking. He holds a Bachelor Degree (BBA) in Finance as well as Master’s Degree (MBA) in
International Business and Human Resource Management from the University of Miami, Florida.

Shariah Supervisory Board (SSB) profiles

H.E Dr. Abdullah bin Mubarak Al-Abri – Chairman
Dr. Abdullah Al-Abri is a prominent consultant in Islamic law generally, and Islamic economics & banking in particular. He was
a professor at many universities, including Sultan Qaboos University, Sharqiyah University, and the Faculty of Shari’a Studies
–Muscat. He is a certified advocate at the Supreme Court in Oman, and a member of the Board of Directors at the Omani Bar
Association. He got PhD in economics & Islamic banking, Yarmouk University –Jordan (2009), M.A in Fiqh its principles, Al-Bayt
University –Jordan (2002), and B.A in Sharia, The College of Shari’a Sciences, Oman (1996). Since 2018 to date, Dr. Al-Abri is elected
Vice Chairman of the Board of Trustees at Al-Bureimi University College –Oman. He often appears on legal and Shari’a scholarly
platforms locally and globally.

Datuk Prof. Dr. Mohamad Akram bin Laldin – Vice Chairman

Datuk Prof. Dr. Laldin is a leading Shari’a advisor & eminent professor in Islamic banking, finance & capital market worldwide. He
serves the Shari’a advisory board of: The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) –Bahrain,
HSBC Insurance –Singapore, Energy Bank –Bahrain, Bank Negara Malaysia, International Islamic Financial Market (IIFM) –Bahrain,
Dubai Islamic Bank–UAE, and the Financial Regulation Advisory Council of Experts -Central Bank of Nigeria, etc. He is the Executive
Director of the International Sharia Research Academy for Islamic Finance (ISRA), and Prof. at International Center for Education in
Islamic Finance (INCEIF). He was an assistant professor at IIUM –Malaysia, visiting assistant professor at the University of Sharjah
–UAE. He got PhD in Islamic Law -University of Edinburgh, Scotland –UK (1995), and B.A Hons –Islamic Jurisprudence & Legislation
-University of Jordan, Kingdom of Jordan (1989).

H.E Prof. Dr. Abdulaziz Khalifah Al Qassar – Member

Professor Dr. Al-Qassar is a leading worldwide Shari’a advisor in Islamic banking and finance, supervising and teaching. He serves
as a member of the Shari’a Supervisory Board (SSB) of a number of banks including: Boubyan Bank -Kuwait, Kuwait International
Bank –Kuwait, Bank of London & the Middle East (BLME) –London, UK, Al Hilal –Islamic window of Ahli United Bank –Bahrain, &

18 Annual Report - 2022

Gulf Finance House (GFH) –Bahrain, just to name a few. Dr. Al-Qassar was a professor at the Faculty of Shari’a –Department of
Comparative Jurisprudence & Shari’a Politics –Kuwait University, and an Assistant Dean at the same Faculty. In 1997, he received
PhD in Comparative Fiqh, Faculty of Shari’a & Law -University of Al-Azhar.

H.E Dr. Ahmed Rufai Mohammed – Member

His Eminence, Dr. Rufai is a renowned Shari’a scholar in Islamic jurisprudence with a clear fingerprint on standardizing the Islamic
finance sector globally. Presently, he is the head of Shari’a Compliance of the International Islamic Financial Market (IIFM) –Bahrain
for nearly 14 years. Prior to joining the SSB of Meethaq, Dr. Rufai serves as SSB member of First Abu Dhabi Bank (FAB) –UAE, as
well as a Shari’a advisor to the Crescent Financing Company in Hamilton –New Zealand. Dr. Rufai received PhD in Islamic Law on
Transactions & Islamic Insurance –University of Malaya–Malaysia (2006). Prior to that, he got M.A in Islamic law from the same
university, and B.A in Islamic law from the Islamic University of Madinah –KSA.

H.E Waleed bin Sulaiman bin Hamid Al-Qurri – Member

Sheikh Waleed Al-Qurri is a leading scholar in the field of Islamic Fiqh in Oman, actively serving Islamic finance –banking and
Takaful. Since 2013 to date, he works as a Fatwa secretary at the Fatwa Office of the Ministry of Endowments & Religious Affairs in
Oman. He also was a member of the Shari’a Supervisory Board of “Oman Takaful” since incorporation till March 2022, as well as a
member of the Bahraini-based Shari’a Review Bureau. He obtained B.A degree in Islamic Law from the College of Shari’a Sciences
–Oman, and the Certified Shari’a Advisor & Auditor (CSAA) from AAOIFI –Bahrain.

Tables:
Table 1: Composition of Board, category of Directors, attendance of Directors in Board and Board’s
committees’ meetings and sitting fees in (2022):
Details of Board of Directors and meetings held during the year 2022 and attendance of individual Director were as follows:
This table is prepared in accordance of the requirements of annexure no. (3) of the Code of Corporate Governance “CCG”. The table
is covering item (2.1-composition and category of directors and institutions represented), item (2.2-Board meetings and dates
thereof), item (3.3-meetings and attendance during the year) and item (5.1-sitting fees):

Board
Board
Board of Board Risk Nomination &
Board position Audit Basis and Sitting
Name of the directors' Committee Compensation
and membership Committee capacity of fees in
director meetings meetings Committee
of committees meetings membership RO.
attended attended meetings
attended
attended
Chairman of
the Board
Sheikh Khalid and Chairman Independent/
Not Not
bin Mustahail of the Board 9 2 Non-executive/ 10,000/-
member member
Al Mashani Nomination and Non-shareholder.
Compensation
Committee.
Deputy Chairman Non-
Sheikh Ahmed
and member of Not Independent/
bin Hamed Al 9 4 Not member 10,000/-
the Board Risk member Non-executive/
Sadi
Committee. Non- shareholder.
Member of
Mr. Nasser bin the Board and Independent/
Not
Mohamed Al Chairman of 9 6 Not member Non-executive/ 10,000/-
member
Harthy the Board Audit Non-shareholder.
Committee.
Non-
Member of the
Independent/
Sheikh Said Board and a
Not Non-executive/
bin Mohamed member of the 8 5 Not member 9,400/-
member shareholder
Al Harthy Board Audit
in personal
Committee.
capacity.
Member of
Sheikh Saud 1
the Board and Independent/
bin Mustahail (ex-
a member of 7 2 Not member Non-executive/ 7,675/-
Al Mashani committee
the Board Risk non-shareholder.
member)
Committee.

Annual Report - 2022 19

 Board
Board
Board of Board Risk Nomination &
Board position Audit Basis and Sitting
Name of the directors' Committee Compensation
and membership Committee capacity of fees in
director meetings meetings Committee
of committees meetings membership RO.
attended attended meetings
attended
attended
Member of
the Board, a
Chairman of
Mr. Khalid the Board Risk Non-
Nasser Al Committee Not Independent/
9 4 2 10,000/-
Shamsi and a member member Non-executive/
of the Board non-shareholder.
Nomination and
Compensation
Committee.
Member of the
Board, a member
of the Board
Risk Committee Independent/
Not
Mr. J.S. George and a member 8 4 2 Non-executive/ 9,800/-
member
of the Board non-shareholder.
Nomination and
Compensation
Committee.
Member of the Independent/
Dr. Saif bin Board and a Non-executive/
Not
Salim Al member of the 9 6 Not member shareholder 10,000/-
member
Harthi Board Audit in personal
Committee. capacity.
Member of the
Dr. Fasial Board and a Independent/
Not
Abdullah Al member of the 7 5 Not member Non-executive/ 8,475/-
member
Farsi Board Audit non-shareholder.
Committee.
Independent/
Mr. Hamoud
Non-executive/
bin Ibrahim Not
Ex-member 1 - Not member shareholder 925/-
bin Soomar Al member
in personal
Zadjali (*)
capacity.
Total amount paid as sitting fees to directors 86,275/-
(*) Mr. Hamoud bin Ibrahim bin Soomar Al Zadjali left the Board of Directors on 22nd March, 2022 following the expiry of the term of office of
the Board and election of a new Board, hence attended one meeting of the Board of Directors. Dr. Fasial Abdullah Al Farsi was elected by the
annual general meeting of the shareholders (AGM) replacing Mr. Hamoud bin Ibrahim bin Soomar Al Zadjali.

Table 2: Attendance of Directors of the bank at the Annual General Meeting of Shareholders (AGM):
This table is prepared in accordance of the requirements of item (2.2-attendance of Directors of the bank at the last AGM held 22nd
March, 2022) of annexure no. (3) of the CCG:

NO. Director Present at the AGM Meeting

1 Sheikh Khalid bin Mustahail Al Mashani

2 Sheikh Ahmed bin Hamed Al Sadi

3 Mr. Nasser bin Mohamed Al Harthy

4 Sheikh Said bin Mohamed Al Harthy

5 Sheikh Saud bin Mustahail Al Mashani

6 Mr. Khalid Nasser Al Shamsi

7 Mr. J.S. George

8 Dr. Saif bin Salim Al Harthi

9 Dr. Fasial Abdullah Al Farsi

20 Annual Report - 2022

Table 3: Board and Board’s committees’ meetings in (2022):
The total number of meetings the Board had between 1st January, 2022 and 31st December, 2022 was nine meetings. The maximum
interval between any two meetings was not exceeding four consecutive months, in compliance with article 10 (B) of the Second
Principle of the CCG (July, 2015). The dates of the meetings of the Board of Directors, the Board Audit Committee, the Board Risk
Committee and the Board Nomination and Compensation Committee during year 2022 were provided in table below.
This table is prepared in accordance of the requirements of item (2.4-meetings and attendance during the year) of annexure no.
(3) of the CCG:

Dates of the Board

Sr. Dates of the Board of Dates of the Board Audit Dates of the Board Risk Nomination and
No. Directors Meetings Committee Meetings Committee Meetings Compensation
Committee Meetings

1 26th January, 2022 26th January, 2022 26th April, 2022 26th January, 2022

2 22nd March, 2022 26th April, 2022 26th July, 2022 14th June, 2022

3 26th April, 2022 26th July, 2022 7th September, 2022

4 14th June, 2022 7th September, 2022 15th December, 2022

5 26th July, 2022 25th October, 2022

6 7th September, 2022 15th December, 2022

7 8th September, 2022

8 25th October, 2022

9 15th December, 2022

Table 4: Chairmen of Board’s Committees:

This table is prepared in accordance of the requirements of item (2.3-number of other boards and other committees where the
director is a member or chairman) of annexure no. (3) of the CCG:

Sheikh Khalid bin Mustahail Al Mashani:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Chairman

2 Al Omaniya Financial Services “SAOG” Director

3 Dhofar Food & Investment Co. “SAOG” Director

4 Dhofar International Development & Investment Holding Co. “SAOG” Chairman

Sheikh Ahmed bin Hamed Al Sadi:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Deputy Chairman

Mr. Nasser bin Mohamed Al Harthy:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

2 Oman Investment & Finance Co. “SAOG” Chairman

3 Dhofar Food & Investment Co. “SAOG” Chairman

4 Dhofar Insurance Co. “SAOG” Director

Annual Report - 2022 21

 Sheikh Said bin Mohamed Al Harthy:
Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

2 Oman Chlorine Co. “SAOG” Chairman

Sheikh Saud bin Mustahail Al Mashani:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

2 Dhofar Food & Investment Co. “SAOG” Director

3 Dhofar International Development & Investment “SAOG” Director

Mr. Khalid Nasser Al Shamsi:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

Mr. J.S. George:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

2 Renaissance Services “SAOG” Director

Dr. Saif bin Salim Al Harthi:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

2 Al Maha Petroleum Products Marketing Co. “SAOG” Chairman

Dr. Fasial Abdullah Al Farsi:

Name of the Company in which you are holding directorships or Position on Board of Directors/
No.
chairmanships (SAOG) Chairman

1 bank muscat “SAOG” Director

2 Ooredoo Oman “SAOG” Director

Table 5: Members and Chairmen of Board’s Committees:

This table is prepared in accordance of the requirements of item (3.2-Board’s Committees, composition, names of members and
chairmen) of annexure no. (3) of the CCG:
Members of the Board Audit Committee:

No. Name Position in Board's Committee

1 Mr. Nasser bin Mohamed Al Harthy Chairman of the Board Audit Committee

2 Sheikh Said bin Mohamed Al Harthy Member

3 Dr. Saif bin Salim Al Harthi Member

4 Dr. Fasial Abdullah Al Farsi Member

22 Annual Report - 2022

Members of the Board Risk Committee:

No. Name Position in Board's Committee

1 Mr. Khalid Nasser Al Shamsi Chairman of the Board Risk Committee

2 Sheikh Ahmed bin Hamed Al Sadi Member

3 Sheikh Saud bin Mustahail Al Mashani Member

4 Mr. J.S. George Member

Members of the Board Nomination and Compensation Committee:

No. Name Position in Board's Committee

Chairman of the Board Nomination and

1 Sheikh Khalid bin Mustahail Al Mashani
Compensation Committee

2 Mr. J.S. George Member

3 Mr. Khalid Nasser Al Shamsi Member

Confirmation of compliance in accordance with item (6) of annexure no. (3) of the CCG:
During the year ended on 31st December, 2022, the Board of Directors of the Bank received sitting fees RO. 86,275/- for (2022) for
the Board, the Board Audit Committee, the Board Risk Committee and Board Nomination & Compensation Committee meetings.
This confirmation is being issued in accordance with item (6) of annexure no. (3) of the CCG.

Table 6
Monthly share prices of Bank Muscat’s shares quoted at the Muscat Stock Exchange (MSX) and the bands for the banking sector
stocks on the MSX.
(This information is available from news agencies and is published information. This is given here as part of the requirements of
the Code of Corporate Governance for MSX listed companies. This is not a solicitation in any manner to subscribe to the Bank’s
shares.)

Bank Muscat Share Price

Month High Low Closing

January 2022 0.530 0.490 0.524

February 2022 0.528 0.512 0.520

March 2022 0.566 0.502 0.510

April 2022 0.554 0.500 0.526

May 2022 0.540 0.522 0.528

June 2022 0.548 0.524 0.528

July 2022 0.608 0.524 0.600

August 2022 0.640 0.592 0.604

September 2022 0.608 0.566 0.574

October 2022 0.600 0.566 0.572

November 2022 0.596 0.265 0.280

December 2022 0.302 0.270 0.275

Source: MSX Monthly Bulletins
Market price from November 9, 2022 reflects the impact of issuance of 1:1 bonus shares as part of the Bank’s capital structure
optimization.

Annual Report - 2022 23

 Financial Index Movement during 2022

Month Open High Low

January 2022 6629.049 6637.459 6553.273

February 2022 6379.857 6441.757 6379.857

March 2022 6795.205 6795.205 6763.356

April 2022 6593.718 6604.997 6593.718

May 2022 6595.150 6595.150 6554.595

June 2022 6623.617 6632.495 6590.885

July 2022 7213.971 7284.777 7211.061

August 2022 7347.219 7358.620 7320.652

September 2022 7147.058 7217.266 7134.657

October 2022 7002.996 7003.291 6933.273

November 2022 7505.312 7512.609 7488.646

December 2022 7925.362 7942.686 7903.369

Source: MSX Monthly Bulletins

The Board acknowledges:

• Preparation of the financial statements in accordance with the International Financial Reporting Standards;
• That it reviewed the efficiency and adequacy of internal control systems of the Bank and that it complied with the internal rules
and regulations in 2022;
• That there are no material events that affect its ability to continue its operations during the next financial year.

24 Annual Report - 2022

Developing a
better tomorrow for all,
with world-class products,
digital technology and
round-the-clock service.

Annual Report - 2022 25

26 Annual Report - 2022
Annual Report - 2022 27
 Bank Muscat Pillar III Disclosures
31st December 2022
Purpose and Basis of Preparation

Bank Muscat SAOG (“the Bank” or “the Parent Company”) is a joint stock company incorporated in the Sultanate of Oman and
is engaged in commercial and investment banking activities within the Sultanate of Oman and one branch each in Riyadh,
Kingdom of Saudi Arabia and Kuwait. The Bank has representative offices in Dubai, United Arab Emirates, Singapore and Iran
(non-transactional). The Bank operates in Oman under a banking license issued by the Central Bank of Oman (“CBO”) and is
covered by its deposit insurance scheme. The Bank has its primary listing on the Muscat Stock Exchange (MSX).
The Basel framework issued by CBO for Banks’ in Oman is structured around three Pillars: the Pillar I - Minimum capital Requirements,
the Pillar II - Supervisory review process and the Pillar III - the Market discipline. The purpose of Pillar III is to compliment Pillar I and
Pillar II. The aim of Pillar III is to produce disclosures that allow market participants to assess the scope of application by bank of
the Basel framework and the rules applicable, the capital condition, the risk exposures, the risk management processes, and the
capital adequacy of the Bank. Pillar III discloses all material risks to provide a comprehensive view of a bank’s risk profile.
The Pillar III Disclosures comprise detailed information on the underlying drivers of Risk-Weighted Assets (RWA), capital, leverage
and liquidity ratios as at 31 December 2022 in accordance with the guidelines issued by Central Bank of Oman. The qualitative
and quantitative disclosures have been prepared in accordance to meet the minimum disclosure requirement as per CBO Basel
II framework (BM 1009) and capital disclosures in line with Basel III framework as per CP2 guidelines issued by CBO. The Bank
has board approved policy on the disclosure requirements based on the Basel II and Basel III norms in line with CBO guidelines.

A. Introduction and overview

The Bank’s strategy and business objectives may be affected by potential risk events. A lack of complete predictability of an event
occurring (or not) and its related impact creates uncertainty for the Bank. In this context, Committee of Sponsoring Organizations
of the Treadway Commission (COSO), defines risk as follows –
The possibility that events will occur and affect the achievement of strategy and business objectives.
The Bank has exposure to various types of risks including the core risks:

• Credit risk
• Market risk
• Liquidity risk
• Operational risk

Risk Management is a process by which the Bank identifies key risks by applying consistent risk identification and measurement
techniques, recommends which risks to accept or reject or mitigate, by what means and establishes procedures to monitor and
report the resulting risk position for necessary action. The objective of risk management is to ensure that the Bank operates within
the risk appetite levels set by its Board of Directors (Board) while various business functions pursue their objective of maximizing
the risk adjusted returns, ensuring fair balance between risk and reward.
Risk management is the overall responsibility of Board and managed through the Board Risk Committee (BRC). The Board reviews
and approves the risk management strategy and defines the risk appetite of the Bank. To facilitate achievement of the Bank’s
strategic objectives within the Board approved risk appetite, the Bank has established a Management Risk Committee (MRC). The
Management Risk Committee provides recommendations to the Board through the BRC on the risk-reward strategy, risk appetite,
policies and framework for managing various risks. For the purpose of day-to-day management of risks, the Bank has established
an independent Risk Management Department (RMD), which objectively reviews and ensures that the various functions of
the Bank operate in compliance with the risk policy and parameters set by the Board. The Risk Management Department acts
independently of the business with direct reporting to the Board of Directors through BRC.
The risk appetite in various business areas is defined and communicated through a well-established Enterprise-wide risk policy.
Enterprise wide risks are managed with the objective of maximising risk adjusted returns through a well-defined risk management
framework. The Bank’s risk policy, approved by the Board, analyses and sets risk limits/thresholds for Credit, Market, Liquidity,
Operational and other risks. The risk levels of each of these categories is measured and monitored on a continuous basis and
compliance to prescribed risk levels is reported on a regular basis. This ensures prudent management of risks assumed by the

28 Annual Report - 2022

Bank in its normal course of business. The risk policy is updated regularly, based on changes in Bank’s strategy/ organisational
goals, regulatory guidelines, analysis of the economic trends and the operating environment in the countries where the Bank
operates.
The Bank’s risk management processes have proven to be effective throughout the year and remain well supported by a strong
risk culture. The Bank’s Board has remained closely involved with key risk management initiatives, ensuring effective management
of the Bank’s risks, maintenance of appropriate levels of liquidity and capital in line with the evolving requirements.
The Bank recognises risk management process as a key to achieve its objective of enhancing shareholder value and as an area
of core competence. It continues to invest in enhancing its risk management capabilities, to ensure that it is able to deliver on its
growth plans while managing the underlying risks in an effective manner.
The Bank is designated as Domestic Systematically Important Bank (DSIB) in Oman. The Bank complies with all the requirements
as specified by Central Bank of Oman with respect to DSIB. The Bank has in place an updated Board approved Recovery and
Resolution Planning (RRP) document to formalize a process of self-propelled stable and sustainable recovery in the extreme
eventuality. The RRP in its present form is essentially the Recovery Plan. Central Bank of Oman (CBO) has issued paper on the
Resolution framework in Oman, which will facilitate an orderly recovery of the banks and if that is not possible, then allow
the authorities to resolve them in an orderly manner with least disruption and minimal cost to the national exchequer while
preserving financial stability.

B. Enterprise Risk Management (ERM)

‘Enterprise Risk Management is a process, effected by an entity’s Board of Directors, Management and all other personnel,
applied in strategy setting, its proper implementation and execution across the enterprise, designed to identify potential events
that may affect the entity, manage various risks to be within its risk appetite and to provide reasonable assurance regarding the
achievement of entity objectives’.
The Bank’s Enterprise Risk Management policy provides a framework for identifying, measuring, managing, monitoring and
reporting on the significant risks that the organisation faces.

B.1. Risk strategies

The Bank’s Enterprise-wide Risk Management approach is supported by a comprehensive set of risk controls. The Bank’s risk
policy describes each risk type and the mechanism for identifying, measuring, monitoring and reporting of risks and the roles and
responsibilities for managing risks. It sets risk limits for core risks and other risk areas through the risk appetite framework. The risk
management matrix lays down the risk ownership within the Bank.
Apart from the Risk policy, various other key policies including Credit Policy, Country Risk Policy, Asset Liability Management
Policy, Treasury Policy, Investment Policy, Operations Policy, Fraud Risk Management Policy, Protective Services Policy and Anti
Money Laundering Policy have been established on a comprehensive basis, duly approved by the Board, enabling prudent risk
management. These policies lay down the process for managing risks across business lines.

B.2. Risk governance structure

The approach to managing risks is communicated throughout the organisation and is supported by explicit ownership of risks
and a clear allocation of responsibilities. The Bank has a clear corporate and risk governance framework in order to manage,
control and provide assurance on risk to both internal and external stakeholders. The management of risk is guided by various
committees in the Bank. Also, the Bank has adopted the industry standard of three lines of defence.

Annual Report - 2022 29

 The Board committees, key management committees and three lines of defence model, which are part of the risk governance
structure are given below:

Operations
Committee

Customer Experience
Committee

Defence line 1st line 2nd line 3rd line

Role Risk Origination Risk Review Assurance
Risk Management
Stakeholders Business Internal Audit
Compliance
Sourcing risks in line with risk
Facilitate risk appetite framework Assure alignment
appetite
Full and complete disclosure of Major deviations analyzed & non
Process Measure, monitor and report risks
facts/risks alignment escalated
Pro-active post approval Escalate deviations and concerns
Assurance on corrective action(s)
monitoring for necessary action(s)

The Chief Risk Officer (CRO), who is supported by heads of Credit, Market, and Operational risk and Protective Services unit
facilitates day to day management of risk within the Bank. International branches at Kuwait and Saudi Arabia (KSA) and Meethaq
risk team also report to CRO in all risk related matters.
The Bank has a Management Risk Committee to facilitate achievement of the Bank’s strategic objectives within the Board
approved risk appetite, without exposing the Bank to undue risks or risk concentration. CRO is the chairman of the Management
Risk Committee.
Risk management is an enterprise wide responsibility. The three-lines-of-defence model promotes transparency, accountability
and consistency through the clear identification and segregation of roles and responsibilities. The key differences in perspectives
(which are also strategically complementary) between Business, Risk Management, Compliance and Internal Audit functions are
stated below:
Sourcing business and to remain within the risk appetite is the role and responsibility of the Business function.
Risk Management and Compliance as controlling functions ensure that the Bank remains in compliance with the overall risk
appetite and regulatory guidelines and reports the same to Board & Management on periodic basis.
The Internal Audit as an independent assurance function, independent of all other business and functional units, provides
assurance through independent reviews that the Bank is in compliance with the thresholds set in the risk policy and regulatory
guidelines/thresholds and also that risk management systems are effective and adequate. It makes an important contribution in
ensuring the adequacy and effectiveness of internal control systems and reports directly to the Board.

30 Annual Report - 2022

B.3. Risk appetite
A risk appetite statement formally defines and expresses the willingness and ability of the Bank to take on certain type, amount
and tenure of risk in order to pursue its strategic objectives. It is believed at the Bank that a clearly understood and articulated
risk appetite statement contributes towards creating value by better aligning decision-making and risk. It reflects the capacity of
the Bank to sustain losses and continue to meet its obligations. It helps to reinforce a strong risk culture, which in turn is critical
to sound risk management and evaluate opportunities for appropriate risk taking and at the same time, act as a defence against
excessive risk-taking. A sound risk culture provides an environment that is conducive in ensuring that emerging risks that may
have material impact on the Bank, and any risk-taking activities beyond the Bank’s risk appetite are identified, escalated, and
addressed in a timely manner.
The qualitative aspects represent the structural framework of the risk appetite statement. The quantitative aspects evolve from the
qualitative ones and consist of a set of limits or thresholds for certain key ratios which covers credit risk, market risk, operational
risk, capitalization, liquidity and other risks of the Bank. The Bank only seeks and accepts exposure to risks that feature the
possibility of earning an adequate risk adjusted return. Rather than avoiding risk in general, the Bank aims at optimizing its risk-
return profile.
The business model of the Bank is based on fundamental principles ensuring the sustainability, prosperity, growth, and profitability
of the Bank as a whole. These principles represent the qualitative aspects of the risk appetite statement. All of the Bank’s business
activities shall be in line with the following set of principles:

• Regulatory: The Bank shall always abide by the regulatory framework, which might be set either by international regulatory
institutions or by local supervising authorities.
• Reputation: The integrity of its reputation is one of the most important success factors for any financial institution. The Bank
shall always endeavour to maintain its reputation and perception to customers and business partners.
• Returns: The Bank shall maintain its ability to generate profits sufficient to provide an attractive dividend to its shareholders.
• Rating: The Bank shall retain favourable external credit ratings by adherence to strong capital adequacy ratios –Common Equity
Tier 1, Tier 1, Pillar I and Pillar II, follow prudent and sustainable management practices and earn consistent return on capital.
• Strategic: All elements of the Bank’s business activities must be in accordance with its self-determined business model and
strategic objectives.
• Liquidity: The Bank’s business activities shall always support and ensure a comfortable liquidity position. In particular, the
Bank shall always meet all its obligations to its depositors and creditors.

The quantitative aspects of the risk appetite framework comprise both statutory limits constraints and internal limits. The breach
of the thresholds will trigger an escalation process to the Board or Management Executive Committee (MEXCO) or Management
Risk Committee depending upon the level of breach, to decide on appropriate remedial actions to overcome the same. This is to
bring in more accountability and focus; enhance the objectivity of the framework; and to reinforce a strong risk culture.
The Bank has a well-embedded Risk Appetite Framework articulating its appetite for the type and quantum of risk through
clearly defined metrics. The risk appetite statement is reviewed and updated on an annual basis considering the economic
environment, regulatory changes, business objectives and plan. The results of the periodic assessment are reported to the Board
and Management Risk Committee.
The risk appetite framework consists of four components which are depicted below:

The framework defines the above 4 components as:

• Risk capacity: The maximum level of risk the Bank can assume given its current level of resources before breaching constraints
determined by regulatory capital and liquidity needs, the operational environment (e.g. technical infrastructure, risk
management capabilities, expertise) and obligations from a conduct perspective to stakeholders.
• Risk appetite: The aggregate level of risk that the Bank is willing to accept or to avoid within its risk capacity, in order to achieve
its business objectives and plan. It includes thresholds expressed relative to different types of risks such as earnings, capital,
core risks, liquidity and reputation.

Annual Report - 2022 31

 • Risk limits: Quantitative measures based on forward looking assumptions that cascade the Bank’s aggregate risk appetite
statement to business lines. The Bank has cascaded the risk appetite framework to business lines.
• Risk profile: Point in time assessment of the Bank’s risk exposures aggregated within and across each relevant risk category.

B.4. Risk culture

The Bank has a strong risk culture which begins at the top, from Board of Directors and moves right down to the lowest level. It is
supported by risk and other policies, risk appetite statement, training programs, employee orientation program, e-learning tools
and direction from senior management. The Bank is committed to building and maintaining strong risk culture and awareness
across the organization.

B.5. Risk measurement

Measuring risk is one of the important components of the enterprise risk management. The Bank has various tools and techniques
for measuring different types of risks. The measurement techniques evaluate both the quantitative and qualitative factors to
ensure they are within the threshold set under the risk appetite.

Expected loss
Expected loss is loss which is expected to occur in the normal course of business over a future period. For credit risk, it is calculated
using Probability of default (PD), Loss given default (LGD) and Exposure at default (EAD). To cover the expected loss, the Bank
holds provisions.

Unexpected loss
Unexpected loss is the estimate of loss above the expected loss over a future period, calculated statistically and measured at a
specified level of confidence. To cover the unexpected loss, the Bank holds capital. For more information, please refer to capital
management section.

Stress testing
Stress testing examines potential effects resulting from changes in risk drivers corresponding to exceptional but plausible adverse
events, and is an important component of our risk management framework. It helps the Bank to examine its capabilities in the
stress scenarios. Stress testing results are used to monitor risk profile relative to risk appetite, identifying key risks, available
mitigating actions in response to adverse events and assessing the adequacy of our target capital levels.
For further details, refer to stress testing and Liquidity sections.
Along with our internal stress testing program, the Bank also participates in regulator defined stress test exercises.

B.6. Compensation policy

In line with the CBO guidelines on remuneration disclosures as part of Pillar III, the Bank has outlined the relevant qualitative and
quantitative disclosures in this report.

Qualitative Disclosures
Policy
The remuneration policy supports the Bank's long-term objectives. The scope of the Bank’s remuneration policy extends to
all employees of the Bank and is designed to attract, retain and motivate the best talent in the industry. It seeks to encourage
and support long-term stability, particularly of its capital base, promote steady growth and create risk awareness. The Bank is
committed to fair, balanced, performance-oriented compensation practices that align the interest of employees, the Bank and the
shareholders. The policy is aimed to attract, retain and motivate the best people in the industry as it believes that human capital
is fundamental to the Bank’s success.
The Bank's remuneration policy promotes sound and effective risk management and does not encourage risk-taking that exceeds
the level of risk tolerance established by the Board of the Bank. The policy includes measures to avoid any conflicts of interest. This
policy is reviewed by the Board Nomination and Compensation Committee (BNCC) at least once every two years.
Bonus awards at the Bank are calculated taking into account current and future risks, the cost and quality of capital plus liquidity.
They are consistent with the timing and likelihood of anticipated income/ revenues. The variable compensation pool including
that of Material Risk Takers is based on the risk adjusted profit of the Bank. Bonuses, including those previously earned, are
considerably reduced, where subdued or negative financial performance occurs or is anticipated.

32 Annual Report - 2022

Board Nomination and Compensation Committee (BNCC)
The Bank has a Board appointed Nomination and Compensation Committee whose primary objectives are –

• setting the principles, parameters and governance framework for the Bank’s compensation policy; and
• ensuring the Bank is equipped to meet standards of international best practices.

The responsibilities of the BNCC and other particulars such as members of the committee are enunciated in the Corporate
Governance statement section of the annual report.

Material Risk Takers (MRT)

MRTs have been assessed as those who management believes have a material impact on the Bank's risk profile, including staff
who head key functions. They will have either regional responsibility for their business, a significant influence on corporate
decision-making or are heads of key control functions. The Bank conducts an annual risk-assessment exercise that aims at
assessing the Bank's specific risk profile. The BNCC approves the Bank's rewards policy and specific compensation of the Material
Risk Takers
The Bank’s staff shall be identified as MRTs if they meet one or more of the following three criteria:

i. Standard qualitative criteria: Related to the role and decision-making power of staff members.
ii. Standard quantitative criteria: Related to the level of variable compensation in absolute or in relative terms.
iii. Internal criteria: This criteria is based on internal risk assessment processes and aims at assessing the Bank’s specific risk profile.

In order to be sensitive to the time horizon of risks, the Bonus/ incentive pay-outs for MRTs are deferred over the 4 years period
wherein first year around 55% of the bonus is paid and the balance is equally paid over the subsequent 3 years subject to certain
conditions relating to malus and clawback.

Control Functions
Staff engaged in assurance functions such as Risk Management, Compliance and Internal Audit are independent of the business
units they oversee. Their remuneration, both fixed and variable, are determined centrally and front-line business units are not
involved in this process. As a result, the bonus pool for control functions is funded separately (ring-fenced) from the Bank-wide
bonus pool, which is approved by the BNCC.
The Bank's remuneration policy is designed to manage the conflicts of interest, which might arise if other business areas had
undue influence over the remuneration of staffs within control functions.

Malus and Clawback

The Bank has adopted incentive compensation malus and clawback policy in order to ensure that incentive compensation is paid
based on accurate financial and operating data, and the correct calculation of performance against incentive targets. If the BNCC
determines to seek recovery for the overpayment, the Bank shall have the right to demand that the covered staff reimburse the
Bank for the overpayment.

Quantitative Disclosures
The Board Nomination and Compensation committee held 2 meetings in 2022 and sitting fees were paid to the members.
As per the policy, the bonus pool for all staff is based on Risk Adjusted Return on Capital (RAROC). The bonus pool eligibility is
computed as a percentage of the net profit based on different slabs of RAROC. In this process, the Bank factors in to account all the
associated risks and expected losses by using capital requirement as per Economic capital model. Generally, the compensation
structure of the bank is split between fixed and variable in the proportion of 78%: 22% for all employees.
The key management comprises 5 members (for 2022 and 2021: 5 members) of the MEXCO. The below table provides details of
key management compensation:

2022 2021

RO 000's RO 000's

Salaries and other short-term benefits 2,807 2,599

Post-employment benefits 37 36

Total 2,844 2,635

The amounts disclosed in the table above are the amounts accrued / paid recognised as an expense during the reporting period
related to key management personnel. Certain components of key management compensation are on deferral basis and are
disclosed accordingly. The previous year figures are revised considering the actual payment, wherever applicable.

Annual Report - 2022 33

 B.7. Emerging risks
An important constituent of the Bank’s Enterprise Risk Management approach is to ensure that new or emerging risks are
appropriately identified and managed within the existing Enterprise risk management framework. This practice ensures that the
management is forward-looking in its assessment of risks that the organisation may encounter.
The emerging risks as identified by the Bank are as under:

B.7.i. Economic environment

As the world was recovering from the impact of COVID 19 pandemic which caused disruption worldwide, the war in Ukraine which
started in February led to higher oil prices, inflation, rising interest rates, and supply chain disruption. The rising oil prices have led
to increase in Oman Government revenues and hence the gross government debt to GDP is estimated to reduce from 61% in 2021
to 42% GDP in 2022. The government's fiscal reform program and favorable oil prices has led to S&P raising long-term sovereign
credit ratings on Oman to 'BB' from 'BB-' with a stable outlook.
The impact of the Ukraine war is expected to spillover to 2023. Rising inflation has forced the Central Banks around the globe to
increase interest rates. Though there are early signs of inflation easing, Central Banks have signaled towards continuing monetary
policy tightening, though at a slower pace. The consequences of the monetary policy tightening empirically affects with a lag and
it is expected to happen next year; but there is still a lot of uncertainty. These measures may lead to slowing global growth which
may have an impact on the oil prices. However, the higher oil revenue during 2022 and reduction in Debt to GDP would help the
Oman economy survive the uncertainty, in case it arises.
It is anticipated that the Central Bank of Oman will follow the interest rate policy of the U.S. Federal Reserve, given the currency peg.
There could be marginal asset quality deterioration from the expiring loan deferral program because the Bank has restructured
some of these exposures. The majority of the retail portfolio is backed by government salaries. There could be liquidity pressures,
driven by a growth in loan book and withdrawal of deposits as people start to spend. However, the Bank has strong franchise in
Oman and monitors the liquidity condition as it evolves and is proactive in initiating measures to raise funds at the appropriate
time and price.

B.7.ii. Regulatory environment

The Bank operates in a tightly regulated environment. The changes/ introduction of new regulations by regulators impact the
way the Bank undertakes its business, both domestically as well as in the overseas markets. The regulatory reforms have potential
to increase our operational, compliance, and technological costs. The Bank responds to these changes proactively and strives to
minimize any potential business or economic impact due to such changes.
Following are the key emerging regulatory changes which can impact the Bank.
The final papers on the revision to the Capital and RWA norms have been published by the Basel Committee on Banking
Supervision (BCBS) and these are applicable from 1st January 2023.

• Revised standardised approach for credit risk;

• Revised standardised approach for operational risk.

Apart from the Basel Committee regulations, the proposed discontinuation of the LIBOR and introduction of new Interbank Offered
Rates could have substantial impact on the banking system. The impact of the above regulations depends on the applicability by
the Central Bank of Oman.
Apart from the global changes, there are number of local regulatory changes which could impact the Bank –

• From an AML perspective, additional controls or scrutiny due to the upcoming Financial Action Task Force (FATF) mutual
evaluation of Oman may be enforced by the regulator.
• There is an increased focus on customer complaints redressal and consumer protection from CBO. Hence, new comprehensive
guidelines have been issued in this regard by CBO to formalize consumer protection framework across banks.
• There is an increased focus from CBO on control and assurance functions of the banks. CBO is in the process of issuing new
guidelines on Compliance, Risk Management Function and Internal Audit Functions.
• CBO is in the process of revising its guidelines on Personal Loans by consolidating all previous regulations issued into a new
master circular on the same.
• From privacy perspective, the newly issued Royal Decree and CBO circular on Consumer Protection provides detailed guidelines
on the requirements of privacy and protection framework. The Bank is in the process of establishing a Data Privacy and
Protection section to implement the framework.

34 Annual Report - 2022

• There continues to be focus on ESG (Environmental, Social and Governance) practices in the banking system globally and in
Oman too. Banks will need to continue enhancing the policy and process frameworks to manage the same effectively.

B.7.iii. Cyber Attacks

Major cyber-attacks on financial institutions globally are being reported and this shows the advancement and sophistication of
cyber attackers. There is an increasing concern in the financial industry to ensure that organisations are resilient against attacks
by not only ensuring protection of their assets but also having the capability to respond.
The Bank conducts simulated “hacking” to identify weakness as well as to test the Bank’s readiness to respond to an attack.
The Bank has built in-house monitoring capability and has in place early warning signals to alert against possible attacks. The
Bank also conducts periodic cyber- attack exercises to ensure that the Bank can effectively respond and recover from an attack
to ensure continuity and readiness of the Bank’s operations as well as for the Bank’s management to effectively manage public
relations during and post the attack.

C. Scope of application
This Pillar III document incorporates the Bank’s international branches in Saudi Arabia and Kuwait along with Oman operations. In
2020, the Bank had a wholly owned subsidiary in Muscat Capital Company ("MC"), Riyadh, Kingdom of Saudi Arabia.
On 15th March 2021 (effective date), the Parent sold 72.71% stake in MC to SICO BSC (c) ("SICO"), a leading regional asset manager,
broker, market maker and investment bank (licensed as a wholesale bank by the Central Bank of Bahrain). The acquisition took
place by share swap and as a result of the said transaction, SICO owns 72.71% of MC while Bank Muscat owned 10.38% stake in
SICO BSC (c), 9% on account of share swap transaction and additional 1.38% due to further investments through secondary market
purchase. Subsequent to disposal of subsidiary, MC was been renamed as SICO Capital.
Subsequently on 23rd October 2022, the Bank sold remaining 27.29% stake in SICO Capital to SICO BSC (c). The Bank received
OMR 1.95 million as sale consideration. Subsequent to this transaction, the Bank has now fully exited the shareholding interest
in SICO Capital. In 2022, the Bank acquired a further 2.76% shareholding in SICO BSC (c) for RO 1.957 million. Subsequent to this
transaction, the Bank has increased its stake to 13.14% in SICO BSC (c) and continues to be designated as an associate.
The Bank has international branches in Saudi Arabia and Kuwait and representative offices in Dubai, Singapore and Tehran. The
financials of branches are consolidated in the Bank’s financial statements. Associates are accounted using equity method. The
disclosures made in this section pertains to the Bank alone.
Details of Bank’s foreign branches and Associates as on December 31, 2022 are as below:

Percentage
Country of
Name of Entity interest held Status Regulator
operation
by the Bank

Saudi Arabian Monetary Agency,

Kingdom of Saudi
Parent Company with Central Bank of Kuwait,
Arabia, Kuwait,
BankMuscat SAOG 100.00 foreign branches and Central Bank of UAE,
UAE, Singapore
representative offices Monetary Authority of Singapore and
and Iran
Central Bank of Iran respectively.

SICO BSC (C) Bahrain 13.14 Associate Central Bank of Bahrain

An outline of differences in the basis of consolidation for accounting and regulatory purposes is explained below:

Basel III IFRS

Treatment is dependent on the nature Treatment is the same for all entities,
Principle
of activity of the entity not dependent on activity

Subsidiaries conducting banking,

Consolidateda Consolidated
securities or financial services, as defined

Associates Deducted Accounted using the equity methodb

Entire risk-weighted exposures amount of the subsidiary are consolidated with the Bank’s risk-weighted exposures.
a.

Investments in associates classified and disclosed separately in the consolidated balance sheet. The share of the profits or losses
b.

of such investments disclosed separately in the consolidated statement of profit and loss.

Annual Report - 2022 35

 D. Capital management
D.1. Capital structure - As per Basel III regulations
The Bank follows the Basel III capital norms and it remains strongly capitalised. The appended tables are part of the disclosures
under the new guidelines.
The Bank’s regulatory capital as per Basel III regulations is grouped into:

• Common Equity Tier 1 (CET1) capital includes common shares, share premium resulting from the issue of common shares,
retained earnings net of any interim losses and net of any interim and/or final dividend proposed/declared, other disclosed
reserves, qualifying minority interest (i.e. CET 1 capital instruments issued by consolidated subsidiaries of the bank held by third
parties), less regulatory adjustments applied in the calculation of CET 1 Capital.
• Additional Tier 1 capital shall consist of capital instruments issued by the Bank that meets the criteria specified for additional tier
1 capital, and not included in CET 1 capital, share premium resulting from the issue of Additional Tier 1 instruments, qualifying
Additional Tier 1 capital instruments issued by consolidated subsidiaries of the bank held by third parties, less regulatory
adjustments applied in the calculation of additional Tier 1 Capital.
• Tier 2 capital, which includes capital instruments issued by the Bank that fulfil the criteria specified in Tier 2 capital instruments,
and are not included in Tier 1 capital, share premium resulting from the issue of Tier 2 instruments, qualifying capital instruments
issued by consolidated subsidiaries of the bank held by third parties, loan/financing loss provisions, revaluation reserves with a
haircut of 55% and less regulatory adjustments applied in the calculation of Tier 2 Capital. Stage 1 and stage 2 expected credit
loss (‘ECL’) allowances under IFRS 9 are included in Tier 2 Capital. In line with Basel guidelines as measure to reflect impact of
Covid-19 and in order to smoothen the higher volatility in ECL computation and its impact on regulatory capital of the banks
amid Covid-19 outbreak, the Central Bank of Oman introduced “Prudential filter” under the interim adjustment arrangement for
stage-1 and stage-2 ECL computed under IFRS-9. Stage 1 ECL is allowed 100% as Tier 2 Capital. For stage-2 ECL, the following
two-pronged approach applies;
• Stage 2 ECL amount as on December 31, 2019 is considered as Base year amount and will continue to get phase out arrangement
as per the earlier arrangement. The existing stage 1 and stage 2 ECL shall remain subject to 1.25% of credit risk weighted assets.
The incremental stage-2 ECL after December 31, 2019 will be added back to Tier-II capital and will be phased out. The phasing
arrangement of stage 2 ECL is as under;

Stage 2 ECL allowance (Phase out) 2020 2021 2022 2023 2024
Existing ECL as on December 31, 2019 (Base Year) 40% 20% 0% 0% 0%
Incremental ECL [ECL on Reporting Date (minus) ECL as on
100% 80% 60% 40% 20%
December 31, 2019]

The Bank has applied in its capital adequacy calculations the “Prudential filter” under interim adjustment arrangement for Stage-1
and Stage-2 ECL. The impact of above filter on the Bank's regulatory capital is 86 bps.

Capital Optimisation
As part of Capital Optimisation Plan, the Bank’s shareholders in Extraordinary General Meeting and Ordinary General Meeting
held on 9th November 2022, approved the increase in the authorised share capital of the Bank to RO 800 million. Further the
shareholders also approved and received one-off dividend in the form of bonus shares of 1 ordinary share of RO 0.100 for each
ordinary approved and received one-off dividend in the form of bonus shares of 1 ordinary share of RO 0.100 for each ordinary
share aggregating to 3,753,198,531 shares equivalent to RO 375.320 million and 1 perpetual bond of RO 1 for every 10 ordinary
shares aggregating to 375,319,853 bonds equivalent to RO 375.320 million. Share premium and retained earnings have been
utilised for the issuance of bonus shares and perpetual bonds respectively. The perpetual bonds are listed in Muscat Stock
Exchange.

36 Annual Report - 2022

1. Basel III Regulatory Capital Disclosure
Table 1
Reference to the
regulatory Scope
Common Disclosure Template as at December 31, 2022 RO 000's
of consolidation
from Table 2B
Common Equity Tier 1 capital: instruments and reserves
Directly issued qualifying common share capital (and equivalent for non-joint
1 906,855 (A)+(B)
stock companies) plus related stock surplus
2 Retained earnings 155,100 (C)
3 Accumulated other comprehensive income (and other reserves) 549,487 (D+(E)
Directly issued capital subject to phase out from CET1 (only applicable to non-
4 -
joint stock companies)
Common share capital issued by subsidiaries and held by third parties (amount
5 -
allowed in group CET1)
6 Common Equity Tier 1 capital before regulatory adjustments 1,611,442
Common Equity Tier 1 capital: regulatory adjustments
7 Prudential valuation adjustments 18,620 (F)+(G)
8 Goodwill (net of related tax liability) -
Other intangibles other than mortgage-servicing rights (net of related tax
9 -
liability)
Deferred tax assets that rely on future profitability excluding those arising from
10 -
temporary differences (net of related tax liability)
11 Cash-flow hedge reserve -
12 Shortfall of provisions to expected losses -
13 Securitisation gain on sale (as set out in paragraph 14.9 of CP-1) -
14 Gains and losses due to changes in own credit risk on fair valued liabilities. -
15 Defined-benefit pension fund net assets -
Investments in own shares (if not already netted off paid-in capital on reported
16 -
balance sheet)
17 Reciprocal cross-holdings in common equity -
Investments in the capital of banking, financial, insurance and takaful entities
that are outside the scope of regulatory consolidation, net of eligible short
18 -
positions, where the bank does not own more than 10% of the issued share
capital (amount above 10% threshold)
Significant investments in the common stock of banking, financial, insurance
19 and takaful entities that are outside the scope of regulatory consolidation, net of 52,316 (H)
eligible short positions (amount above 10% threshold)
20 Mortgage Servicing rights (amount above 10% threshold) -
Deferred tax assets arising from temporary differences (amount above 10%
21 6,399 (I)-(J)
threshold, net of related tax liability)
22 Amount exceeding the 15% threshold -
23 of which: significant investments in the common stock of financials -
24 of which: mortgage servicing rights -
25 of which: deferred tax assets arising from temporary differences -
National specific regulatory adjustments: Regulatory adjustments applied to
26 -
Common Equity Tier 1 in respect of amounts subject to pre-Basel III treatment
Regulatory adjustments applied to Common Equity Tier 1 due to insufficient
27 -
Additional Tier 1 and Tier 2 to cover deductions
28 Total regulatory adjustments to Common equity Tier 1 77,335
29 Common Equity Tier 1 capital (CET1) 1,534,107

Annual Report - 2022 37

 Additional Tier 1 capital: instruments
30 Directly issued qualifying Additional Tier 1 instruments plus related stock surplus 505,320 (K)
31 of which: classified as equity under applicable accounting standards 5 505,320
32 of which: classified as liabilities under applicable accounting standards 6 -
33 Directly issued capital instruments subject to phase out from Additional Tier 1 -
Additional Tier 1 instruments (and CET1 instruments not included in row 5) issued
34 -
by subsidiaries and held by third parties (amount allowed in group AT1)
35 of which: instruments issued by subsidiaries subject to phase out -
36 Additional Tier 1 capital before regulatory adjustments 505,320
Additional Tier 1 capital: regulatory adjustments
37 Investments in own Additional Tier 1 instruments -
38 Reciprocal cross-holdings in Additional Tier 1 instruments -
Investments in the capital of banking, financial, insurance and takaful entities
that are outside the scope of regulatory consolidation, net of eligible short
39 -
positions, where the bank does not own more than 10% of the issued common
share capital of the entity (amount above 10% threshold)
Significant investments in the capital of banking, financial, insurance and takaful
40 entities that are outside the scope of regulatory consolidation (net of eligible -
short positions)
National specific regulatory adjustments: Regulatory adjustments applied to
41 -
additional Tier 1 in respect of amounts subject to pre basel III treatment.
Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to
42 -
cover deductions
43 Total regulatory adjustments to Additional Tier 1 capital -
44 Additional Tier 1 capital (AT1) 505,320
45 Tier 1 capital (T1 = CET1 + AT1) 2,039,427
Tier 2 capital: instruments and provisions
46 Directly issued qualifying Tier 2 instruments plus related stock surplus -
47 Directly issued capital instruments subject to phase out from Tier 2 -
Tier 2 instruments (and CET1 and AT1 instruments not included in rows 5 or 34)
48 -
issued by subsidiaries and held by third parties (amount allowed in group Tier 2)
49 of which: instruments issued by subsidiaries subject to phase out -
50 Provisions 115,656 (L)+(M)
51 Tier 2 capital before regulatory adjustments 115,656
Tier 2 capital: regulatory adjustments
52 Investments in own Tier 2 instruments -
53 Reciprocal cross-holdings in Tier 2 instruments -
Investments in the capital of banking, financial, insurance and takaful entities
that are outside the scope of regulatory consolidation, net of eligible short
54 -
positions, where the bank does not own more than 10% of the issued common
share capital of the entity (amount above the 10% threshold)
Significant investments in the capital banking, financial, insurance and takaful
55 entities that are outside the scope of regulatory consolidation (net of eligible -
short positions)
National specific regulatory adjustments Regulatory adjustments applied to Tier
56 -
2 in respect of amounts subject to pre-basel III treatment.
57 Total regulatory adjustments to Tier 2 capital -
58 Tier 2 capital (T2) 115,656
59 Total capital (TC = T1 + T2) 2,155,083

38 Annual Report - 2022

Risk Weighted Assets
RISK WEIGHTED ASSETS IN RESPECT OF AMOUNTS SUBJECT TO PRE-BASEL III
-
TREATMENT
60 Total risk weighted assets (60a+60b+60c) 10,139,344
60a Of which: Credit risk weighted assets 9,121,717
60b Of which: Market risk weighted assets 121,814
60c Of which: Operational risk weighted assets 895,813
Capital Ratios
61 Common Equity Tier 1 (as a percentage of risk weighted assets) 15.13%
62 Tier 1 (as a percentage of risk weighted assets) 20.11%
63 Total capital (as a percentage of risk weighted assets) 21.25%
Institution specific buffer requirement (minimum CET1 requirement plus capital
64 conservation buffer plus countercyclical buffer requirements plus G-SIB/D-SIB 9.25%
buffer requirement expressed as a percentage of risk weighted assets)
65 of which: capital conservation buffer requirement 1.25%
66 of which: bank specific countercyclical buffer requirement 0.00%
67 of which: D-SIB/G-SIB buffer requirement 1.00%
Common Equity Tier 1 available to meet buffers (as a percentage of risk weighted
68 7.27%
assets
National minima (if different from Basel III)
69 National Common Equity Tier 1 minimum ratio (if different from Basel 3 minimum) 7.00
70 National Tier 1 minimum ratio (if different from Basel 3 minimum) 11.25
71 National total capital minimum ratio (if different from Basel 3 minimum) 13.25
Amounts below the thresholds for deduction (before risk weighting)
72 Non-significant investments in the capital of other financials -
73 Significant investments in the common stock of financials -
74 Mortgage servicing rights (net of related tax liability) -
75 Deferred tax assets arising from temporary differences (net of related tax liability) 6,399
Applicable caps on the inclusion of provisions in Tier 2
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to
76 114,664
standardised approach (prior to application of cap)
77 Cap on inclusion of provisions in Tier 2 under standardised approach -
Provisions eligible for inclusion in Tier 2 in respect of exposures subject to
78 -
internal ratings-based approach (prior to application of cap)
79 Cap for inclusion of provisions in Tier 2 under internal ratings-based approach -
Capital instruments subject to phase-out arrangements (only applicable between 1 Jan 2018 and 1 Jan 2022)
80 Current cap on CET1 instruments subject to phase out arrangements -
Amount excluded from CET1 due to cap (excess over cap after redemptions and
81 -
maturities)
82 Current cap on AT1 instruments subject to phase out arrangements -
Amount excluded from AT1 due to cap (excess over cap after redemptions and
83 -
maturities)
84 Current cap on T2 instruments subject to phase out arrangements -
Amount excluded from T2 due to cap (excess over cap after redemptions and
85 -
maturities)

Annual Report - 2022 39

 Table 2a
Balance sheet as in Under regulatory
published financial scope of
Reconciliation between published financial statements and statements consolidation
regulatory capital adequacy workings
As at 31-Dec-2022 As at 31-Dec-2022
in RO 000's in RO 000's
Assets
Cash and balances with CBO 883,060 883,060
Due from banks 641,480 641,480
Loans & Advances/Islamic Financing - Net, 9,416,894 9,551,583
Non-Qualifying Components of Basel III (Stage 2 ECL) - (134,689)
Investments in securities 1,571,984 1,571,984
Investment in an associate 8,795 8,795
Fixed assets 68,304 68,304
Deferred Tax Asset (CET1 adjustment) 7,265 7,265
Other assets 178,200 178,200
Total Assets 12,775,982 12,775,982

Liabilities
Due to banks 1,004,106 1,004,106
Customer deposits (including Islamic Banking Deposits) 8,646,821 8,646,821
Current Tax (excluding DTL) 54,840 54,840
Deferred Tax Liabilities (CET1 adjustment) 866 866
Other liabilities 400,973 400,973
Sukuk 45,876 45,876
Euro Medium Term Notes 390,376 390,376
Total liabilities 10,543,858 10,543,858
Shareholders' Equity

Share capital 750,640 750,640

Share premium 156,215 156,215

General reserve 410,258 410,258

Retained profit 267,696 267,696

Legal reserve 139,229 139,229

Foreign currency translation reserve (3,881) (3,881)

Cumulative changes in fair value (587) (13,747)

Non-Qualifying Component of Cumulative changes in fair value

- 13,160
(Basel III)

Revaluation reserve 4,904 4,904

Impairment reserve 2,330 2,330

Total shareholders' equity 1,726,804 1,726,804

Perpetual Tier I capital 505,320 505,320

Total equity 2,232,124 2,232,124

Total Liability and shareholders' funds 12,775,982 12,775,982

40 Annual Report - 2022

Table 2b
Balance sheet
Under regulatory
as in published
scope
financial
Reconciliation between published financial statements and of consolidation
statements Reference
regulatory capital adequacy workings
As at 31-Dec-2022 As at 31-Dec-2022

in RO 000's in RO 000's

Assets

Cash and balances with CBO 883,060 883,060

Due from banks 346,512 346,512

Investments: 1,571,984 1,571,984

-Designated as Amortised Cost 1,335,169 1,335,169

- Designated as Fair Value through OCI 173,782 173,782

- Designated as fair value through profit or loss 10,717 10,717

- Strategic Investment (CET1 Adjustment) 52,316 52,316 (H)

Investment in associates (CET1 Adjustment) 8,795 8,795

Loans & Advances/Islamic Financing - Net, Of which: 9,711,862 9,711,862

- Loans and advances to domestic banks 68,321 68,321

- Loans and advances to non-resident banks 411,553 411,553

- Loans and advances to domestic customers 7,908,135 7,908,135

- Loans and advances to non-resident for operations abroad 144,359 144,359

- Loans and advances to SMEs 287,734 287,734

- Financing from Islamic banking window 1,449,424 1,449,424

(Less): ECL held against Loans and Advances, Of which:

- Stage 3 ECL allowance 308,311 308,311

- Stage 1 and Stage 2 ECL allowance eligible for Tier 2 249,353 114,664 (L)

- Stage 2 ECL allowance Non-Qualifying for Tier 2 - 134,689

Fixed assets 68,304 68,304

Other assets: 185,465 185,465

Acceptances 108,892 108,892

Positive value of Derivatives 25,736 25,736

Deferred Tax Asset (CET1 adjustment) 7,265 7,265 (I)

Accrued Interest & Others 43,572 43,572

Total Assets 12,775,982 12,775,982

Capital & Liabilities

Paid-up Capital, Of which:

Amount eligible for CET1

Paid-up share capital 750,640 750,640 (A)

Share Premium 156,215 156,215 (B)

Legal reserve 139,229 139,229 (D)

General reserve 410,258 410,258 (E)

Retained earnings 267,696 155,100 (C)

Proposed Dividend (Reduced from Retained Earnings) - 112,596

Annual Report - 2022 41

 Cumulative loss on Fair Value (CET1 adjustment) (14,739) (F)

Foreign Currency Translation Reserve (CET1 adjustment) (3,881) (3,881) (G)

Amount eligible for AT1 - -

Perpetual Tier I capital 505,320 505,320 (K)

Amount eligible for Tier 2 - -

Cumulative gains on fair value- (Positive MTM after applying 55%

- 992 (M)
haircut)

Reserve for restructured accounts 2,330

Reserve for restructured accounts - Non- Qualifying for Basel - 2,330

Cumulative gains on fair value (587) 13,160

Revaluation reserve 4,904 -

Revaluation reserve -Non- Qualifying for Basel - 4,904

Total Capital 2,232,124 2,232,124

Deposits from banks 1,004,106 1,004,106

Customer deposits 8,646,821 8,646,821

Unsecured bonds 45,876 45,876

Borrowings in the form of bonds and Notes 390,376 390,376

Other liabilities 400,107 400,107

Taxation 55,706 55,706

Deferred Tax Liabilities (CET1 adjustment) 866 866 (J)

Total Capital & Liabilities 12,775,982 12,775,982

2. Disclosure Template for Main Features of Regulatory Capital Instruments

Additional Equity Additional Equity
Paid-up share
1 Issuer Tier 1 Capital Tier 1 Capital
capital
(AET1) (AET1) 2022

Unique identifier (e.g. CUSIP, ISIN or ISIN

2 MSX code: BKMB
Bloomberg identifier for private placement) OM0000008892

Governed by the Governed by the

Governing law(s) of the inastrument Laws of Laws of CMA Oman
3
Regulatory treatment the Sultanate of the Sultanate of CET1 Capital
Oman. Oman.

Additional Tier 1 Additional Tier 1

4 Transitional Basel III rules CET1 Capital
Capital Capital

Additional Tier 1
5 Post-transitional Basel III rules NA CET1 Capital
Capital

6 Eligible at solo/group/group & solo Group Group Group

Instrument type (types to be specified by Paid-up share

7 AET 1 Capital AET 1 Capital
each jurisdiction) capital

8 Amount recognized in regulatory capital - in RO million 130.000 375.320 750.640

9 Par value of instrument - in RO RO 1 RO 1 0.100 baisa

10 Accounting classification Equity Equity Equity

11 Original date of issuance 03-Apr-17 20-Nov-22 Various

12 Perpetual or dated Perpetual Perpetual Perpetual

13 Original maturity date Perpetual Perpetual Various

42 Annual Report - 2022

14 Issuer call subject to prior supervisory approval Yes, After 5 years Yes, After 5 years No

Redemption Redemption
of the Capital of the AET 1
Deposit pursuant Perpetual Bonds
to agreement either in full or
and CBO may in part pursuant
only occur on the to conditions
Optional call date, contingent call dates and redemption
15 First Call Date or mentioned in NA
amount
on any Call Date prospectus on
thereafter or first call date or
on any interest subsequent call
payment date date (every six
after the first call months after first
date. call date).

The First call date

The First call date
is 20 November
(fifth anniversary
2027, being the
of the Deposit
date falling on the
date) or the
fifth anniversary
Second Call Date
16 Subsequent call dates, if applicable of the bond Issue NA
or the call date
Date. Subsequent
falling on any
call dates
interest payment
every six (6)
date after the first
months after the
call date.
first call date.

Fixed until first

call date and
17 Fixed or floating dividend/coupon Fixed Floating
based on index
thereafter.

4.25% until
first call date,
thereafter it is
sum of Reset
Reference Rate
(weighted
18 Coupon rate and any related index 5.50% NA
average interest
rate payable
on Rial Omani
Deposits) plus
Relevant Margin
(2.25%)

19 Existence of a dividend stopper No No No

Partially
20 Fully discretionary, partially discretionary or mandatory Fully discretionary Fully discretionary
discretionary

21 Existence of step up or other incentive to redeem No No No

22 Noncumulative or cumulative Non-cumulative Non-cumulative NA

23 Convertible or non-convertible Non-convertible Non-convertible Non-convertible

24 If convertible, conversion trigger (s) NA NA NA

25 If convertible, fully or partially NA NA NA

26 If convertible, conversion rate NA NA NA

27 If convertible, mandatory or optional conversion NA NA NA

28 If convertible, specify instrument type convertible into NA NA NA

If convertible, specify issuer of instrument it converts

29 NA NA
into

30 Write-down feature Yes Yes No

Annual Report - 2022 43

 The instrument
The instrument
is subordinated
is subordinated
to deposit
Position in subordination hierarchy in liquidation to depositors,
holders, general
31 (specify instrument type immediately senior to general creditors Sub-Debt
creditors, holders
instrument) and subordinated
of subordinated
debt/sukuk of the
debt/ bonds/
bank.
sukuk of the Bank.

Non-viability Non-viability
32 If write-down, write-down trigger(s) NA
event event

In Full or partial,
as determined
In Full or partial,
by the Bank
as determined
in conjunction
by the Bank
with CBO and
in conjunction
33 If write-down, full or partial in accordance NA
with CBO and
with conditions
in accordance
mentioned in
with the Basel
prospectus and
Regulations.
the extant Basel
Regulations.

34 If write-down, permanent or temporary Permanent Permanent NA

If temporary write-down, description of write-up

35 NA NA NA
mechanism

36 Non-compliant transitioned features None None None

37 If yes, specify non-compliant features NA NA NA

D.2. Capital adequacy

Capital adequacy indicates the ability of the Bank in meeting any contingency without compromising the interest of the depositors
and to support business across the cycles. Sufficient capital in relation to the risk profile of the Bank’s assets helps promote
financial stability and increases confidence of the stakeholders and creditors. The Bank aims to maximise the shareholder’s value
through an optimal capital structure that protects the stakeholder’s interests under most extreme stress situations, provides
sufficient room for growth while meeting the regulatory requirements and at the same time gives a reasonable return to the
shareholders. The Bank has a forward-looking capital policy which considers the current risk, planned growth and an assessment
of the emerging risks for the forecast period.
While risk coverage is the prime factor influencing capital retention, the Bank is conscious of the fact that as a business entity,
its capital needs to be serviced and a reasonable rate of return needs to be provided to the shareholders. Excessive capital will
dilute the return on capital and this in turn can exert pressure for profitability, propelling business asset growth resulting in the
Bank assuming higher levels of risk. Hence, with regards to the retention of capital, the Bank’s policy is governed by the need for
adequately providing for associated risks and for servicing the capital retained. The Bank utilises Additional Equity Tier 1 (AET1)
and subordinated debt and raises share capital as and when the need arises. The Bank’s strong and diverse shareholders profile
provides the Bank with the necessary confidence in its ability to raise capital when needed.
The Bank’s regulator, the Central Bank of Oman (CBO) sets and monitors capital requirements for the banks in the Sultanate of
Oman. CBO requires the Bank to maintain a minimum ratio of 13.25% of total capital to risk-weighted assets. This includes the
capital conservation buffer of 1.25% and DSIB buffer of 1%. Countercyclical buffer implementation shall be in phased manner, as &
when Central Bank determines its need for introduction. In 2020, Central Bank of Oman had relaxed the requirement for Capital
conservation buffer from 2.5% to 1.25% as a measure of relief to the banking sector amid the COVID 19 pandemic crisis, this
reduced the minimum capital ratio requirements from 14.5% to 13.25%.
The Bank determines regulatory capital as recommended by the Basel III capital accord and in line with the guidelines of Central
Bank of Oman. The Bank has adopted Standardised approach for Credit and Market Risk and Basic Indicator approach for
Operational Risk.

44 Annual Report - 2022

The summary of capital adequacy ratio of the Bank as per Basel III is as below:

Gross Balance Net Balances

Risk Weighted Assets
(Book Value) (Book Value) *
RO 000's RO 000's RO 000's
On-balance sheet items 13,316,794 12,747,096 8,249,372
Off -balance sheet items 2,046,746 2,030,514 812,250
Derivatives 25,736 25,736 60,094
Total Credit risk 9,121,717
Total Market Risk 121,814
Total Operational Risk 895,813
Total Risk Weighted Assets 10,139,344

Capital Structure
Tier 1 Capital 2,039,427
Tier 2 Capital 115,656
Total Regulatory Capital 2,155,083
Capital Requirement for Credit Risk 1,208,627
Capital Requirement for Market Risk 16,140
Capital Requirement for Operational Risk 118,695
Total Required Capital 1,343,463
Tier 1 Ratio 20.11%
Total Capital Ratio 21.25%

* Net of provisions & reserved interest & eligible collaterals

Target Capital Adequacy

Target capital level for the Bank is set in relation to the minimum regulatory requirements set by the Central Bank of Oman or
the assessed capital requirement as per Internal Capital Adequacy Assessment Process (ICAAP), whichever is higher. The target
capital level is also based on the expected return on capital and future growth prospects together with an intention of optimising
the shareholder’s return.
For 2022, the Bank has set a target capital level, as per the Board approved risk appetite statement above the minimum regulatory
requirement of 13.25%, which is comfortably met.

D.3. Capital raised

The Bank generated internal capital of RO 93.519 million after payment of RO 107.234 million cash dividend approved for the year
2021.

D.4. Capital allocation

The allocation of capital between specific business units and activities is, to large extent, driven by optimisation of the return on
capital allocated. Although maximisation of the return on risk-adjusted capital is the principal basis used in determining how
capital is allocated within the Bank to particular business units or activities, it is not the sole basis used for decision making. Other
factors such as synergies between the units or activities, the availability of management and other resources and the fit of the
activity within the Bank’s long term strategic objectives are taken in to account while allocating capital.

D.5. Economic capital

Apart from the regulatory capital, which is based on the guidelines issued by Central Bank of Oman, the Bank has in place Internal
Capital Adequacy Assessment Process (ICAAP) that provides an assessment of the Bank’s actual capital adequacy based on
advanced Economic Capital measure. ICAAP incorporates the impact of residual risk including business risk, concentration risk,
correlation risk, Interest Rate Risk on Banking Book (IRRBB) along with the core risks. The purpose of the Bank’s ICAAP is not
only to provide a detailed assessment of its current capital adequacy, but also to estimate future capital adequacy ratios in line
with approved business plans in order to evaluate their validity from a risk perspective. The overall framework has introduced a

Annual Report - 2022 45

 structured methodology for a comprehensive forward-looking assessment of capital for the next 5 years based on the Bank’s risk
profile. It will scrutinize the current business model of the Bank and may lead to corresponding adjustments, if the inherent risk
goes beyond the Bank’s risk appetite. The business plan will be updated at least annually on a rolling basis for forward-looking
period of 5 years. On an annual basis, ICAAP is approved by the Board and then submitted to Central Bank. On a quarterly basis,
reporting is done to the Board on the adequacy of capital. The Bank believes that its current and foreseen capital supply is suitable
to support its business strategy. The forward looking assessment of capital adequacy has helped the Bank to plan ahead for
capital management.

D.6. Stress testing

Given the unexpected severity and frequency of events, stress testing has gained greater prominence and credibility within banks
as a complementary risk management and capital planning tool to provide a different risk perspective. It is an important risk
management tool used by the Bank as part of its internal risk management.
A stress test is commonly described as the evaluation of a bank’s financial position under a severe but plausible scenario, to assist
in decision making within the Bank. Stress testing alerts management and Board to adverse unexpected outcomes related to a
variety of risks, provides an indication of how much capital might be needed to absorb losses should large shocks occur, ensure
sufficient liquidity is maintained and have a plan of action in place. While stress tests provide an indication of the appropriate level
of capital and liquidity necessary to endure deteriorating economic conditions, a bank alternatively may employ other actions in
order to help mitigate increasing levels of risk.
Within the Bank, the term “stress testing” is used not only in respect to the mechanics of applying specific individual tests, but to
the wider environment within which the tests are developed, evaluated and used within the decision-making process. The stress
testing process is not a stand-alone process but interacts with existing risk management framework.
The Bank has in place a stress testing framework which defines the guiding principles, types of stress tests, the governance
around the process and the uses with the Bank.
In order to determine the Bank’s capability to withstand stressed conditions and examine the resilience of the Bank’s risk-bearing
capacity, the Bank conducts various stress testing scenarios which broadly fall into 2 main types-

• Sensitivity tests, generally shock individual parameters or inputs. Though these scenarios ignore multiple risk factors or
feedback effects, their main benefit is that they can provide a fast-initial assessment of portfolio sensitivity to a given risk factor
and identify certain risk concentrations.
• Scenario analysis, where range of simultaneous shocks are applied on different parameters or inputs. Approaches are either
historically based or hypothetical.

The Bank periodically conducts various types of stress testing, either based on scenarios as provided by Central Bank of Oman or
internally developed within the Bank.
Under the regulator-defined scenarios, the Bank conducts tests in the areas of solvency, concentration, reverse stress testing and
liquidity.
Under integrated stress testing, economic downturn scenarios are investigated in detail. Economic downturn or recession
scenarios (comprising credit quality deterioration, increased market, operational, interest rate and liquidity risks) analyses how
economic scenario/recession might affect the Bank’s capital resources, capital/liquidity requirements and its future earnings.
As required by DSIB framework, the Bank has developed macro-stress testing scenarios using statistical modelling (regression
models) to analyse the impact of macro-economic variable on internal risk parameter. The Bank has enhanced its stress testing
framework to develop new scenarios in different risk areas.
Apart from the periodic stress testing as per the framework, the Bank also conducts need based stress testing depending upon
the situation prevalent at that point of time.
The results of the stress testing show that the Bank would continue to meet regulatory ratios and adhere to risk policy norms even
in periods during stress.

Reverse Stress testing

While stress testing scenario is a top down approach, reverse stress testing is a bottom up approach. Reverse stress tests start
from a known stress test outcome (such as breaching internal/regulatory capital ratios, illiquidity or insolvency) and then asking
what events could lead to such an outcome for the Bank.
The starting point in the analysis would be an assumption that over a short period of time, an institution incurs a very large loss.
The analysis would then work backward to identify how such a loss could occur given actual positions and exposures prevailing
when the stress test is conducted. If the assumed loss were truly large, it is highly likely that the possible sequence of events

46 Annual Report - 2022

producing such a loss would have to entail elements of contagion or systemic forces. Thus, the reverse stress test is likely to
require institutions to address issues that are not normally captured in stress tests. In reverse stress test the emphasis is on the
contagion that could cause a significant stress event to the firm.

D.7. Leverage ratio

Basel Committee for Banking Supervision (BCBS) introduced a non-risk sensitive Leverage Ratio to address excessive build-up
of on and off-balance sheet exposures, which was the root cause of the financial/credit crisis of 2008. The ratio is calculated by
dividing the Tier I capital of the Bank by the Bank’s total assets (sum of all on and off-balance sheet assets). Being a DSIB the Bank
is required to maintain a higher Leverage ratio of 5% considering its systemic importance.

Table 1: Summary Comparison of Accounting Assets Vs Leverage Ratio Exposure Measure

Item RO 000's
1 Total consolidated assets as per published financial statements 12,775,982
Adjustment for investments in banking, financial, insurance or commercial entities that are
2 (52,316)
consolidated for accounting purposes but outside the scope of regulatory consolidation
Adjustment for fiduciary assets recognised on the balance sheet pursuant to the operative
3 -
accounting framework but excluded from the leverage ratio exposure measure
4 Adjustments for derivative financial instruments 107,772
5 Adjustment for securities financing transactions (i.e., repos and similar secured lending) -
Adjustment for off-balance sheet items (i.e., conversion to credit equivalent amounts of off-
6 1,042,197
balance sheet exposures)
7 Other adjustments (6,399)
8 Leverage ratio exposure 13,867,236
Table 2: Leverage Ratio Common Disclosure Template
Item RO 000's
1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 12,775,982
2 (Asset amounts deducted in determining Basel III Tier 1 capital) (58,715)
3 Total on-balance sheet exposures (excluding derivatives and SFTs) (sum of lines 1 and 2) 12,717,267
Derivative Exposures
Replacement cost associated with all derivatives transactions (i.e., net of eligible cash
4 26,540
variation margin)
5 Add-on amounts for PFE associated with all derivatives transactions 81,232
Gross-up for derivatives collateral provided where deducted from the balance sheet assets
6 -
pursuant to the operative accounting framework
(Deductions of receivables assets for cash variation margin provided in derivatives
7 -
transactions)
8 (Exempted CCP leg of client-cleared trade exposures) -
9 Adjusted effective notional amount of written credit derivatives -
10 (Adjusted effective notional offsets and add-on deductions for written credit derivatives) -
11 Total derivative exposures (sum of lines 4 to 10) 107,772
Securities financing transaction exposures
Gross SFT assets (with no recognition of netting), after adjusting for sale accounting
12 -
transactions
13 (Netted amounts of cash payables and cash receivables of gross SFT assets) -
14 CCR exposure for SFT assets -
15 Agent transaction exposures -
16 Total securities financing transaction exposures (sum of lines 12 to 15) -
Other Off-balance sheet exposures
17 Off-balance sheet exposure at gross notional amount 2,155,893
18 (Adjustments for conversion to credit equivalent amounts) (1,113,696)

Annual Report - 2022 47

 19 Off-balance sheet items (sum of lines 17 and 18) 1,042,197
Capital and total exposures
20 Tier 1 capital 2,039,427
21 Total exposures (sum of lines 3, 11, 16 and 19) 13,867,236
Leverage Ratio
22 Basel III leverage ratio (%) 14.71%

Risk exposure
At the macro level, Bank has exposure to the following risks.

• Credit risk
• Market risk
• Liquidity risk
• Operational risk and
• Other residual risks

D. Credit risk
E.1.i. Introduction
Credit risk is the potential loss resulting from the failure of a borrower or counter party to honour its financial or contractual
obligations in accordance with the agreed terms. The function of credit risk management is to maximise the Bank’s risk-adjusted
rate of return by maintaining credit risk exposure within acceptable parameters. Credit risk makes up the largest part of the Bank’s
risk exposure.
The credit risk management process in the Bank begins with the risk policy and applicable regulatory guidelines, which define
indicators to address different dimensions of credit risk including credit concentration risk, single borrower limit etc. For each of
the indicators, the Bank has set for itself, clear and well-defined limit and trigger points. Compliance with the various indicators is
monitored and reported on a regular basis and exceptions, if any are escalated to enable remedial actions.
The Bank manages credit risk through the following processes:

• All credit processes – approval, disbursal, administration, classification, recoveries and write-off, are governed by the Bank’s
credit manual which is reviewed by Risk Management Department and approved by appropriate approval authorities. The
credit policy clearly stipulates role and responsibilities for each of the functions and the lending authority at various levels are
stipulated in ‘Lending Authority Limits’.
• All corporate lending proposals, where the proposed credit limit for a borrower or related group exceeds a certain threshold,
are submitted for approval/renewal to the appropriate authority after an independent review by the Risk Management
Department whose comments are incorporated into the proposal.
• All corporate relationships are reviewed at least once a year. Retail portfolio, including credit cards and mortgage portfolio, are
reviewed on a portfolio basis at a product level at least once a year.
• Concentration of exposure to counterparties, geographies and sectors are governed and monitored according to regulatory
norms/ internal limits prescribed in the Bank’s risk policy. The analysis of large customers at group level is conducted on a
regular basis. The lending division undertakes account updates, monitoring and management of exposures on a continuous
basis. Industry and sectoral analysis and benchmark reports are prepared as a part of credit risk management process to
understand the trends in industry.
• Credit exposures are risk rated to provide support for credit decisions. The portfolio is analysed based on risk grades and risk
grade migration to manage prevalent credit risk.
• Retail portfolio is rated using a scorecard.

E.1.ii. Counterparty credit risk (CCR)

Counterparty Credit Risk (CCR) can be either due to the Bank’s exposure to the sovereign or to banks of other countries. The Bank
assesses the counterparty credit risk or default risk at the country level as well as at the individual bank level.

E.1.ii.a. Country risk or Cross-border risk

Country risk in the Bank is managed in the same manner as corporate credit risk. The Bank supplements internal due diligence

48 Annual Report - 2022

process with the external credit rating while setting up exposure limits. The exposure limits are diligently reviewed and approved
by the appropriate authority in line with the Bank’s delegation matrix. The Bank monitors all cross-border exposures on a daily
basis and takes pre-emptive corrective action based on evolving market conditions.
The Bank’s overseas exposures are governed by the guidelines issued by Central Bank of Oman in this respect. All counterparty
exposures are classified in various stages and provisioning/impairment accounting is accordingly undertaken under IFRS 9.
The rating wise distribution of cross border exposure as at the end of December 2022:

Country Rating Distribution % 20%

Aaa to Aa3 23

A1 to A3 40

Baa1 to Baa3 17

Ba1 to Ba3 - Country Rating

Distribution
B1 to B3 16

Below B3 4

Unrated - Sub Investment Grade

80% Investment Grade

Total 100.00

E.1.ii.b. Counterparty bank risk

Counterparty bank risk is the risk arising from the probability of failure of a counterparty bank to honour its commitments.
The Bank supplements internal due diligence process with the external credit rating while setting up exposure limits. The Bank
monitors all counterparty bank exposures on a daily basis and takes pre-emptive corrective actions based on evolving market
and credit conditions.
The Bank executes Credit Support Annex (CSA) agreements with major counterparty banks to mitigate its exposure risks arising
out of non-linear products such as derivatives. This agreement enables active exchange of margins based on the current market
value of the outstanding trades, thereby helping reduce credit exposures.
The rating wise distribution of exposure to counterparty banks as at the end of December 2022:

12% 8%
Bank Rating Distribution %

Aaa to Aa3 25

A1 to A3 33

Baa1 to Baa3 22

Ba1 to Ba3 5 Bank Rating

Distribution
B1 to B3 3

Below B3 - Sub Investment Grade

Unrated 12 Investment Grade

Total 100.00 Unrated

80%
E.1.iii. Settlement risk
Settlement risk is the risk of loss due to the difference in time zones of banks operating in different geographies. The Bank has
set in place appropriate settlement limits and monitors the same on a continuous basis. Further, the Bank has an arrangement
to settle all major foreign exchange transactions through Continuous Linked Settlements (CLS). The CLS is a Central Counterparty
(CCP) which helps the bank to mitigate settlement risks.

E.1. iv. Loans, advances and Islamic financing receivables

Gross loans, advances and Islamic financing receivables form approximately 78.1% of the Bank’s total assets. The Bank’s credit
risk in loans, advances and Islamic financing receivables are measured, monitored and managed against various parameters.
Although rising oil prices, which started in 2022 induced economic growth and helped the country to restore economic buffers
and reduce debt burden, business activities will take reasonable time depending on industry type to recover and witness easing
pressure on their cash flows. In order to help the vulnerable sectors and borrowers, the regulator had issued guidelines to the

Annual Report - 2022 49

 banking sector enabling borrowers to avail deferrals on repayment obligations which came to an end as at December 2021.
As part of further relief measures from prolonged impact of COVID pandemic, regulator vide circular BSD/CB & FLCs/2021/004
dated November 18, 2021 allowed restructuring/ rescheduling of credit facilities to affected borrowers who had availed loan
deferment under the CBO measures from March 2020. Under this window, which was available up to October 31, 2022, banks
were allowed to restructure facilities without having any adverse impact on IFRS 9 staging. The regulator also mandated to
maintain a minimum expected credit loss (ECL) as mentioned below on such restructured accounts to ensure adequate provision
coverage on account of increased credit risks on such facilities:

Cases where grace period does not exceed 1 year Cases where grace period exceeds 1 year
Staging or tenor does not exceed 5 years or tenor exceeds 5 years

Corporate SME & Retail Corporate SME & Retail

Higher of 1.0%, Model ECL Higher of 0.5%, Model ECL Higher of 1.5%, Model ECL Higher of 1.0%, Model ECL
Stage-1
or Stage-1 ECL average or Stage-1 ECL average or Stage-1 ECL average or Stage-1 ECL average

Higher of 6.0%, Model ECL Higher of 5.0%, Model ECL Higher of 6.5%, Model ECL Higher of 5.5%, Model ECL
Stage-2
or Stage-2 ECL average or Stage-2 ECL average or Stage-2 ECL average or Stage-2 ECL average

The Bank devised a restructuring process for various businesses considering the type of exposure, repayment capability of
borrowers, expected recovery in business operations and cash flows. As on December 31, 2022, total outstanding of restructured
loans availed by borrowers pursuant to relaxations amid COVID-19 pandemic in line with CBO guidelines represents 10.6% of total
gross loan book. The Bank maintains adequate ECL coverage in line with CBO guidelines on these restructured loans to mitigate
the inherent credit risk. In order to ensure regular repayments under restructuring, the Bank continuously monitors the cash flows
and provides necessary support to affected borrowers once the moratorium period comes to end, if required.

E.1.iv.a. Conventional Banking

E.1.iv.a.I. Corporate Banking
Corporate lending accounts for approximately 58.1% of the total gross loan book of the Bank. While the day-to-day management
of corporate credit and the asset quality is the responsibility of the business line management, credit proposals/ renewals above
certain threshold are independently reviewed by the Risk Management Department, whose recommendations form an important
input to the decision-making process. Every relationship is reviewed individually once a year or more frequently, if situation so
warrants.
The risk policy ensures that the Bank’s lending is targeted and distributed over various economic sectors. To restrict concentration
risk in the portfolio the Bank has various limits viz. sectoral, substantial exposure limit, cross border lending etc. in place. All
exposures, which include both funded and non-funded, for the year 2022 were within these prescribed limits. Detailed sector
analysis is done every year and reports are submitted to the Board / Management on emerging trends to aid the lending
decisions.
Using globally renowned risk rating software, the Bank does risk rating of its corporate borrowers based on their financial position
as reflected in their latest audited financial statements and other relevant subjective parameters as evaluated by the concerned
relationship managers. The risk rating process is centralised in the Risk Management Department to provide objectivity and
ensure uniformity of the rating process. In forming an opinion on the corporate proposals/ renewals, the borrower’s risk rating,
collaterals, pricing and other relationship aspects are considered. The risk rating of the borrowers is back tested and calibrated to
ensure robustness of the rating model. Portfolio and migration analysis based on risk rating are carried out annually. Downward
migrations are escalated for review and necessary mitigating actions.

E.1.iv.a. II. Retail Banking

Retail Banking is guided and administered by the retail lending policy. Personal loans and residential mortgage loans account
for 23.0% and 18.9% of the gross loan book. Personal loans in the Bank are largely granted against confirmed assignment of
salaries from approved employers. The residential housing loans are granted against mortgage of the underlying properties and
confirmed by assignment of salaries from approved employers. The approved employers list is regularly reviewed and updated
based on the financial profile of the company and other relevant factors, which includes their profile as stable employers.
The risk management review of retail business is achieved through a product-wise portfolio review. Portfolio review analyses the
risk prevalent in the retail loans post approval and disbursement. A combination of robust lending policy, loan application process
and retail credit control enables mitigation of risk at the pre-approval stage. The loan application process helps mitigate credit risk
by evaluating the applicant’s ability and the intention to repay the loan.

50 Annual Report - 2022

The Bank uses scorecard for evaluating retail customers and rank ordering them. The retail scorecard brings in objectivity in
decision making and helps to ensure centralized, uniform, more consistent and reliable decision management across the Bank. It
also helps in enhancing the credit quality of the retail portfolio by better prediction of credit losses, management’s ability to react
to changes fast and accurately and to measure and forecast impact of policy decisions.

E.1.iv.b. Islamic Banking

Islamic Banking is guided and administered by Islamic Banking Policy, which forms part of the overall Risk Policy of the Bank.
Retail Islamic financing receivables including mortgage accounts for 37.53% of the gross receivable book, while Corporate Islamic
financing receivables accounts for 62.47% of the gross receivables. The Bank follows the same processes and controls for managing
credit risk in retail and corporate Islamic financing which it follows for conventional banking whilst ensuring all Shariah (Islamic)
Banking principles and guidelines are adhered to at all times.

E.1.v. Collateral management

The Bank employs a range of policies and procedures to mitigate credit risk. The credit risk mitigants include collaterals like

• Lien on deposits;
• Securities;
• Real estate;
• Inventories;
• Assignment of receivables;
• Guarantees;
• Cash or acceptable securities from interbank counterparties.

A robust collateral management system is in place to mitigate any operational risk. The Bank has a strong credit administration
process that ensures compliance with terms of approval, documentation and continuous review to ensure quality of credit and
collaterals. While securities such as listed equities are valued regularly, credit policy mandates securities obtained by way of legal
mortgage over real estate to be valued at least once in 3 years or more frequently, if situation warrants.
The Bank executes Credit Support Annex (CSA) with major counterparty banks to mitigate credit risk arising out of changes in the
value of the underlying for the derivative exposures. The Treasury Middle office undertakes daily valuation of all the derivative
deals and raises appropriate margin calls.

E.1.vii. Impairment policy

All loans, advances and Islamic financing receivables of the Bank are regularly monitored to ensure compliance with the stipulated
repayment terms. These loans, advances and Islamic financing receivables are classified into one of the 5 risk classification
categories: Standard, Special Mention, Substandard, Doubtful and Loss – as stipulated by Central Bank of Oman regulations
and guidelines. The risk classification of accounts into Stage 1, 2 and 3 for the purpose of IFRS 9 is done in accordance with the
internal policy, accounting standards and applicable regulatory guidelines. The Bank adopts a rigorous standard for identification,
provisioning and monitoring of the non-performing loans and Islamic financing receivables. Every problem account is reviewed
to evaluate compliance to laid down lending norms, arrive at an appropriate grade commensurate with the risk and incorporate
the lessons, if any, into Bank’s lending guidelines. The primary responsibility for identifying problem accounts and classifying
rests with business lines. Supervisory responsibility to ensure that the accounts are reviewed and classified, in line with the
Bank’s risk policy rests with Risk Management Department. Line management shall ensure that the downgrading of accounts is
gradual and appropriate measures have been initiated at each level of classification. Counterparties which on the basis of the risk
rating system demonstrate the likelihood of problems are identified well in advance to effectively manage the credit exposure
and optimize the recovery. The motive of this early warning system is to address potential problems while adequate options for
action are still available. All possible help is extended to those customers in the watch list, which will enable them to stay in the
‘Standard’ category. The Bank has a specialist remedial credit unit for Corporate and SME portfolio to manage problem loans, both
for conventional and Islamic banking. This unit provides assistance and advice to customers to recover from problem situations
and help aid recoveries. The Bank has a robust collection department with dedicated resources to follow-up on past due loans,
both for conventional and Islamic banking. To handle the Non-Performing Assets (NPA) of the retail loan portfolio, both for
conventional and Islamic banking, the Bank has a dedicated recovery unit.
Central Bank of Oman vide its circular BM1149 requires banks to follow IFRS 9 that requires the recognition of expected credit losses
on all financial assets at amortised cost or at fair value through other comprehensive income (other than equity instruments),
lease receivables and certain loan commitments and financial guarantee contracts. The expected credit loss must also consider
forward looking information to recognise impairment allowances earlier in the lifecycle of a facility. Banks portfolio is categorised

Annual Report - 2022 51

 in Stage 1, 2 and 3 based on the requirements under IFRS 9 standard. The facilities and borrowers are identified in respective
grades based on the significant increase in credit risk as defined in IFRS 9 policy of the bank and as required by the regulators.
Additional disclosures in relation to IFRS 9 are included in note number 42 of the Notes to the financial statements forming part
of the annual report.
The Bank complies with the regulatory guidelines issued from time to time in relation to the risk classification. The Bank makes
provision for bad and doubtful debts promptly, where required in line with the conservative provisioning norms it has set for itself.
The Bank arrives at the provisioning requirement both under IFRS and regulatory guidelines and maintains provision, whichever
is higher. In case the ECL as per IFRS 9 is lower than the provision required as per BM 977 issued by Central Bank of Oman, the
excess is charged through equity. The provisions held in the books satisfies the requirements of both IFRS 9 regulations and BM
977 regulatory guidelines.
The following table details the broad criteria used for categorising of exposure in to various categories as per regulatory guidelines:

Commercial – Loans & Islamic financing

No. Category Retail – Loans & Islamic financing receivable
receivable (*)
Loans & financing receivables having no
Meeting all the payment obligations or remain
1 Standard financial weaknesses and are not classified
past due for less than 60 days
in any of the other four categories
2 Special Mention Remain past due for 60 days or more but less than 90 days and Standard restructured loans.
3 Substandard Remain past due for 90 days or more but less than 180 days
4 Doubtful Remain past due for 180 days or more but less than 365 days

5 Loss Remain past due for 365 days or over

(*) Commercial loans & Corporate Islamic financing receivable are classified into various risk categories both on the basis of quantitative and
qualitative parameters. The quantitative parameter i.e. payments past due for a specified number of days, are considered only as a threshold.
Loans which exhibit early signs of defaults are appropriately classified, notwithstanding the fact that the loans are not past due for the period
specified under different categories of risk classification.

The restructured or rescheduled loans are upgraded only after satisfactory performance of a minimum period defined in the
Bank’s policy from the date of the first payment of interest or principal, whichever is later, under the rescheduled/ renegotiated
terms and regulatory guidelines.
The remedial action in case of classified advances is aimed at recovering maximum salvage value through enforcement of
collateral and guarantees. No outstanding facilities would be written off until it has been classified as doubtful or loss and all
recovery options exhausted. This is to prevent rapid downgrading and writing off overdue accounts without the benefit of any
appropriate remedial measures. The Board of Directors approves all write-offs above a threshold limit.

1) The Gross Loans and Advances/Islamic Financing receivables by category is given in the below table:
Retail Corporate Total
Category
RO 000's RO 000's RO 000's
Stage 1 4,018,151 3,715,777 7,733,928
Stage 2 64,734 1,804,876 1,869,610
Sub Standard 6,382 15,571 21,953
Doubtful 10,767 11,647 22,414
Loss 84,917 241,736 326,653
Grand Total 4,184,951 5,789,607 9,974,558

52 Annual Report - 2022

2) The gross credit risk exposures, plus average gross exposure over the period broken down by major types
of credit exposure are given in the below table:
2022 2021
Average
Total Gross Average Gross Total Gross
# Types of Credit Exposure Gross
Exposure Exposure Exposure
Exposure
RO 000's RO 000's RO 000's RO 000's
A Cash and Balances with Central Banks 786,432 883,067 855,354 1,047,224
B Placement with Banks 785,484 646,360 775,501 771,023
C Loans and Advances 9,672,885 9,974,558 9,632,761 9,660,308
- Overdrafts & Credit Cards 309,555 315,057 309,035 320,929
- Personal & Housing Loans 4,051,900 4,134,085 3,991,845 4,017,463
- Loans against Trust Receipts 167,717 199,502 163,016 159,223
- Corporate & other Loans 4,768,431 4,918,318 4,783,054 4,768,025
- Bills purchased / discounted & other advances 375,282 407,596 385,811 394,668
D Investment Securities at FVOCI and Amortised Cost 1,713,576 1,521,489 1,714,817 1,756,606
E Contingent liabilities 1,728,788 1,630,064 1,855,127 1,833,161
G Acceptances 134,687 109,146 127,835 111,663
H Non- Cancellable commitments 272,146 416,682 335,884 227,971
Total Credit Exposure 15,093,998 15,181,366 15,297,279 15,407,956

*Investment excludes strategic investments deducted from CET-1 for credit risk exposures.

3) Geographic distribution of gross exposures, broken down into significant areas by major types of credit
exposure is given in the below table:
Other GCC
Oman Others TOTAL
# Types of Credit Exposure Countries
RO 000's RO 000's RO 000's RO 000's
A Cash and Balances with Central Banks 820,379 62,688 - 883,067
B Placement with Banks 42,156 326,717 277,487 646,360
C Loans and Advances 9,579,587 332,718 62,253 9,974,558
- Overdrafts & Credit Cards 302,255 12,802 - 315,057
- Personal & Housing Loans 4,128,841 5,244 - 4,134,085
- Loans against Trust Receipts 197,886 1,616 - 199,502
- Corporate & other Loans 4,688,546 186,496 43,276 4,918,318
- Bills purchased / discounted & other advances 262,059 126,560 18,977 407,596
Investment Securities at FVOCI and Amortised
D 1,397,978 73,857 49,654 1,521,489
Cost
E Contingent liabilities 1,106,701 173,063 350,300 1,630,064
G Acceptances 105,341 3,398 407 109,146
H Non - Cancellable commitments 416,682 - - 416,682
Total Credit Exposure 13,468,824 972,441 740,101 15,181,366

Annual Report - 2022 53

54
4) Industry wise distribution of gross exposures, broken down by major types of credit exposure is given in the below table:
C
A B D E G H
Loans and Advances

Annual Report - 2022

Total
Economic Balances Investment
Overdrafts Bills/ LTR Total Credit
Sector with Placement Securities at Contingent Non-Cancellable
& Credit Loans & other Loans and Acceptances Exposure
Central with Banks FVOCI and liabilities commitments
Card advances Advances
Banks Amortised Cost

Agriculture
1 and allied - - 5,663 163,820 4,665 174,148 - 7,907 101 4,084 186,240
activities

2 Construction - - 79,860 307,063 89,790 476,713 - 389,690 9,395 4,529 880,327

3 Export Trade - - 416 96 53,901 54,413 - 304,736 - - 359,149

Financial
4 - 646,360 5,606 390,058 19,393 415,057 100,681 79,443 4,094 164,275 1,409,910
Institutions

5 Government 883,067 - 46,067 - - 46,067 1,258,624 3,239 - - 2,190,997

6 Import Trade - - 18,614 174,145 284,489 477,248 - 187,138 28,675 6,696 699,757

7 Manufacture - - 11,150 758,992 47,567 817,709 1,597 90,689 31,683 20,967 962,645

Mining and
8 - - 4,711 324,941 16,945 346,597 2,917 90,676 14,190 7,000 461,380
quarrying

Personal and
9 - - 45,384 4,134,085 - 4,179,469 - 214 - - 4,179,683
Housing Loans

10 Real Estate - - 1,383 284,557 - 285,940 100,001 219,650 - 135 605,726

11 Services - - 58,261 677,325 42,638 778,224 1,371 69,784 18,188 68,811 936,378

12 Transport - - 2,989 846,693 10,962 860,644 48,112 15,127 6 51,000 974,889

13 Utilities - - 420 781,730 4,287 786,437 4,661 83,148 - 83,384 957,630

Wholesale and
14 - - 24,222 155,199 30,602 210,023 3,525 88,623 2,545 - 304,716
retail trade

15 Others - - 10,311 53,699 1,859 65,869 - - 269 5,801 71,939

Total 883,067 646,360 315,057 9,052,403 607,098 9,974,558 1,521,489 1,630,064 109,146 416,682 15,181,366
 5) Residual contractual maturity breakdown of the whole portfolio, broken down by major types of credit exposure are given below in the table:
C
A B D E G H
Loans and Advances
Total
Time Band Balances Investment Credit
Overdrafts Bills/LTR Total
with Placement Securities at Contingent Non-Cancellable Exposure
& Credit Loans & other Loans and Acceptances
Central with Banks FVOCI and liabilities commitments
Card advances Advances
Banks Amortised Cost

Upto 1 month 624,668 193,755 58,907 841,765 219,719 1,120,391 340,052 185,087 39,619 140,772 2,644,344

1 - 3 months 25,924 106,702 13,495 389,774 270,047 673,316 31,800 395,631 46,441 94,970 1,374,784

3 - 6 months 23,809 11,165 13,481 413,246 116,465 543,192 47,338 147,988 12,076 57,259 842,827

6 - 9 months 16,097 49,345 13,481 188,374 171 202,026 12,676 149,755 6,375 46,015 482,289

9 - 12 months 19,296 75,005 13,481 268,540 405 282,426 46,151 82,083 3,059 32,975 540,995

1 - 3 years 68,846 194,079 67,404 1,036,833 - 1,104,237 400,860 377,718 1,576 44,691 2,192,007

3 - 5 years 33,805 - 67,404 804,786 - 872,190 612,742 268,420 - - 1,787,157

over 5 years 70,622 16,309 67,404 5,109,085 291 5,176,780 29,870 23,382 - - 5,316,963

Total 883,067 646,360 315,057 9,052,403 607,098 9,974,558 1,521,489 1,630,064 109,146 416,682 15,181,366

Annual Report - 2022

55
 6) Analysis of the loan book by economic sector or counter party type is given below:
Loans
Provisions
Gross Loans Of which, Stage 1 & 2 Stage 3 written off
during the
Economic Sector / Financing Stage 3 Provision Provision during the
year
year

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Agriculture and allied

174,148 5,237 9,784 4,287 6,402 -
activities

Construction 476,713 89,138 56,237 76,583 25,283 987

Export Trade 54,413 - 552 - 78 -

Financial Institutions 415,057 - 23,074 - 8,950 -

Government 46,067 - - - (203) -

Import Trade 477,248 13,696 11,099 8,596 8,533 -

Manufacture 817,709 19,809 33,910 12,407 4,623 152

Mining and quarrying 346,597 2,076 14,858 1,508 2,017 -

Personal and Housing

4,179,469 102,252 10,709 92,263 21,671 1,742
Loans

Real Estate 285,940 6,264 9,080 3,670 4,347 -

Services 778,224 72,876 33,770 60,264 14,061 491

Transport 860,644 24,542 22,793 24,075 3,595 -

Utilities 786,437 709 13,925 442 1,583 -

Wholesale and retail trade 210,023 24,058 7,381 17,944 7,529 (1,603)

Others 65,869 10,363 2,181 6,272 1,949 34

Total 9,974,558 371,020 249,353 308,311 110,418 1,803

7) Analysis of Gross loans/ Financing broken down by significant geographic areas is given below:
Loans
Provisions
Gross Loans Of which, Stage 1 & 2 Stage 3 written off
during the
Countries /Financing Stage 3 Provision Provision during the
year
year

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Oman 9,579,588 315,373 226,704 252,664 110,138 2,263

Other GCC Countries 332,717 55,647 22,649 55,647 280 (460)

Others 62,253 - - - - -

Total 9,974,558 371,020 249,353 308,311 110,418 1,803

8) Movement of gross loans/ financing is given in the below table:

Non-Performing
Performing Loans
Loans Total
Details
Stage 1 Stage 2 Stage 3

RO 000's RO 000's RO 000's RO 000's

Opening Balance 7,354,930 1,948,922 356,456 9,660,308

Net transfer between stages (363,732) 318,807 44,925 -

Re-measurement of outstanding 742,730 (398,119) (28,558) 316,053

Loans written off - - (1,803) (1,803)

Closing Balance 7,733,928 1,869,610 371,020 9,974,558

Provisions held 17,802 231,551 308,311 557,664

56 Annual Report - 2022

Substantial exposure:
The aggregate substantial exposure i.e. credit exposure individually of 10% or more of the total capital of the Bank, on a gross
basis without adjusting for the credit risk mitigants to all the connected parties account for 45.9 % of the total capital of the Bank
and 10.27% of the total gross loan book.

E.2. Credit risk: disclosures for portfolio subject to the Standardised approach
The Bank uses Moody’s / Organisation for Economic Co-operation and Development (OECD) ratings to risk weight bank and
country exposures. The exposure-wise summary is as below:

Rated Unrated
Type of exposure
RO 000's RO 000's

Country 1,693,596 -

Bank 1,456,422 190,141

E.3. Credit risk mitigation: disclosures for Standardised approach

Main types of applicable collaterals under Standardised approach are:

• Cash on deposit with the Bank

• Certificates of deposits, issued by Central Bank of Oman.
• Sultanate of Oman Government Development Bonds and Certificate of Deposits
• Bank Guarantees
• Equities listed in Muscat Securities Exchange included in the Main Index
• Equities listed in Muscat Securities Exchange that are not included in the Main Index but are listed in the exchange

Apart from the above-mentioned collateral, guarantees of the government of Sultanate of Oman are considered for credit risk
mitigation purpose.
Systems and processes are in place to mitigate any operational risk, which may manifest in the process of obtaining securities to
mitigate credit risk. Continuous review and valuation of securities taken are done to ensure their quality. Appropriate haircuts, as
provided by the Central Bank of Oman, to mitigate the risks within the securities are applied.
Break-up of total exposure covered by eligible collaterals under the Standardised approach are given below:

Gross Loans & Advances / Financing

Collateral Details
RO 000's

Loans fully secured by Cash 44,905

Commercial loans secured by shares 235,842

TOTAL 280,747

E. Market Risk
Market risk is the potential loss due to changes in market determined variables. It manifests through the following variables-

• Foreign exchange risk

• Investment price risk
• Interest rate risk
• Commodity price risk

F.1. Market risk management framework

The Bank has a well-established Market risk management process consisting of risk identification, setting risk thresholds, risk
measurement as well as continuous monitoring, reporting and escalation of exceptions. The Bank has an independent Middle-
office unit within RMD, which monitors Treasury, Investment banking, Asset Management, Global Financial Institution, Private
Banking and Corporate Advisory divisions of the Bank. The Middle- office monitors and reports adherence to set risk thresholds
and escalates breaches, if any, for timely remedial action. The process ensures that the risks assumed by various front office desks
are within the Bank’s approved risk appetite and other policy thresholds.

Annual Report - 2022 57

 The broad framework for market risk management at the Bank is governed by the following factors:

• Sectoral limits for investments.

• Exposure limits and variation margin limits for foreign currencies, commodities, markets and instruments.
• Permitted derivatives structures.
• Stop loss limits for both Investments and FX trading portfolio.

F.2. Foreign exchange risk

Foreign exchange risk is the potential adverse impact on earnings and market value of currency holdings due to changes in
foreign exchange rates. Foreign exchange risk management in the Bank is ensured through regular measurement and monitoring
of open foreign exchange positions.
The Bank’s foreign exchange exposures predominantly arise from client transactions with a limited amount of exposure, due to
trading and overseas investments. The Bank’s open FX position is predominantly in US Dollar and GCC currencies.
The foreign currency exposure of the Bank as at the end of December 2022

Currencies RO 000's

UAE Dirhams 16,440

US Dollar 31,201

Saudi Riyal 753

Qatari Riyal 771

Pakistani Rupee 1,797

Indian Rupee 7,009

Kuwait Dinar 804

Bahraini Dinar 230

Others 1,129

Total 60,134

The exposure in foreign currencies excludes exposure arising out of investment in overseas branches and significant investment,
equivalent to RO 78.44 million which is exempted by the Central Bank of Oman for total monitoring the foreign exchange position.
The Bank treats its entire foreign exchange exposure under Standardised method for capital calculation. Market risk capital for the
Bank’s forex position as at the end of 2022 is RO 8.03 million.

F.3. Investment Price Risk

Investment price risk is the risk of decline in the market value of the stock and securities in which the Bank has invested. The
Bank’s investments are governed by the Investment policy, Treasury policy and Risk policy approved by the Board and are subject
to rigorous due diligence. The Investment committee monitors the investments portfolio on a regular basis. The Market Risk Unit
enables setting up of various thresholds for the investments and the Middle Office monitors compliance, reports and escalates
breaches, if any for necessary corrective action.
Under IFRS 9, investments are classified as FVOCI, FVPL or at amortised cost and the relative impairment or provision is accounted
appropriately.
In case of unlisted investment, the Middle Office of the Bank undertakes periodic valuation of such investments based on globally
accepted valuation methodologies and practices. The Bank follows a highly conservative approach in the valuation and makes
provisions as appropriate based on internal valuation methodologies. The Bank allocates capital for its investment’s portfolio
based on the Standardised approach based on the issuer rating.

F.4. Interest rate risk

Interest rate risk is the risk of adverse impact due to changes in market interest rates on the Bank’s financial position. While the
impact on the trading book is by way of change in the value of the investments, the banking book impacts the Net Interest Income
(NII) and/or Economic Value of Equity (EVE).
The short-term and long-term impact of interest rate risk are measured by conducting sensitivity analysis on the NII and Economic
Value of Equity (EvE) of the Bank, respectively.

58 Annual Report - 2022

The Bank’s Asset Liability Committee (ALCO) monitors and manages the interest rate risk in the bank. The Bank’s interest rate risk
reports are reviewed by the ALCO and reported to the Board, Board Risk Committee and Management Risk Committee.

Interest Rate risk measurement

The changes in market interest rates have an impact on the earnings and economic value due to the Bank’s banking book. Thus,
given the complexity and range of products, the Bank uses the ALM system to assess the impact of the change in interest rate
on both earnings and economic value. The simulation ranges from simple maturity (fixed rate) and repricing (floating rate) to
static simulation, based on current on-and-off-balance sheet position, to highly sophisticated dynamic modeling techniques that
incorporate assumptions on behavioral pattern of assets, liabilities and off-balance sheet items. The simulations inter alia covers
basis risk, embedded option risk and yield curve risk. The Bank undertakes interest rate simulation at various interest rate shock
levels to determine its impact on Net Interest Income (NII).
IRRBB is the risk that arises due to the variance in the market interest rates vis-à-vis the rates on the Bank’s assets and liabilities.
As part of its Internal Capital Adequacy Assessment Process (ICAAP), the Bank measures IRRBB by quantifying its impact on the
Economic value of Equity (EvE). The Bank has internally developed a model to identify the appropriate stress level to test its IRRBB
based on the historic USD and OMR yield curves, since the Bank’s assets and liabilities are majorly denominated in these two
currencies. The worst-case scenario is considered for the interest rate stress test on the banking book. The Bank conservatively
uses this stress level to measure the impact on its EvE and maintains economic capital for IRRBB based on the same. The Bank
does not run an interest rate trading book. The Bank has implemented the latest Basel committee recommendations of six
scenario stress tests for measuring the IRRBB in the Bank.
Following risk thresholds are set for the interest rate risk for a shock level of 200 basis points-

Net interest income impact Not more than 5% of the base case scenario

Economic Value of Equity impact Not more than 20% of Total capital

The effect of different rate shock under Earnings perspective and Economic value perspective (OMR consolidated) is given below:

+200 bps -200 bps

Impact on Net Interest Income
RO 000's RO 000's

As at 31 December 2022 4,678 (14,048)

As at 31 December 2021 21,809 (2,626)

+200 bps -200 bps

Impact on Economic Value
RO 000's RO 000's

As at 31 December 2022 (224,063) 685,684

As at 31 December 2021 (238,934) 409,114

F.5. Commodity price risk

The Bank offers commodities hedging facility to its clients. The Bank covers all customer trades in commodities on back-to-back
basis and does not run any position in its own books. In view of the high volatility in the commodity prices, the Bank sets a
variation margin limit over and above the volume limit. This enables the Bank to actively manage customer exposures and make
margin calls in the event of adverse price movements.

F.6. Derivatives
The Bank offers interest rate, foreign exchange and commodity derivatives to its customers for hedging purposes. The derivative
structures are offered as per the Board approved internal “Client & Product Appropriateness Matrix” based on the customer’s
underlying exposure. The customer derivative positions are covered back-to-back with interbank counterparties. The market risk
unit ensures appropriate limit setting process for customers for dealing in derivative products, monitors and reports exposures on
daily basis. The daily valuation of all derivative products is undertaken and customers as well as interbank margin thresholds are
monitored by the middle office on daily basis.
The Bank also undertakes interest rate derivative deals to manage its own interest rate exposures by way of Interest Rate Swaps,
Forward Rate Agreements etc. Such positions are initiated with the approval of the ALCO. The capital for these positions is
accordingly allocated.
The Bank had no outstanding interest rate swap transaction for balance-sheet hedging as at December 31, 2022 (Previous year
NIL).

Annual Report - 2022 59

 F.7. Measurement of market risk
The Bank implemented the Revised Market Risk Capital Framework for measuring market risk of the Bank’s portfolio and the
capital required for such exposures. The market risk portfolio considered includes the following –

• Equity and bonds investments portfolio.

• Forex and Commodities portfolio.
• Interest rate swaps portfolio.

Economic capital is allocated under the Internal Capital Adequacy and Assessment Process (ICAAP) for the capital calculated
under the Revised Market Risk Capital Framework.

G. Liquidity Risk
G.1. Liquidity risk management
Liquidity risk or funding risk arises when the Bank is unable to generate sufficient cash resources in a timely and cost-effective
manner to meet obligations as they fall due and/or to fund assets growth. The inherent business model exposes banks to liquidity
risk either due to external or internal factors.
The Bank’s treasury manages the liquidity on day-to-day basis under the guidance and supervision of the ALCO. The sources and
maturities of assets and liabilities are closely monitored to avoid any undue concentration and to ensure that the Bank is fully
prepared to meet any unforeseen stress condition. The Bank’s ALCO ensures adequate liquidity within the Bank through -

• Establishing time-band based “gap limits” and “maximum cumulative outflow” limits;
• Development of stress testing and contingency plans to ensure “crisis survivability”;
• Various liquidity ratios/thresholds such as LCR, NSFR etc.

The Risk Management oversight ensures Bank’s preparedness in meeting both planned and unplanned liquidity flows without
material adverse impact on profitability and the market perception of the Bank.

Basel III Liquidity Ratios:

Liquidity Coverage Ratio (LCR): LCR measures the stock of High-Quality Liquid Assets (HQLA) against short-term obligations (30
days). The Bank always maintains its ratio well above the regulatory requirement.
Net Stable Funding Ratio (NSFR): NSFR regulation seeks that the Bank diversify its funding sources and reduce their dependency
on short-term wholesale markets. The ratio compares the stock of Stable Funding against Required Funding. The Bank maintains
a strong NSFR ratio to avoid any funding mis-match.
The Bank is compliant with the Basel III Liquidity Norms and ratios as of December 2022 are as given below:

Basel III Liquidity Ratio Ratio as at December 31, 2022 (%) Regulatory Requirment
LCR 219 100%
NSFR 118 100%

Apart from the regulatory liquidity ratios, the Bank also maintains internal liquidity thresholds that are monitored on regular basis
to ensure it remains comfortably liquid.
The detailed LCR and NSFR disclosure is given below. The disclosures are also available on the Bank’s website.

60 Annual Report - 2022

Liquidity Coverage Ratio (LCR):
Total Unweighted Total Weighted
LCR Common Disclosure Template for the period ending Value (average) Value (average)

(RO 000's) (RO 000's)

High Quality Liquid Assets
1 Total High Quality Liquid Assets (HQLA) 1,979,214
Cash Outflows
2 Retail deposits and deposits from small business customers, of which: 3,960,936 200,653
3 Stable deposits 2,128,223 63,847
4 Less stable deposits 1,832,713 136,806
5 Unsecured wholesale funding, of which: 2,098,136 994,146
Operational deposits (all counterparties) and deposits in networks of
6
cooperative banks
7 Non-operational deposits (all counterparties) 2,098,136 994,146
8 Unsecured debt
9 Secured wholesale funding
10 Additional requirements, of which: 434,393 136,604
11 Outflows related to derivative exposures and other collateral requirements 26,166 26,166
12 Outflows related to loss of funding on debt products
13 Credit and liquidity facilities 408,227 110,438
14 Other contractual funding obligations 141,392 141,392
15 Other contingent funding obligations 1,746,832 87,342
16 TOTAL CASH OUTFLOWS 1,560,137
Cash Inflows

17 Secured lending (e.g. reverse repos)

18 Inflows from fully performing exposures 1,198,892 654,810

19 Other cash inflows

20 TOTAL CASH INFLOWS 1,198,892 654,810

Total Adjusted Value

21 TOTAL HQLA 1,979,214

22 TOTAL NET CASH OUTFLOWS 905,327

23 LIQUIDITY COVERAGE RATIO (%) 219

Net Stable Funding Ratio (NSFR):

Unweighted value by residual maturity

<6 6 months Weighted

ASF Item No maturity ≥ 1yr
months to < 1yr value

(RO 000's) (RO 000's) (RO 000's) (RO 000's) (RO 000's)

1 Capital: 2,155,083 - - - 2,232,418

2 Regulatory capital 2,116,762 - - - 2,116,762

3 Other capital instruments 115,656 - - - 115,656

Retail deposits and deposits from

4 0 0 3,778,249 0 3,508,834
small business customers
5 Stable deposits 2,168,203 2,059,793
6 Less stable deposits 1,610,046 1,449,041

Annual Report - 2022 61

 7 Wholesale funding: 0 53,042 3,345,704 2,515,234 4,214,607
8 Operational deposits 53,042 26,521
9 Other wholesale funding 3,345,704 2,515,234 4,188,086
10 Liabilities with matching interdependent assets
11 Other liabilities:
12 NSFR derivative liabilities 26,166
All other liabilities and equity not
13 1,087,609
included in above categories
14 Total ASF 9,955,859
RSF Item
Total NSFR high-quality liquid assets
15 70,090
(HQLA)
Deposits held at other financial
16 100,697 50,348
institutions for operational purposes
17 Performing loans and securities: 0 106,703 2,134,461 6,923,243 6,652,007
Performing loans to financial
18
institutions secured by Level 1 HQLA
Performing loans to financial
institutions secured by non- Level
19 106,703 16,005
1 HQLA and unsecured performing
loans to financial institutions
Performing loans to non-financial
corporate clients, loans to retail and
20 small business customers, and loans 2,134,461 5,343,316 5,609,049
to sovereigns, central banks and PSEs,
of which
-With a risk weight of less than or
21 equal to 35% under the Basel II
Standardised approach for credit risk
Performing residential mortgages, of
22
which:
With a risk weight of less than or
23 equal to 35% under the Basel II 1,579,927 1,026,953
Standardised Approach for credit risk
Securities that are not in default and
24 do not qualify as HQLA, including
exchange-traded equities
Assets with matching
25
interdependent liabilities
26 Other Assets: 1,529,485 25,571 0 0 1,555,056
Physical traded commodities,
27
including gold
Assets posted as initial margin for
28 derivative contracts and contributions
to default funds of CCPs
29 NSFR derivative assets 25,571 25,571
NSFR derivative liabilities before
30 3,161 3,161
deduction of variation margin posted
All other assets not included in the
31 1,529,485 1,529,485
above categories
32 Off-balance sheet items 2,155,059 107,753
33 TOTAL RSF 8,435,254
34 NET STABLE FUNDING RATIO (%) 118

62 Annual Report - 2022

G.2. Liquidity Assessment and Management Process (LAMP)
LAMP involves a comprehensive liquidity stress testing under various stress conditions and this forms an integral part of the Bank’s
liquidity risk management process. Anticipated on and off-balance sheet cash flows are subjected to a variety of idiosyncratic and
systemic stress events to evaluate the impact on the Bank’s liquidity position. The Bank considers all such events that could cause
moderate to severe liquidity strain. The stress tests involve both sensitivity and scenario analysis, to study the impact on the Bank
at three levels of severity – moderate, medium and worst case scenario.
The Bank maintains a Contingency Funding Plan (CFP) to meet any unforeseen but plausible stress conditions. The contingency
funding consists of unencumbered high-quality liquid assets that include cash balances with Central Bank of Oman and other
banks, Government Development Bonds, Treasury Bills, T-Bills issued by other investment grade sovereigns or by GCC countries
and borrowing back-stops such as stand-by credit lines and committed facilities. The contingency funding plan as detailed in the
Bank’s ALM Policy defines the roles and responsibilities of various departments/ individuals in the event of severe liquidity strain.
The results of the stress tests and the contingency funding over the past one year is hereunder:

Liquidity Stress Test, Contingency Funding Plan & Internal Stress Threshold

2500

2000

1500

1000

500

0
Dec 21

Jan 22

Feb 22

Mar 22

Apr 22

May 22

Jun 22

Jul 22

Aug 22

Sep 22

Oct 22

Nov 22

Dec 22
Threshold Liquidity Stress CFP Assets

H. Operational risk
H.1. Introduction
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems or from external events.
Operational risk includes legal risk but excludes strategic and reputational risk. Operational risk losses result from deficiencies in
information systems, internal controls or uncontrollable external events. The risk is associated with human error, systems failure,
inadequate procedures or controls and external causes.

H.2. Operational Risk Management

The Bank’s Operational Risk Management Department “ORMD” is responsible for managing the operational risk profile of the
Bank. It devises the risk management framework, policies and tools to govern and manage inherent operational risks in the
Bank’s activities and operations by implementing regulatory/ Basel guidelines and the best practices in the industry. Operational
risk is controlled through strong internal controls and audits, well-defined segregation of duties and reporting lines, detailed
operational manuals and standards.
ORMD monitors the movements in the operational risk profile of the Bank. Deviations are analyzed and root cause with
recommendations are raised and discussed with appropriate management actions, periodically and on ad-hoc basis. For this
purpose, the Bank keeps a centralized repository of all operational risks events encountered by the Bank’s departments and
branches. Opportunities of automating bank’s activities, to enhance operations efficiency and reduce human errors, are always
looked for and explored. Adoption of risk management culture is a key successful element for managing risks, therefore, ORMD
conducts regular trainings to stakeholders in order to disseminate risk awareness. To minimize the impact of operational risks
events, the Bank ensures a fully functional IT Disaster recovery system, comprehensive insurance arrangements, up-to-date
documentation and effective implementation of Business Continuity Plan.
Business units, as first layer of defence, have the primary responsibility of identifying, assessing, managing, and reporting the
operational risks that are inherent in their respective products, activities, processes and systems. Business are required to conduct
the Risk Control Self-assessment (RCSA) annually or whenever a new product is launched, system / process is changed, or
material external risk emerges, alongside with the embedding of effective and efficient internal controls into all of their operations
and activities, with consistent application of the approved operating policies and procedures.

Annual Report - 2022 63

 Operational risk management function, as a second layer of defence, have the primary responsibility to pursue the achievement
of the aforementioned operational risk management objectives through facilitating the necessary tools, challenging business
units, monitoring the operational risk profile, and reporting drifts to Management for action.
While the Internal Audit function, as a third layer of defence, is the primary responsible for the independent validation of the
overall effectiveness and efficiency of the operational risk management framework and its implementation.
The Management Risk Committee is the primary oversight body for managing operational risk. The committee is represented by
various business and control functions and is responsible for ensuring that the Bank has adequate and sound risk management
framework, policies, processes that govern the identification, evaluation and management of operational risks, in line with the
BASEL requirements, best practices, and regulatory directives & guidelines.
The Bank uses the following tools for Operational risk management:

• Internal assessment of operational risks performed by the departments through Risk and Controls Self-Assessment (RCSA)
exercise, facilitated by Operational Risk team;
• Operational loss data collected from actual and potential loss events and Key Risk Indicators (KRI’s);
• Independent assessment of operational risks and controls of various departments conducted by the Internal Audit Department.

Risk Control Self-Assessment (RCSA) is a proactive, forward-looking tool for identifying current and emerging operational risks,
assessing the effectiveness of controls in place to mitigate those risks and devise action plans to bring unacceptable risks to an
acceptable level.
KRI’s act as early warning signals by providing the capability to indicate changes in the Bank’s Operational risk profile and its
impact. KRI’s are based on measurable thresholds and the ownership matrix is defined for action plan, if required.
All business units are required to report operational losses through the Bank’s operational risk management system. The
operational loss data collected is categorised by Basel business line, loss event type and reported to Board, Management Risk
Committee and senior management. The Bank also undertakes analysis of the operational losses to identify the root cause for
the losses and take appropriate actions to reduce and prevent from re-occurrence of the incidents. If required, additional internal
controls are embedded into the operating policies and manuals of the Bank’s to reduce the risk.
The Bank recognizes the operational loss at the time of the event. Few of the events that occurred during the year are still under
recovery process, which is expected to be completed soon.
There are four approaches to mitigate operational risks, viz. risk acceptance, risk avoidance, risk mitigation, and risk transfer to/
sharing with third parties including insurance companies. The Bank judiciously evaluates the various options before making
decision on the choice.
The Bank has obtained insurance coverage against critical risks include Bankers’ Blanket Bond (BBB), Directors & Officers (D&O),
Professional Indemnity (PI), Electronic & Computer crimes, Cyber Risks, Property All Risks, Staff Group Life and Staff Group Credit
Life, etc. While insurance cannot alter the likelihood of risks, it allows the transfer of the financial impact of risks to insurance
providers/ third parties. Insurance is primarily aimed at protecting the Bank from risks characterized with high-severity, and low-
frequency.

H.3. Protective Services Unit (PSU)

The Protective Services Unit is an integrated function relating to security and protection of all the Bank’s assets. The objective of
PSU is:

• To effectively protect the Bank’s assets from physical (manmade and natural) threats, cyber/technological threats by ensuring
appropriate security controls are implemented and operational;
• To set up early warning mechanism in the Bank to warn of possible or imminent threats so that appropriate plan can be
implemented to mitigate and control the impact of the threats;
• To ensure continuity in business by robust risk management techniques and resuming “business as usual” quickly and
seamlessly;
• To have an effective incident response plan to be ready for various security incidents.

64 Annual Report - 2022

H.3.i. Physical security management
The Bank ensures that adequate and effective security systems are deployed to protect the Bank’s assets from physical threats
that could cause harm and loss to Bank’s assets.
The Bank has set up a framework to govern and manage the physical assets. Key elements of the physical security framework
include:

• Governance through policies, procedures, guidelines and standards;

• Implement physical protection technology to protect the Bank’s assets;
• Implement early warning systems with authorities for our infrastructure, such as Branches and ATM’s.

H.3.ii. Information / Cyber Security Management

The Information / Cyber security management function helps to secure information within the Bank as well as protecting the Bank
from Cyber security risk.
Information risk is defined as the risk of accidental or intentional unauthorized use, modification, disclosure or destruction
of information resources, resulting in compromise of confidentiality, integrity or availability of information. Information risk
management deals with all aspects of information in its physical and electronic forms and is focused on the creation, use,
transmission, storage, disposal and destruction of information.
Cyber security risk is the risk that attacks could disrupt the Bank’s business by causing failure or breach of the Bank’s various
channels, security systems or infrastructure, including the third party vendors and other service providers, which will result in the
disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and negatively impact
our reputation. With the increased sophistication and reach of organised crime, hackers, terrorists, activists, and other external
parties the risk has increased.
The Bank continues to invest significant resources to maintain and regularly update its systems and processes that are designed
to protect the security of the Bank’s computer systems, software, networks and other technology assets. This is to protect against
attempts to obtain unauthorised access to confidential information, destroy data, disrupt or degrade service, sabotage systems
or cause other damages. There are ongoing strategic initiatives in protection and detection technology to protect our assets as
well as to ensure early detection of potential cyber-attacks. The review of third parties who are connected to the Bank’s network is
carried out to ensure that the connections are secure and the Bank is protected against any untoward events which may happen
at third party.
The Bank also works with appropriate third party and government agencies with deep knowledge of cyber defence to ensure that
the Bank is protected and prepared in an unfortunate eventuality of an attack The Bank invests in the training of people, stays
abreast of global trends in cyber risk and ensures that appropriate measures are taken against emerging threats and changes in
the landscape. Comprehensive review and testing are conducted for new technologies that are introduced in the Bank.
The Bank has an effective Information and cyber security risk management function focusing on the following important aspects:

• Information security governance through security policies, procedures, guidelines and standards;
• Implementing a robust network security defense as well as strong internal controls to enforce “need-to-know” principle;
• Information security monitoring through latest solutions and tools – monitoring includes real time as well as at fixed frequency
monitoring;
• Cyber security incident response plan to have quick and effective management of cyber security incidents;
• Information security reviews comprising new and existing technologies, solutions, networks and also the various processes/
operations within each and every department of the Bank.

H.3.iii Health, Safety and Environment (HSE) Management

The Bank acknowledges that people are its most important assets and therefore health and safety of its staff, customers and
vendors/partners (whilst on its premises) is of paramount importance. The Bank’s Health and Safety (HSE) Policy is compliant
with regulatory guidelines and has been approved by the Ministry of Manpower. The Bank ensures and provides a safe working
environment for the staff while conducting their assigned duties. This includes regular inspection of the fire detection systems in
all its premises, conducting emergency evacuation drills, staff training on how to handle minor fires, and installation of In-Vehicle
Monitoring System (IVMS) in all its vehicles so that staff adhere to the traffic rules and regulations while they are on duty. The Bank
also promotes health awareness through regular health events organised in association with leading organisations in Oman. To
enhance the safety of its employees the Bank introduced an incident reporting system were all staff can report any incident/
unsafe conditions which will be actioned immediately by the Health and Safety department.

Annual Report - 2022 65

 H.3.iv. Business Continuity Management (BCM)
Business Continuity Management is the planning, implementation and management of activities, in order to ensure that the
Bank can continue to operate at least at a pre-determined level following a significant unplanned event or major operational
disruption.
The Bank ensures that its systems, processes and procedures are resilient in potential situations of failure. The Bank has put
in place Business Continuity Plans (BCP) for each critical department as well as every branch to ensure that its business runs
effectively in the event of most unforeseen disasters as required by the CBO Business Continuity Guidelines, the Basel Committee
Joint Forum High-level principles for business continuity and international business continuity standards.
The Protective Services Committee is entrusted with the responsibility of formulating, adopting, implementing, testing and
maintaining a robust BCP for the Bank. The said committee continuously reviews and agrees to the business continuity strategy.
It also ensures that planning and maintenance responsibilities are assigned, understood and implemented across the business.
The Bank’s recovery centre has the capability to meet any unforeseen disaster and ensure continual operational capability in the
event of a major operational disruption. To ensure proper functioning of the Business Recovery Centre (BRC), all departments of
the Bank are required to complete annual testing to ensure that it will operate successfully in times of emergencies. The Bank
provides training to its new joinees as well as existing employees through online and onsite training to ensure that everyone is
familiar with resumption and business recovery procedures.
The Bank continues to strengthen and enhance its business continuity framework to be ready to meet any ‘emergency
preparedness’.

I. Other residual risks

Apart from the core risk areas discussed above, the Bank also monitors other risks as discussed below:

• Financial crime risk

• Financial reporting risk
• People risk
• Compliance risk
• Technology risk
• Reputation risk
• Sustainability - Environment and Social Risk
• Model risk
• Social media risk

I.1. Financial crime risk

The failure to identify, report and act on matters related to financial crime and money laundering is referred to as financial crime
risk. This risk may lead to financial losses, penalties and loss of reputation.
Fraud and money laundering are the two most common crimes seen within the financial services sector. Accordingly, the Bank
has placed combating financial crime and associated compliance requirements high on its corporate agenda. This has led to
policies, procedures and systems that proactively identify, alert, assess and monitor the risk of such events. The Bank has a
dedicated Money Laundering Reporting Officer who is supported by a fully qualified Anti-Money Laundering (AML) team. They
utilize systems to monitor transactions on an on-going basis and report suspicious transactions to the competent authority. All
the officers of the Bank undergo continuous training on AML and have to take a computer-based test on AML on a periodic basis.
In addition, specific front line staff undergone enhanced training to ensure they are up to date with the latest developments in
this area.
The Bank has put in place an effective Fraud Risk Management Framework consisting of Fraud Risk Management Policy and Fraud
Risk Management Systems. The Bank has a dedicated Anti-Fraud Risk Management team to coordinate the various fraud related
activities and implement the Fraud Risk Management Framework & Governance in the Bank.
The Bank has an Anti-Fraud & Financial Crime Committee to monitor the financial crime related risks and provide direction to
manage these risks.

66 Annual Report - 2022

I.2. Financial reporting risk
The risk of failing to detect any material misstatement or omission within the Bank’s external financial reporting is termed as
financial reporting risk.
The Bank has a robust and established financial reporting process with adequate internal checks and controls to minimise such
risks. The Bank’s internal audit division independently reviews the internal controls and procedures to mitigate such risks. The
key agenda of the Board Audit committee of the Bank is to ensure best industry practices and high standards of corporate
governance with regard to financial reporting.

I.3. People risk

All organizations are exposed to People Risk. People are the single most important asset in any business but they are also the most
vulnerable asset. People risk includes lack of appropriate workforce, unethical behaviour of staff, failure to manage performance
and rewards, lack of people development opportunities, lack of succession planning and career progress opportunities, failure to
comply with labour laws and legislations etc.
The Bank assigns the highest importance to its human resources (HR) and their well-being and allocates considerable resources
to provide state-of-the-art working environment that has helped the Bank to be among best employer in Oman. These include
equal opportunities, various HR benefits and services, learning and development opportunities etc. These efforts include adopting
best practices in areas of HR policies and services, performance management and rewards, talent management and succession
planning, learning and development etc. The Bank continuously reviews its HR policies in line with the evolving conditions and
provide various facilities such as staff loans, medical care coverage, employee engagement initiatives, etc. It continues to invest in
ERP platform to deliver fast, efficient and convenient services to staff in Oman as well as in international locations. During the year
several HR processes were automated, which has resulted in better controls, efficiency and cost savings. HR initiatives not only
help the Bank to mitigate people risk but also enhances its position as employer of choice and provide tangible competitive edge.
Bank Muscat leadership position in the financial services sector reflects our profound belief that competent and highly-engaged
employees provide competitive advantage for the organization. This translates into a long-term commitment to invest in the
country’s human resources to boost their capabilities and to empower Omanis to embrace roles of greater responsibilities and
deliver sustained and extraordinary performance. The Bank continuously innovates its talent management and succession planning
programs. Succession plans are in place for all identified critical roles by ensuring a steady pipeline of Omani employees who are
groomed for leadership positions within the Bank. The Bank has achieved 93.6% Omanisation by prioritizing the development of
Omani talent to occupy key positions across all our functions.
In 2022, Bank Muscat recruited over 226 talented Omanis to support the job creation initiatives of the Government. The Bank’s
flagship Jadara Academy has been accredited against leading global people development standards such as Investors in People,
People (IiP), Capability Maturity Model (PCMM), and the Global Association of Corporate Universities and Academies (G-ACUA).
The Academy organized training programmes where 28,911 training seats were utilized by employees with total of 34,982 training
man-days. In 2022, a total of 34 professional certifications programmes were conducted and over 300 employees were certified in
their respective areas. The Bank also offered 159 educational scholarships within Oman and 13 scholarships at overseas universities
to promising and highly-talented employees. Over 50 inhouse custom-designed eLearning courses were also launched. These
customized eLearning courses were developed to meet the bank’s compliance training mandated by the regulators, enable
various departments device and execute their strategies and business plans, and to aid smooth roll out of change initiatives and
enterprise projects.
The Bank assigns utmost importance to development of the leadership and management skills of the managers at various levels.
In this context, 36 members from the Management Team completed online programmes through Harvard Business School and
Yale School of Management. These programmes prepares the Banks’s executives to confront complex decisions with confidence,
adjust decision velocity to situational demands, and enable intelligent risk-taking. 50 of our first time Managers joined our Tatweer
preparing them to transition smoothly from individual contributors to managerial positions. In 2022, a total of 69 high potential
graduates are undergoing our two-year signature graduate development programme.
Bank Muscat’s Jadara Academy also conducts custom-designed functional development programmes for different job roles
blending international best practices with the Bank’s own business know-how. These functional academies provide specialist
tracks that ensure our employees in various departments maintain up-to-date skills and knowledge that are benchmarked with
international standards. For example, 302 staff from our Technology and Enterprise Project Management Group have participated
in 57 technical certifications and functional courses offered by our Jadara IT Academy. Similarly, 23 staff are in our Trade Finance
Academy preparing for the Certificate in International Trade Finance (CITF) and we expect their graduation is scheduled in Q1
2023. 10 of our Personal Banking staff have successfully certified in Level I of the Retail Banking Academy. Over 70 staff are
undergoing preparations for Team Leader, Quality Assurance, and Agent certifications as part of Jadara Contact Centre Academy.

Annual Report - 2022 67

 11 of our high potential internal auditors have completed the Internal Audit Development Program and another 15 others are
currentlyattending.
Employee engagement and wellbeing programs are conducted to increase staff morale and wellness. The focus for the year has
been physical & mental wellness, especially as we are all on the road to normalisation after COVID-19. The Employee Experience
survey was conducted during the year where 90% of the employees participated. Values & Culture was rated as an “Area of
Strength” in the survey.
The Human Resource team continues to monitor the COVID-19 condition across the bank, by regularly updating Management
on the COVID situation. This continues to be done in collaboration with different departments of the Bank, including regularly
following up with the Ministry of Health and Crisis Centre.

I.4. Compliance risk

Compliance risk is the failure to comply with applicable laws and regulations imposed by the various governing authorities and
regulators where the Bank operates. Failure to comply with regulations may lead not only to penalties and financial losses but is
also detrimental to the reputation and long term prosperity of any organisation.
The Bank’s Management is primarily responsible for managing the compliance risks that the Bank is exposed to and is supported
by the Compliance department in discharging this duty together with the various business units. The Bank has a strong Compliance
department and its Compliance Officer has a direct reporting line to the Bank’s Board. The Bank is aware of the challenges of
operating under multiple regulatory regimes and the increasingly demanding regulatory environment in the financial services
industry. It has geared up its processes to meet the challenges. The Bank conducts Compliance-related eLearning courses which
are mandatory for all staff. These trainings help in safeguarding the Bank, customers, stakeholders and the country and preparing
the workforce to meet its regulatory obligations. The Compliance department is also involved in the approval process of products
and services to ensure the Bank always operates in compliance with the regulatory norms across all of its operations.

I.5. Technology risk

Banks and financial institutions have been embracing technological transformation, especially with the drive towards automation
of processes, fierce competition among banks to provide more online channels to customers and digitalisation of financial
institutions. Technology permeates the operations of the entire organisation and enables processes that the Bank uses to develop,
deliver, and manage its products, services, and support operations.
Technology risk can occur due to the choice of faulty or unsuitable technology or adoption of untested or obsolete technology
and this remain as one of the key risk because of heavy reliance on technology.
The Bank ensures smooth business growth by identifying and adapting to the fast changing technological environment. The Bank
has two management level committees to manage technology risk:

• An Information Technology Steering Committee to oversee the strategic direction of information technology within the Bank
as well as effective implementation of the determined security controls;
• A Protective Services Steering Committee supervises the robustness of the Bank’s security and business continuity plans
including IT – Disaster Recovery Systems.

I.6. Reputation risk

Reputational risk is defined as the current and potential risk of incurring an economic loss or a capital shortfall or risk to earnings
or litigation due to negative opinion of the Bank's image by its main stakeholder groups - i.e. customers, regulators, shareholders,
employees and consumers, resulting from loss of reputation or public trust and standing.
Strong corporate reputation is an invaluable asset to any organisation and if ever diminished, it’s the most difficult asset to restore
among all the other assets of the organisation. Reputation has a vital impact on the long term prosperity of the organisation. A
deteriorating reputation can have a very adverse impact on business growth, earnings, capital raising and day to day management.
This risk often exposes the organisation to litigation and financial losses. The exposure to reputation risk is always present and
hence this necessitates the responsibility of every employee to exercise an abundance of caution in dealing with customers and
the community at large.
The Bank aspires to maintain highest ethical standards in all its business dealings in order to safeguard its reputation. The Bank
recognizes that the responsibility for reputation risk must permeate across all levels of the Bank and continuously takes steps to
reinforce this message across the organisation. Following are the key components of reputation risk management framework:

• The Bank Product Approval Committee ensures that its products comply with the relevant regulations in geographies where
it operates.

68 Annual Report - 2022

• The Bank has a Disclosure Committee that ensures that all key developments that have a bearing on investor’s confidence
are reported promptly and effectively to the regulatory agencies and the public at large. The Bank ensures that it remains in
full compliance with all its disclosure obligations. It has framed and adopted for itself a framework in line with the highest
standards of corporate governance and strongly focuses on integrity.
• The Bank’s Corporate Communication department has been entrusted with the responsibility to measure, monitor and
continuously improve the Bank’s brand image. It is also responsible for continuous monitoring of threats to the reputation of
the Bank.
• The Bank continues to invest in the development of its people through training, to ensure fair dealing with customers and
society.
• To encourage ethical practices, the Bank has a Whistleblower Protection policy which covers all areas of dealings with customers,
colleagues and others, including suppliers and contractors.
• The Bank has a Corporate Social Responsibility (CSR) department that plays an active role in creating awareness for environment
protection within the Bank. It has been involved in several social service projects during the year demonstrating the Bank’s
commitment to the community it serves.
• The Bank has a Business Continuity Plan (BCP) in place to take care of uncertainties, which is tested and updated regularly to
take care of external uncertainties.
• The Bank enforces strong and consistent controls relating to governance, business compliance and legal compliance.
• In order to enhance its reputation, the Bank has defined its vision and values so as to create a positive working culture. It has
also defined the customer rights so as to protect and be fair to its customers.

The Bank has developed a quantitative framework for measuring reputational risk. The framework incorporates various risks
indicators to arrive at the Reputational risk score for the Bank. The framework is useful both as ex ante (e.g. an early warning
system and pre-emptive management action) and ex post (mitigation actions). The framework also helps the Bank understand
its strengths, weaknesses and the evolving trends that impacts its Reputation risk.

I.7. Environment and Social risk

Environmental risk means the risk of causing pollution or destruction of the natural environment (land, water, air, natural habitats,
and animal and plant species), either through accidental or deliberate actions.
Social risk is the risk of a customer not meeting acceptable standards for employment and business ethics, within his own
business or by his actions.
The risks arising from environmental problems or social discontent surrounding a project can be extremely costly in terms of
delays and stoppages, negative publicity, threats to operating license, and significant unforeseen expenditures. At the same time,
reputational damage can far exceed the immediate cost impact of a single project.
The Bank is committed and has always been proactive to deliver value to the economy, environment and society. To achieve
this, a sustainability framework has been designed and a Sustainability committee is in place to ensure implementation of CSR
and Sustainability projects. The Bank has invested in training of officers in STEP (Sustainability Training and e-learning Program).
Moreover, a set of Corporate Values and Customer Rights have been identified for which staff receive training and periodic
awareness communications.

I.8. Model risk

Model risk arises from potential weaknesses in a model that is used in the measurement, pricing and management of risk.
These weaknesses include incorrect assumptions, incomplete information, inaccurate implementation, inappropriate use, or
inappropriate methodologies leading to incorrect decisions by the user.
Model risk in the Bank is prevalent due to the use of various models in different areas such as customer rating, capital calculation
etc. The introduction of IFRS 9 has increased the model risk due to the use of various models for calculating provisions for
expected credit loss.
However, the Bank’s approach to managing model risk is based on the following principles:

• Model development function is independent of model validation function;

• Governance through model review committee with members comprising from different functions;
• Formulation of policies which deal with materiality, validation criteria and approval criteria;
• Regular monitoring of model performance;
• Back-testing of the model results against actual results;

Annual Report - 2022 69

 • An independent validation of models including process and procedures on a periodic basis;
• Review and governance of data used as model inputs.

The Bank maintains additional buffers towards unknown model risk, wherever required.

I.9. Social Media Risk

The growing popularity of social media and digital technologies has brought in new opportunities together with new risks. The
Bank fully recognises and appreciates the importance of the social media in marketing of new products, engaging with customers
and in shaping public opinion about the Bank and its products and services, but at the same time fully recognises the risks.
Social media risk is the risk of failing to monitor, protect and manage the Bank’s reputation, brand, products, services, customers
and employees across social media space. However, due to the dynamic and unregulated nature of the medium, risks in social
media are multiple and will remain in the foreseeable future.
To avert these multiple risks and to manage the Bank’s brand presence within social and digital media space, the Bank has in
place a Board approved Social & Digital Media Policy supported by Social & Digital Media Guidelines. The Social & Digital Media
Unit within Corporate Communications Department manages the Bank’s official social media accounts, ensures compliance with
the policies and follows specific guidelines and manuals that govern the daily operations and activities on the Bank's social
media and digital space. The Bank has also established a Customer Service team within the Contact Centre dedicated to address
customer queries on social media including Twitter, Facebook, Instagram, WhatsApp and others. The Social Media and Digital
media unit works closely with Customer Service Team to monitor social media space for proactive customer management, and
ensure 24/7 crisis management. Constant monitoring is required to ensure minimal risk to the Bank’s reputation and brand. Since
the beginning of COVID-19 pandemic, there has been surge in social and digital media consumption which has increased the
associated risk. New types of cyber frauds are continuously emerging. To mitigate the same, the Bank continuously runs cyber
fraud awareness campaigns for the staff and customers across multiple channels, both independently and in collaboration with
relevant authorities such as Royal Oman Police (ROP).

70 Annual Report - 2022

Enabling small
businesses build a
better tomorrow with
continuous support

Annual Report - 2022 71

72 Annual Report - 2022
Annual Report - 2022 73
 Meethaq Pillar III Disclosures
A. Introduction and Scope of Application
bank muscat (SAOG) (the "Bank") established "Meethaq Islamic banking window" (“Meethaq”) in the Sultanate of Oman to carry
out banking and other financial activities in accordance with Islamic Shari’a rules and regulations. Meethaq operates under an
Islamic banking license granted by the Central Bank of Oman ("the CBO") on 13 January 2013. Meethaq’s Shari’a Supervisory Board
is entrusted to ensure Meethaq's adherence to Shari’a rules and principles in its transactions and activities.
A complete set of financial statements of Meethaq is included in the consolidated financial statements of the Bank. This document
presents Basel II, Pillar III disclosure pertaining to Meethaq on a stand alone basis and is an annexure to the main Pillar III
document of the Bank.
There is no restriction on the transfer of funds from the Bank towards Meethaq. However, under the Islamic Banking regulatory
framework (IBRF), Title 9, section 1.10.2, Meethaq cannot place funds with the Bank.
Meethaq does not hold controlling interest in any other entity.

B. Capital Management
B.1 Capital Structure
The capital of Meethaq has been assigned by the Bank. As of 31 December, the regulatory capital structure of Meethaq is as
follows:

2022 2021
Particulars
Amount in RO 000's Amount in RO 000's

Assigned capital / Share capital 120,000 120,000

Less: Cumulative loss on fair value (3,007) (2,686)

Retained profits 92,583 79,458

Tier 1 Capital 209,576 196,772

Cumulative gains on fair value (45%) 53 152

Eligilbe impairment for credit losses 23,883 22,519

Tier II Capital 23,936 22,671

Total capital available 233,512 219,443

Amount of investment account holders funds 1,234,548 1,098,850

Profit equalisation reserve 1,586 2,563

Investment risk reserve 253 390

Total equity of investment account holders 1,236,387 1,101,803

Meethaq follows the Basel III capital norms and remains strongly capitalised. Meethaq’s regulatory capital as per Basel III
regulations is grouped into:

• Common Equity Tier 1 (CET1) capital which includes assigned capital and retained earnings,
• Meethaq does not have any additional tier 1 capital,
• Tier 2 capital, which includes stage 1 and stage 2 provision as calculated under IFRS 9 subject to ceilings as per CBO guidlines
and investment fair value reserve with regulatory hair cut.

There are no amounts in capital adequacy calculation of Meethaq which are subject to a different pre-Basel III treatment.

B.2 Capital Adequacy

Capital adequacy indicates the ability of Meethaq in meeting any contingency without compromising the interest of the investment
account holders and to provide financing across the business cycles. Besides being a regulatory requirement, sufficient capital in
relation to the risk profile of Meethaq’s assets helps promote financial stability and confidence of the stakeholders.

74 Annual Report - 2022

Risk coverage is the primary consideration influencing capital management, however, Meethaq being a business driven window
of the Bank, needs to provide comfortable rate of return to the capital providers. Hence, with regards to the capital management,
Meethaq strives to remain conscious of the balance between the two.
Risk weights are assigned to assets as per the regulatory guidelines from the CBO. Assets funded by investment accounts are also
assigned same risk weights as the assets funded by own equity.
The summary of capital adequacy ratio of Meethaq is as below:

31 December 2022 31 December 2021

Risk Weighted
Risk Weighted Assets
Assets
RO 000's RO 000's
On-balance sheet items 1,106,033 991,562
Off -balance sheet items 18,338 23,426
Total Credit risk 1,124,371 1,014,988
Total Market Risk 12,748 26,529
Total Operational Risk 69,046 60,491
Total risk weighted assets 1,206,165 1,102,008
Capital Structure
CET1 Capital 209,576 196,772
Tier 1 Capital 209,576 196,772
Tier 2 Capital 23,936 22,671
Total Regulatory Capital 233,512 219,443
Capital Requirement for Credit Risk
- Murabaha and other receivlables 7,944 5,573
- Musharaka contracts 83,675 77,217
- Ijara 10,720 7,569
- Wakala 12,307 12,379
- Others 9,036 8,910
Capital Requirement for Credit Risk 123,681 111,648
Capital Requirement for Market Risk 1,402 2,918
Capital Requirement for Operational Risk 7,595 6,654
Total Required Capital 132,678 121,221
Tier 1 Ratio / CET 1 ratio 17.38% 17.86%
Total Capital Ratio 19.36% 19.91%

C. Disclosures for Investment Account Holders (IAH)

Meethaq accepts funds from investment account holders under Shari'a compliant Mudaraba contracts. These funds are unrestricted
in nature i.e. it is the discretion of Meethaq to invest in any Shari'a compliant assets. There are no limits on the investment of
Investment Accounts fund in any particular type of asset. Currently, Meethaq offers various types of Investment accounts:

• Savings accounts, Meethaq Savings plan, Hibati Saving Plan, Government plus accounts, call accounts
• Term deposits of various maturities from 1 month to six years.

The products of Meethaq are listed on its website with detailed product information, as well as, the underlying Shari'a basis for
such product.
Equity of investment account holders is commingled with Meethaq’s funds and utilised completely in the business of Meethaq
according to the weights of each type of fund. These weights are declared by Meethaq at the beginning of each month in the
form of circulars which are available at its branches and web site. Mudarib expenses are charged to the pool which include all
direct expenses incurred by Meethaq, including impairment provisions. Fee based income is not allocated to the joint pool. From
the distributable profits earned by the pool assets, after charging Mudarib expenses, allocation is made between shareholder

Annual Report - 2022 75

 funds and funds of IAH's. From the share of IAH's, Mudarib share is deducted and the distribution is made subject to creation of
profit equalisation and investment risk reserves as discussed below.
Meethaq is committed to provide competitive rate of return to its investment account holders. Meethaq appropriates a certain
amount in excess of the profit to be distributed to investment accountholders before taking into consideration the Mudarib share
of income. This reserve being called Profit Equalisation Reserve (PER) is used to maintain a certain level of return on investment
for equity of investment accountholders. Further, Investment risk reserves (IRR) is also maintained by Meethaq which are amounts
appropriated out of the income of equity of investment accountholders, after allocating the mudarib share, in order to cater
against future losses for equity of investment accountholders. No transfers were made during the year from PER to IRR or vice
versa.
The rate of return on each type of investment account is disclosed by Meethaq on a monthly basis in the form of circulars which
are available at its branches and web site. The investment account holders who invest in term deposits are entitled to withdraw
before the maturity. However, in such case the profit is distributed on the basis of declared rate of relevant maturity/ as per the
terms of the product.
The website of Meethaq and the branch staff assist investment account holders in choosing the right investment account as per
their needs. In addition to direct access to the branch management and call center, Meethaq's website also provides opportunity
to raise complaints and concerns faced by the investment account holders, if any.

C.1 Ratios and Returns

Certain ratios relevant to Investment Accounts holders (IAH) as of 31 December are as follows:

Particulars 2022 2021

PER to IA's 0.128% 0.233%
IRR to IA's 0.020% 0.035%
ROA (Net income before IA's distribution / total assets of Meethaq - End of year) 2.99% 2.81%
ROE (Net income after IA's distribution / shareholder equity of Meethaq- End of year) 6.2% 5.5%

Rate of return for the current period and historical returns for Meethaq's major deposit products are as follows: (excluding PER,
Mudarib share and IRR).

Type of accounts Average 2022 Average 2021 Average 2020 Average 2019 Average 2018
Saving/Baraem accounts
0- 499.9 0.10% 0.10% 0.10% 0.10% 0.10%
500-4,999.9 0.22% 0.25% 0.25% 0.50% 0.50%
5,000-14,999.9 0.44% 0.50% 0.50% 0.75% 0.75%
15,000-29,999.9 0.66% 0.75% 0.75% 1.00% 1.00%
30,000- 49,999.9 0.88% 1.00% 1.00% 1.25% 1.25%
50,000- 99,999.9 1.10% 1.25% 1.25% 1.50% 1.50%
100,000- 149,999.9 1.35% 1.50% 1.50% 1.75% 1.75%
150,000 -199,999.9 1.71% 2.00% 2.00% 2.00% 2.00%
200,000- 249,999.9 1.81% 2.25% 2.25% 2.25% 2.25%
250,000- 299,999.9 2.06% 2.50% 2.50% 2.50% 2.50%
300,000- 499,999.9 2.46% 2.75% 2.75% 2.73% 2.50%
500,000- 749,999.9 2.71% 3.00% 3.00% 2.96% 2.50%
750,000- 999,999.9 2.96% 3.25% 3.25% 3.19% 2.50%
RO 1,000,000 and above 3.30% 3.50% 3.50% 3.42% 2.50%
Meethaq Saving Plan 3.00% 3.00% 3.00% 3.00% 3.00%
Hibati Saving deposits 0.10% 0.10% 0.10% 0.10% 0.10%
Government Plus 0.75% 0.75% 0.75% 0.75% 0.75%
Call Deposits 0.50% 0.50% 0.50% 0.50% NA

76 Annual Report - 2022

 Type of accounts Average 2022 Average 2021 Average 2020 Average 2019 Average 2018

Term accounts

1 Month 0.75% 0.75% 0.75% 0.81% 0.18%

2 Month 1.00% 1.00% 1.00% 1.01% 0.23%

3 Months 1.25% 1.25% 1.25% 1.23% 0.38%

6 Months 1.50% 1.50% 1.50% 1.48% 0.63%

9 Months 2.00% 2.00% 2.00% 2.06% 1.38%

12 Months 3.38% 3.46% 3.46% 3.38% 2.77%

18 Months 3.45% 3.46% 3.46% 3.52% 3.02%

2 Years 3.50% 3.50% 3.50% 3.71% 3.27%

3 Years 3.75% 3.75% 3.75% 3.96% 3.52%

4 Years 4.00% 4.00% 4.00% 4.21% 3.77%

5 Years 4.00% 4.00% 4.00% 4.21% 3.77%

6 Years 4.00% 4.00% 4.00% 4.21% 3.77%

Meethaq has also in place fixed deposits products with different profit payment options i.e. customers can choose to receive
profit on their Fixed deposits periodically instead of only at maturity. Weightages and actual profit rates for all products are also
available in Meethaq branches and also on the web site of Meethaq.

C.2 Details of Investment Accounts (IA's)

31 December 2022 31 December 2021
Particulars
RO 000's RO 000's
Assets
- Murabaha and other receivables 57,869 40,073
- Musharaka 709,652 678,473
- Ijara 114,092 92,660
- Wakala bil Istithmar 110,082 108,841
- Investments 122,038 106,536
Total amount of IA's invested as of 31 December 1,113,734 1,026,584
Share of profit of IA's before PER and IRR for the year 38,037 34,947
Transfers to:
PER (977) -
IRR (137) -
Share of profit of IA's after PER and IRR for the year 39,151 34,947
Share of profit of IA's as a percentage of funds invested 3.52% 3.40%
PER as % of distributable profit -2.57% 0.00%
IRR as % of distributable profit -0.36% 0.00%
Total administrative expenses charged to IA's pool for the year 28,010 20,649
Mudarib fee percentage for the year 13.3% 14.0%

Movements in PER and IRR balances during the year have been disclosed in Note 14 of Meethaq Financial statements. There have
been no changes in asset allocation in the current year. No off balance sheet exposure is allocated to the pools.

Annual Report - 2022 77

 D. Risk Management
Meethaq's risk management is centralized at Bank. It is a process whereby the Bank identifies key risks, applies consistent risk
measurement techniques, and recommends which risks to accept or reject or mitigate, by what means and establishes procedures
to monitor and report the resulting risk position for necessary ation. The objective of risk management is to ensure that Meethaq
operates within the risk appetite levels set by the Bank's Board of Directors while pursuing its objective of maximizing the risk
adjusted returns.
Being a window operation, Meethaq's risk management is the overall responsibility of the Bank’s Board of Directors. The detailed
risk management approach of the Bank, which is also applicable to Meethaq, is explained in the main Pillar III document.
The Bank’s risk management processes have proven effective for Meethaq throughout the current year. The Bank’s Board of
Directors and Management Risk Committee (MRC) has remained closely involved with key risk management initiatives, in ensuring
the Meethaq's risks are effectively managed and adequate capital is held in line with the requirements.
Detailed risk governance structure of the Bank, which is also applicable to Meethaq is disclosed in the main Pillar III document of
the Bank. In addition, a dedicated Shari'a Supervisory Board (SSB) has been established which reports to the Board of Directors of
the Bank and ensures Shari'a compliance in the operations of Meethaq. The details of SSB are disclosed in section E.
Specifically, Meethaq has exposure to the following risks:

• Credit risk
• Liquidity risk
• Market risk
• Operational risk
• Rate of return risk, and
• Displaced commercial risk
• Sharia non compliance risk

D.1 Credit Risk

Credit risk is the potential loss resulting from the failure of a borrower or counter party to honor its financial or contractual
obligations in accordance with the agreed terms. Meethaq's credit risk is managed by monitoring credit exposures, continually
assessing the creditworthiness of counterparties, and by entering into collateral agreements in the form of mortgages, pledge of
assets and personal guarantees. The process followed for credit risk management for Meethaq is disclosed in the main Pillar III
document of the Bank.

a. Impairment Policy
All financing contracts of Meethaq are regularly monitored to ensure compliance with the stipulated repayment terms. These
financing contracts are classified into one of the 5 risk classification categories: Standard, Special Mention, Substandard, Doubtful,
and Loss – as stipulated by Central Bank of Oman regulations and guidelines. The risk classification of accounts into Stage 1, 2
and 3 for the purpose of FAS 30 is done in accordance with the internal policy, accounting standards and applicable regulatory
guidelines. Detailed criteria is disclosed in the main Pillar III document of the Bank.
* Commercial financing are classified into various risk categories on the basis of quantitative and qualitative parameters. The
quantitative parameter i.e. payments past due for a specified number of days, are considered only as a threshold and financing
which exhibit early signs of defaults are appropriately classified, notwithstanding the fact that the financing are not past due for
the period specified under different categories of risk classification.
FAS 30 introduces a new impairment model that requires the recognition of expected credit losses on all financial assets at
amortised cost or at fair value through other comprehensive income (other than equity instruments), lease receivables and
certain financing commitments and financial guarantee contracts. The expected credit loss must also consider forward looking
information to recognise impairment allowances earlier in the lifecycle of a product.
In addition to the impairment policy followed by the bank for recognising Expected Credit Losses (ECL) in the financials based
on FAS 30 as mentioned above, the Bank also complies with the regulatory guidelines issued from time to time in relation to
the risk classification. Central Bank of Oman regulations require the Bank to make a loan loss provision on the Performing and
Non performing portfolio. The provisions held in the books satisfies the requirements of both FAS 30 regulations and BM 977
regulatory guidelines.

78 Annual Report - 2022

b. Staging of Islamic Financing and Allowance for Impairment
FAS 30 based staging of Islamic Financing together with the ECL is as follows:

31 December 2022 31 December 2021

RO 000's RO 000's
Stage 1 901,058 907,025
Stage 2 595,218 484,767
Stage 3 11,677 13,163
Total Islamic Financing 1,507,953 1,404,955
Stage 1 2,134 2,585
Stage 2 51,189 35,419
Stage 3 5,206 5,932
Total ECL held 58,529 43,936
Net Financing 1,449,424 1,361,019

c. Movement in Allowance for Impairment

31 December 2022 31 December 2021
RO 000's RO 000's
Provision at beginning of the period 43,936 33,949

Impairment for credit losses 15,647 12,606

Recoveries from impairment for credit losses (1,428) (2,778)
Transfer from / (to) memorandum portfolio 374 196
Written off during the year - (37)
Provision at end of the period 58,529 43,936

d. Categorization of Financing
The Gross Financing by category under CBO Norms is given in the below table:

Retail Corporate Total

Category As on 31 December 2022
RO 000's RO 000's RO 000's
Standard 562,174 763,239 1,325,413
Special Mention 1,306 169,557 170,863
Sub-standard 380 5,276 5,656
Doubtful 176 291 467
Loss 1,831 3,723 5,554
Total 565,867 942,086 1,507,953

e. Collateral Management
Meethaq employs a range of policies and procedures to mitigate credit risk. The credit risk mitigates include collaterals like:

• Lien on deposits
• Securities
• Real estate
• Inventories
• Assignment of receivables
• Guarantees

Annual Report - 2022 79

 Collateral management is exercised for Meethaq at the centralized level. A robust collateral management system is in place to
mitigate any operational risk. The Bank has a strong credit administration process that ensures compliance with terms of approval,
documentation and continuous review to ensure quality of credit and collaterals. While securities such as listed equities are
valued regularly, credit policy mandates securities obtained by way of legal mortgage over real estate to be valued at least once
in 3 years or more frequently if situation warrants.

f. Exposure Analysis
As of 31 December 2022, Industry wise distribution of gross exposures, broken down by major types of credit exposure is given
in the below table:

Off
Murabaha Ijarah
Wakala bil Balance
and other Muntahia Musharaka Total Composition
Economic Sector Istithmar Sheet
receivables Bittamleek
Exposure**

RO 000's RO 000's RO 000's RO 000's RO 000's % RO 000's

Manufacturing 8,845 36,579 36,390 73,495 155,309 10.3% 3,393

Mining & Quarrying - - 25,025 26,843 51,868 3.4% -

Construction 13 72,560 - 139,444 212,017 14.1% 11,783

Financial - - - - - 0.0% 398

Trade 11,332 2,721 4,798 14,929 33,780 2.2% 8,160

Retail 45,139 - - 520,728 565,867 37.5% -

Agriculture & Allied 8,909 - - 155,796 164,705 10.9% -

Government - - - - - 0.0% 2,725

Transportation 583 69,450 50,000 43,905 163,938 10.9% -

Others 11,191 1,517 45,666 102,095 160,469 10.6% 22,558

Total 86,012 182,827 161,879 1,077,235 1,507,953 100.0% 49,017

% of total financing 5.70% 12.12% 10.74% 71.44% 100.00%

** off balance sheet exposure relates to letter of credit, letter of guarantees and financing commitments which are governed under standard
business practice.
As of 31 December 2022, the assets were funded by IA's and equity holders in the following ratio:
IA's 68%
Shareholders 32%
Industry wise distribution of gross average exposures during the year, broken down by major types of credit exposure is given in
the table below:

Murabaha Ijarah
Wakala bil
and other Muntahia Musharaka Total
Economic Sector Istithmar
receivables Bittamleek

RO 000's RO 000's RO 000's RO 000's RO 000's

Manufacturing 10,997 44,340 31,486 77,378 164,201

Mining & Quarrying - - 37,538 26,122 63,660

Construction 7 48,347 - 142,925 191,278

Trade 7,109 2,479 3,304 14,693 27,584

Retail 41,198 - - 513,591 554,789

Agriculture & Allied 4,455 - - 121,482 125,937

Transportation 372 69,004 50,052 52,075 171,502

Others 9,135 3,477 39,830 105,064 157,505

Total 73,271 167,647 162,209 1,053,328 1,456,454

80 Annual Report - 2022

Residual contractual maturity breakdown of the gross portfolio as of 31 December 2022, broken down by major types of financing
is given below in the table:

Murabaha
Ijarah Muntahia Wakala bil
and other Musharaka Total
Time Band Bittamleek Istithmar
receivables

RO 000's RO 000's RO 000's RO 000's RO 000's

Upto 3 month 26,851 1,490 84,886 13,610 126,837

4 - 12 months 25,367 23,406 27,875 78,334 154,981

1 - 5 years 28,473 45,205 20,375 252,118 346,171

Over 5 years 5,321 112,727 28,743 733,173 879,963

Total 86,012 182,827 161,879 1,077,235 1,507,953

D.2 Liquidity Risk

Liquidity risk or funding risk arises when the bank is unable to generate sufficient cash resources in a timely and cost
effective manner to meet obligations as they fall due and/or to fund assets growth. The inherent business model exposes
banks to liquidity risk either due to external or internal factors. Meethaq Asset Liability Committee (MALCO) a sub-committee
of ALCO manages the liquidity position of Meethaq and report to Asset Liability Committee (ALCO) of the Bank. In order to
ensure that Meethaq meets its financial obligations as and when they fall due, cash flow positions are closely monitored.

Liquidity ratios of Meethaq are regularly monitored. If required, Meethaq, being a window operation of the Bank, obtains funding
from the Bank.
Asset and liability mismatches are outlined in note 23 to the financial statements of Meethaq.

D.3 Market Risk

Market risk is the potential loss due to changes in market determined variables. It manifests in the following variables:

• Foreign exchange risk

• Investment price risk
• Profit rate risk
• Commodity price risk

The objective of Market Risk management is to facilitate business growth but operating at the optimal risk levels.
As of 31 December 2022, Meethaq holds trading positions in equity securities only. Also, Meethaq has no position in commodities.
Meethaq exposure to market risk as disclosed in market risk weighted assets in section B.2 pertains only to foreign currency
exposure and securities carried at FVPL. As of 31 December 2022, the foreign currency net open position amounts to 11.4% (2021
15.7%) of capital and reserves. A change of 5% in foreign exchange rates, with all other variables held constant, will have an impact
of RO 1.1 Million (2021 RO 0.97 Million) on Meethaq’s statement of Comprehensive income.

D.4 Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. Operational risk includes legal risk but excludes strategic and reputational risk. Operational risk loss results from deficiencies
in information systems or internal controls or uncontrollable external events. The risk is associated with human error, systems
failure, inadequate procedures or controls and external causes.
Detailed operational risk management philosophy of the Bank is disclosed in the main Pillar III document which applies to
Meethaq as well.

D.5 Rate of Return Risk

Rate of return risk refers to the possible impact on the net income of Meethaq arising from the impact of changes in market rates
and relevant benchmark rates on the return on assets and on the returns payable on funding. An increase in benchmark rates
may result in IAH's having expectation of a higher rate of return, while the returns on assets may be adjusting more slowly due to
longer maturities, thereby affecting the net income of Meethaq.

Annual Report - 2022 81

 The profit distribution to Investment Accounts is based on profit sharing agreements. Therefore, Meethaq is not subject to any
significant profit rate risk. However, the profit sharing agreements will result in Displaced Commercial Risk (DCR) when Meethaq's
results do not allow to distribute profits in line with the market rates. To cater against DCR, Meethaq creates Profit Equalisation
Reserve as explained in section C and D.6.
An analysis of profit bearing assets (net of provision) and liabilities according to repricing buckets is as follows:

Effective within 3 4 to 12 More than 5

1 to 5 years Total
profit rate months months years
ASSETS
Financing 5.31% 126,837 140,349 346,171 836,067 1,449,424
Due from banks 0.24% 1,435 - - - 1,435
Investments 5.48% 10,994 7,469 142,339 17,564 178,366
Total profit bearing assets 139,266 147,818 488,510 853,631 1,629,225
Liabilities, equity of
investment accountholders
Due to banks under Wakala 4.3% 17,325 - 38,507 - 55,832
Sukuk 5.5% - 279 45,597 - 45,876
Equity of investment
3.1% 189,583 265,152 488,920 292,732 1,236,387
accountholders
206,908 265,431 573,024 292,732 1,338,095
Net gap (67,642) (117,613) (84,514) 560,899 -
Cumulative net gap (67,642) (185,255) (269,769) 291,130 -

An analysis of impact on net income of Meethaq due to changes in market rates is as follows:

+200 bps -200 bps +100 bps -100 bps +50 bps -50 bps
At 31 December 2022 (4,819) 3,162 (2,100) 1,893 (961) 1,074
Minimum for the period (6,534) 2,554 (3,052) 1,376 (1,411) 709
Maximum for the period (3,547) 5,353 (1,436) 2,845 (568) 1,461
Average for the period (4,944) 3,634 (2,183) 1,997 (991) 1,052

D.6 Displaced Commercial Risk

Displaced commercial risk refers to the magnitude of risks that are transferred to the shareholders of Meethaq in order to cushion
the Investment Account Holders (IAH) from bearing some or all of the risks to which they are contractually exposed in Mudaraba
funding contracts. Meethaq creates and manages both PER and Investment risk reserve to smoothen IAH returns. Further,
Meethaq also adjusts its Mudarib share in order to smoothen returns of IAH's.
An analysis of distribution during the year to IAH's by Meethaq is as follows:

2022 2021
Amount % of Mudaraba Amount % of Mudaraba
RO 000's assets RO 000's assets
Total profits available for distribution 50,956 3.13% 45,869 3.02%
Profit sharing
- Shareholders 7,062 0.43% 5,253 0.35%
- IAH's 43,894 2.70% 40,616 2.67%
Mudarib fee charged by Meethaq (5,857) 0.36% (5,669) 0.37%
Profits for IAH's before smoothening 38,037 2.34% 34,947 2.30%
(Smoothening)/Utilization:
- PER 977 -0.06% - 0.00%
- IRR 137 -0.01% - 0.00%
Profits paid out to IAH 39,151 2.41% 34,947 2.30%

82 Annual Report - 2022

D.7 Shari'a Non Compliance Risk
Sharia non compliance risk is the risk that arises from Meethaq's failure to comply with the Sharia' rules and principles determined
by SSB or Central bank with respect to products/services and business activities. Meethaq has in place adequate system and
controls including SSB and internal Sharia' review function to ensure compliance with Sharia principles. This is further explained
in section E General Governance and Shari’a Governance.

E. Shari'a and General Governance

Meethaq, being the Islamic window operation of the Bank, is managed under the same governance structure as the Bank. The
details of which are disclosed in the main Pillar III document of the Bank. In addition, Meethaq's operations, on a Shari'a stand,
are governed and monitored by the Shari'a Supervisory Board (SSB) which comprises of leading Shari'a scholars from the field of
Islamic finance. SSB reports to the Board of Directors of the Bank. A report of the SSB on the Shari’a compliance of the operations
carried out by Meethaq during the year is included in the annual report of the Bank.

E.1 Shari'a Supervisory Board (SSB)

The composition of SSB is as follows:

S No Name of the Scholar Qualification Position in the board Nationality

PhD in Economics & Islamic Banking, Al-

His Eminence Yarmouk University –Jordan, (2009); MA in
1 Prof. Dr. Abdullah Fiqh & Usul al-Fiqh, Al-Bayt University –Jordan, Chairman Oman
bin Mubarak Al-Abri (2002); BA in Islamic Shari'a, College of Shari’a
Studies –Oman (1996).

PhD in Islamic Law, University of Edinburgh

His Eminence Datuk
–Scotland, UK (1995); BA Hons in Islamic
2 Prof. Dr. Mohamad Akram Vice Chairman Malaysia
Jurisprudence and Legislation, University of
bin Laldin
Jordan –Jordan (1989).

His Eminence
PhD in Comparative Fiqh -Faculty of Shari'a &
3 Prof. Dr. Abdulaziz Khalifah Member Kuwait
Law -the University of Al-Azhar -Egypt (1997).
Al-Qassar

PhD in Islamic Law, University Malaya

His Eminence
-Malaysia (2006), MA in Islamic Law, University
4 Dr. Ahmed Rufai Member Ghana
Malaya, Malaysia, BA in Shari'a Studies, Islamic
Mohammed
University, Medina, KSA (1993).

BA, Islamic Law, Institute of Shari’a Studies

His Eminence –Oman; the CSAA AAOIFI –Bahrain. Currently
5 Member Oman
Walid bin Sulaiman Al-Qurri pursuing MA in Islamic Theology, at the Sultan
Qaboos University –Oman.

SSB members are paid RO 75 thousands during the year in connection with sitting fee, advisory fee and reimbursement of
expenses.
SSB's meetings and attendance by the members during the year were as follows:

Date of Meeting & State of Attendance

Participants
8 Feb 22 30 Mar 22 14 Jun 22 28 Sep 22 23 Dec 22

His Eminence Prof. Dr. Abdullah bin Mubarak Al-Abri

His Eminence Datuk Prof. Dr. Mohamad Akram bin Laldin

His Eminence Prof. Dr. Abdulaziz Khalifah Al-Qassar

His Eminence Dr. Ahmed Rufai Mohammed -

His Eminence Walid bin Sulaiman Al-Qurri

Annual Report - 2022 83

 E.2 Shari'a Compliance Key Controls
Shari'a compliance is ensured in day to day business of Meethaq through the following key controls:

• All the products being offered by Meethaq are approved by the SSB;
• All investments made by Meethaq are approved by SSB;
• The Fatawa approving such products are available on the website of Meethaq;
• Meethaq has in place a Shari'a Compliance & Audit Division (SCAD) which facilitates the management in ensuring compliance
with Shari’a (as manifested by the guidelines and Fatawa issued by the SSB) and Islamic banking stipulations of the Central
Bank on a day to day basis in all its business activities, operations and transactions. This is achieved through review, approval
and subsequent audit of the contracts, agreements, policies, procedures, products, process flows, transactions, reports (profit
distribution calculations), operations, etc.;
• Templates of agreements used by Meethaq are approved by SSB;
• Islamic banking knowledge and experience is considered to be a compulsory requirement for hiring of staff handling core
Meethaq functions;
• Staff has been provided training throughout the year on business, regulatory & Shari'a matters;
• Stakeholders of Meethaq have the opportunity to raise any queries relating to Shari'a matters through various channels
including Meethaq's website.

E.3 Other Governance Matters

Meethaq follows Financial Accounting Standard issued by Accounting and Auditing Organisation for Islamic Financial Institutions
(AAOIFI) as required by the regulations of the Central Bank of Oman. There had been no departure from the financial reporting
framework of AAOIFI during the year. Transactions with related parties are disclosed in the financial statements of Meethaq.
Meethaq is committed to avoid recognising any income generated from non-Islamic sources. Any Shari’a non compliant income
or penalties charged to customers for late payments are recorded as Charity payable which will be utilised for Charity purposes.
Meethaq is not required to pay Zakah on behalf of IAH's and Shareholders.
The undistributed balance of charity account as at 31 December 2022 is amounting to RO 8 K which will be distributed for charity
by the end of first quarter of 2023. Movement in charity fund during the year is given in "statement of sources and uses of charity
fund" in Financial statements of Meehaq. In 2022, Charity of RO 62 K was paid to authorized organizations after being approved
by the SSB.
Meethaq has a dedicated section on its web site to address customers complaints and suggestions. This link is available under
the heading of Customer Feedback.

E.4 Social Service and Customer Education

A number of initiatives were taken by Meethaq during 2022 to improve awareness and to popularise Islamic banking in the
Sultanat. Due to ongoing pandemic situation, the focus remained mainly on use of social media and online channels for this
purpose.

84 Annual Report - 2022

F. Liquidity Coverage Ratio (LCR)
LCR of Meethaq as of 31 December 2022 is as follows:

Total Unweighted Total Weighted

LCR Common Disclosure Template for the period ending Value (average) Value (average)

(RO 000's) (RO 000's)

High Quality Liquid Assets

1 Total High Quality Liquid Assets (HQLA) 227,255

Cash Outflows

2 Retail deposits and deposits from small business customers, of which: 311,649 18,407

3 Stable deposits 255,152 12,758

4 Less stable deposits 56,497 5,650

5 Unsecured wholesale funding, of which: 315,673 162,155

Operational deposits (all counterparties) and deposits in networks of

6
cooperative banks

7 Non-operational deposits (all counterparties) 315,673 162,155

8 Unsecured debt

9 Secured wholesale funding

10 Additional requirements, of which: 17,779 1,778

11 Outflows related to derivative exposures and other collateral requirements

12 Outflows related to loss of funding on debt products

13 Credit and liquidity facilities 17,779 1,778

14 Other contractual funding obligations 22,156 22,156

15 Other contingent funding obligations 17,178 859

16 Total cash outflows 205,355

Cash Inflows

17 Secured lending (e.g. reverse repos)

18 Inflows from fully performing exposures 100,868 56,157

19 Other cash inflows

20 Total cash inflows 100,868 56,157

Total Adjusted Value

21 Total HQLA 227,255

22 Total net cash outflows 149,198

23 Liquidity coverage ratio (%) 152%

Annual Report - 2022 85

 G. Net Stable Funding Ratio (NSFR)
NSFR of Meethaq as of 31 December 2022 is as follows:

Unweighted value by residual maturity

No <6 6 months Weighted

ASF Item ≥ 1yr
maturity months to < 1yr value

(RO 000's) (RO 000's) (RO 000's) (RO 000's) (RO 000's)

1 Capital: 233,510 - - - 233,510

2 Regulatory capital 209,576 - - - 209,576

3 Other capital instruments 23,934 - - - 23,934

Retail deposits and deposits from small business

4 - - 485,352 - 449,575
customers

5 Stable deposits - - 255,152 - 242,395

6 Less stable deposits - - 230,200 - 207,180

7 Wholesale funding: - - 161,005 772,427 852,930

8 Other wholesale funding - - 161,005 772,427 852,930

9 Total ASF 1,536,014

RSF Item

10 Total NSFR high-quality liquid assets (HQLA) 8,731

Deposits held at other financial institutions for

11 0
operational purposes

12 Performing financing and securities: - - 246,175 1,189,077 1,030,978

Performing financing to financial institutions

13 - - - - -
secured by Level 1 HQLA

Performing financing to financial institutions

14 secured by non- Level 1 HQLA and unsecured - - - - -
performing financing to financial institutions

Performing financing to non-financial corporate

clients, financing to retail and small business
15 - - 246,175 674,952 696,797
customers, and financing to sovereigns, central
banks and PSEs, of which

-With a risk weight of less than or equal to 35%

16 under the Basel II Standardised approach for credit - - - - -
risk

17 Performing residential mortgages, of which: - - - - -

With a risk weight of less than or equal to 35% under

18 - - - 514,125 334,181
the Basel II Standardised Approach for credit risk

Securities that are not in default and do not qualify

19 - - - - -
as HQLA, including exchange-traded equities

20 Other Assets: 40,720

21 All other assets not included in the above categories 40,720 40,720

22 Off-balance sheet items 49,016 2,451

23 Total RSF 1,082,880

24 Net stable funding ratio (%) 142%

86 Annual Report - 2022

Serving all segments
of society to share in a
better tomorrow

Annual Report - 2022 87

 Management Team

Sheikh Waleed Khamis Ahmed Faqir Sheikha Yousuf T. Ganesh Salim Mohammed
Al Hashar Al Bulushi Al Farsi Al Kaabi
Chief Executive Officer Chief Banking Officer Chief Operating Officer Chief Financial Officer General Manager
Credit & Legal

Said Salim Anil Kumar Abdulnasir Noori Abdullah Tamman Ilham Murtadha
Al Aufi Al Raisi Al Maashani Al Hamaid
General Manager Chief Risk Officer General Manager General Manager General Manager
Human Resources & Personal Banking Products Corporate Banking
Administration

Shamzani Mohammed Damian John Ahmed Omar Manas Ranjan Ahmed Musallam
Hussain O’Riordan Al Ojaily Das Al Barami
General Manager Chief Internal Auditor General Manager General Manager Deputy General Manager
Meethaq Islamic Banking Technology Products & Operations Relationships & Placements

Ali Said Ali Fawzi Hamad Hamza Abbas Khalifa Abdullah Mohammed Saud
Al Kiyumi Al Ajmi Al Hatmi Al Naamani
Deputy General Manager Deputy General Manager Deputy General Manager Deputy General Manager Deputy General Manager
Agency & Custody Services Compliance Credit Investment Banking Business Applications
& Capital Markets

88 Annual Report - 2022

 Taya Eid Saleh Mohammed Saleh Nasser Talal Abdul Hameed
Bait Sabeea Al Maaini Al Habsi Al Zadjali
Deputy General Manager Deputy General Manager Deputy General Manager Deputy General Manager
Interior Regions Capital Regions Enterprise Growth & Capital Operations
Markets Operations

Osamah Mahmoud Fatma Khalifa Ibrahim Khamis Abdullah Hamood

Al Abdullatif Al Maskiry Al Balushi Al Jufaily
Deputy General Manager Senior Assistant General Senior Assistant Assistant General Manager
Project Finance & Manager General Manager Digital Banking
International Branches Global Trade Services SME

Afaf Ali Ali Ahmed Sami Arfah Mouyad Mahmood

Moosa Al Lawati Bait Rashid Bahram
Assistant General Manager Assistant General Manager Assistant General Manager Assistant General Manager
Large Corporates Meethaq Corporate Banking Meethaq Personal Banking Anti Money Laundering &
Regulatory Compliance

Mohammed Hassan Vishal Malpani Wafa Ibrahim Zuwaina Abdullah

Al Lawati Al Ajmi Al Sharji
Assistant General Manager Assistant General Manager Assistant General Manager Assistant General Manager
Innovation & Enterprise Investment Banking Transaction & Government Central Operations & Change
Project Management Banking Management

Annual Report - 2022 89

 Building competencies,
fast-tracking
national human
resources

90
5 Annual Report - 2022
Management Discussion & Analysis
Global Economy
The World Bank estimates that the global economy will grow by 1.7% in 2023 and 2.7% in 2024. Though synchronous policy
tightening and disruptions from the situation in Ukraine may affect global growth, the Middle East and North Africa (MENA) region
is largely expected to hold steady on the back of high energy prices and an ongoing recovery in the services sector across the
region. Encouragingly in 2022, the MENA region saw output expand by an estimated 5.7%, its highest growth rate in a decade.

Oman’s Economy
As per data released by the National Centre for Statistics and Information, Oman’s GDP for 2022 has seen a sharp rise over the
same period in the previous year, as the economy continued to benefit from high hydrocarbon prices and rising non-oil revenues.
Significantly, Oman recorded its first budget surplus of RO 1.15 billion, since 2013, compared to the budgeted deficit of RO 1.55 bn.
In a major positive for the Sultanate, global credit rating agencies upgraded Oman’s credit rating in 2022, revising their outlook
upward as a result of fiscal consolidation and a number of prudent measures undertaken by the government.
Oman’s 2023 budget estimates total revenues of RO 10.05 bn and total expenditure of RO 11.35 bn, with a deficit of RO 1.3 bn or
approximately 3% of GDP, based on an estimated oil price of USD 55/bbl. The 2023 budget aims to further strengthen financial,
economic and social stability through continuation of economic diversification policies, employment generation, improved credit
rating, digital transformation and by sustaining spending on basic services.
At the same time, Oman’s efforts to create an investor-friendly business environment continue to bear fruit with a noticeable
increase in the volume of investments. Also as part of its economic diversification plans, the Sultanate is moving steadily on its
ambitious goal to become one of the largest green hydrogen producers and exporters globally, with a targeted annual production
of one million tons by 2030.

Financial Sector
According to statistics from the Central Bank of Oman, the Sultanate’s banking sector emerged as a major beneficiary of the
economic momentum in 2022 with a substantial rise in net and operating profits. The sector also saw growth in Net Loans and
Customer Deposits through the year.
Total outstanding credit extended by conventional and Islamic banks in Oman grew by 4.8% to RO 29.2 billion at the end of
December 2022, while credit to the private sector grew by 4.1% to reach RO 24.4 billion. At the same time, total deposits held with
banks in Oman, registered a growth of 1.1% to reach RO 25.9 billion at the end of December 2022.
The total assets of Islamic banks and windows increased by 8.7% on a year-on-year basis to RO 6.4 billion and constituted about
16.5% of the Omani banking system’s assets at end-December 2022.
A proactive regulatory approach and supervision by the Central Bank of Oman ensured monetary and financial stability during the
past year, and will further contribute to the Sultanate’s reputation in the global financial markets.

Segment-wise Performance
Bank Muscat continued to enhance its product and service offerings across both conventional and Islamic banking, which
resulted in an encouraging performance by its key business lines in 2022. The Bank's core business activities are broadly divided
into Personal Banking, Corporate Banking, Meethaq Islamic Banking, Investment Banking, Global Financial Institutions, Treasury
& Capital Markets, and International Operations. Key support functions include Customer Experience, Technology and Project
Management, Finance, Human Resources and Risk Management.

Personal Banking
Bank Muscat operates 146 retail banking branches across the Sultanate. Continuing its efforts to enhance financial inclusion, the
Bank expanded the total number of e-channel devices like Automated Teller Machines (ATMs), Cash Deposit Machines (CDMs),
Full Function Machines (FFMs), Statement Printers and Self-Service Kiosks to 821. The Bank also made significant progress in
implementing new regulatory guidelines on servicing customers with disabilities, and is in the process of further upgrading
disabled-friendly facilities at branches across all governorates.
The Bank continuing its unrivalled performance as an innovation leader in digitising products and services. Important services
and features launched during the year included digital onboarding of new customers, Android Accessibility for people with visual

Annual Report - 2022 91

 disabilities, Soft Token for Internet banking customers, online Re-KYC option for existing customers, multiple bill payment option,
fund transfers to BKash wallet, payment option for MEDC and ONEIC bills, and online purchase of mutual funds by retail banking
customers among others.
In 2022, the Bank launched a unique Limited-Edition Visa Prepaid Card to celebrate FIFA World Cup Qatar 2022 and also partnered
with Visa to offer 116 people the chance of a lifetime to watch FIFA World Cup matches in Doha. The SmartPay platform for
merchant partners was launched during the year making it easier for e-commerce services to be integrated with the Bank’s
Payment Gateway. In a major boost to its efforts to promote cashless transactions and e-payments, the Bank registered 150%
growth in new merchants and 40% growth in acquiring transactions. The launching of instant debit card issuance at all branches
as well as installation of Self-Service Kiosks at the Head Office and the Mall of Oman contributed to further enhancing customer
experience.
Najahi Business Banking continued to organise a number of events featuring well-known start-up coaches to help SMEs and
Omani entrepreneurs in their growth journey. The Bank conducted 65 Open Days at various organisations across the Sultanate to
offer doorstep banking and aimed at further growth within the largest banking family in the Sultanate.
In order to further enhance customer experience, Bank Muscat’s Contact Centre which has been continuously recognised as
a leading call centre in the region started a Push SMS service with self-help videos about the most enquired topics with the
messages being sent in the customer’s preferred language. An Auto Response Service was also launched on Social Media
Channels for various customer segments during the year.

Corporate Banking
Bank Muscat continued to add value to the corporate ecosystem with an emphasis on the use of technology, processes, and
products that cater to the corporate journeys, thereby maintaining its leadership position. Product innovation and enhanced
customer services helped the Bank increase cross-selling and wallet share with non-borrowing customers.
Corporate banking is playing a significant role in the implementation of the One Bank approach, which was launched during 2022.
It drives synergies and comes up with innovative strategies to institutionalise a 360-degree customer coverage approach, with
the aim of creating a unified and frictionless experience for customers and also originate new business opportunities across the
Bank.
Credit quality was prioritised during the year, and all product offerings were made following a rigorous analysis of the client’s risk
profile as well as proactive monitoring of credit, market and operational risks. The pickup in economic activity was muted in some
sectors because of Covid-19 related spillovers.
Meanwhile, the Bank continued to spearhead a digital transformation in Oman by providing a complete range of technology-
driven digital offerings, which enable government entities, corporates and SMEs to become future-ready, agile and digitally-
mature organisations. Bank Muscat offers a number of ‘best-in-class’ digital solutions and services based on customer needs
as well as global trends like the Corporate Online Banking platform, Business-to-Business (B2B) Connect platform, Direct Debit
solution, Virtual Account solution, Liquidity Management solution, Trade Portal and Remote Deposit Capture. New digital services
and features are being implemented to help enhance security and ease of banking for Government and Corporate customers.
Encouragingly, the ongoing digitalisation of financial services, the value of overall transactions processed through Corporate
Online Banking soaring to over RO 8 billion in 2022.
The Bank continued to maintain its leadership position in Project & Structured Finance, catering to the long-term financing
requirements of various projects in key sectors such as Oil and Gas, Petrochemicals, Renewable Energy, Manufacturing, Telecom
Real Estate, Aviation and Power and Water. In keeping with its role as the premier project finance bank in the Sultanate, the Bank
was the advisor, mandated lead arranger and lender for part financing of acquisition of telecom tower portfolio of a leading
telecommunications service provider by a consortium. Additionally, the Bank was the global facility agent and a lender in the
financing transaction of a broadband infrastructure provider. The Bank also played the role of mandated lead arranger and book
runner, facility agent, account bank and lender in the refinancing of a leading steel producer.
Meanwhile, the Bank continued its leadership role in SME financing by providing a wide range of dedicated products and services.
It also launched Al Wathbah Academy – Advanced Level in 2022 to provide further opportunities to 30 top graduates from the
Al Wathbah SME Academy. Souq Al Wathbah, which was organised during Ramadan in association with the SME Development
Authority after a 2-year pandemic-induced gap, received an excellent response from Omani MSMEs and the public with over 120
MSME stalls and hundreds of visitors.

Meethaq Islamic Banking

Meethaq, which celebrated its 10th anniversary in 2022, continued to demonstrate its market leadership in the Sultanate’s Islamic
banking space with continued growth in its customer base. Meethaq also recorded healthy growth in both operating profit

92 Annual Report - 2022

as well as net profit. Other key developments at the Sultanate’s leading Islamic financial services provider in 2022 included
the appointment of a new Shariah Supervisory Board under the chairmanship of H.E. Dr. Abdullah bin Mubarak Al Abri and
the successful redemption of the Meethaq Sukuk Series 1 amounting to RO 44.6 million. Meethaq continued to demonstrate
its customer-centric commitment by upgrading the look and feel of its Internet and Mobile banking platforms and enhancing
cashless payment solutions via a number of new VISA credit cards. A new hybrid Structured Deposit Product was also developed
and launched during the year to enhance employee savings plan solutions for Meethaq’s institutional customers.

Investment Banking & Capital Markets

The Bank continued its leadership in investment banking and capital markets amid unprecedented geopolitical developments
and volatility in capital markets. Bank Muscat's Money Market Fund achieved a major milestone with Assets Under Management
(AUM) exceeding RO 90 million during the year making it the largest open-ended fund in Oman. The Fund’s annualised yield rose
to 4.07% at end-December 2022, offering a healthy return to investors, with daily liquidity. Furthermore, the Bank’s flagship Oryx
Fund, which invests in public equities in the MENA region delivered a 5.8% return in FY22, and outperformed the benchmark by
a margin of 12.9 percent. The Oryx Fund enjoys tremendous confidence from investors and has been consistently ranked among
the top funds in the region.
The Bank successfully completed two strategic transactions during the year, namely, divestment of the Bank's 4.99% stake in Octal
Holdings SAOC as well as sale of its 27.29% stake in SICO Capital KSA (previously named Muscat Capital), while increasing its stake
in SICO BSC from 10.38% to 13.14%.
Bank Muscat also completed a number of financial advisory and fundraising transactions including US$ 495mn (approximately
RO 190mn) fundraising for acquisition of infra assets in telecom sector in Oman, supply chain financing for the Government of
Oman amounting to c. US$ 1.5bn (approximately RO 595mn, financial advisory for a leading Government-related Entity (GRE) in
the utilities sector and the IPO of Barka Desalination Company to name a few.
Additionally, the Bank is currently working on landmark transactions including key privatisation initiatives in the country where
prominent government owned assets are being privatised through the MSX public-listing route. The Bank is also providing
financial advisory services for a US$ 3bn restructuring project for a leading GRE in the utilities sector and also advising on the
merger of two leading, listed insurance companies in Oman.
Bank Muscat's proprietary investments book recorded an impressive growth during the year, as the business pursued attractive
investment opportunities that became available amid volatile market conditions. Further, Bank Muscat’s US$ 100 million fintech
investment programme BM Innovate, continues to explore viable opportunities to expand its network in the fintech ecosystem
and underlying portfolio of investments.

Treasury & Capital Markets

Bank Muscat offers a full suite of treasury products and services on a 24x7 basis to maintain its leadership position. The service
encompasses East Asian as well as early New York time zones spanning all international and GCC working days. The Bank offers
best-in-class products and services to its clientele including meeting foreign exchange requirements and hedging solutions
for interest rates, foreign exchange and commodity price risks. Bank Muscat offers streaming of foreign exchange prices to
its counterparty banks and customers across the region and globe and is among the few regional banks to offer commodity
hedging solutions to its customers. The Treasury manages the Bank’s liquidity to actively support asset growth together with
active participation in money market instruments in line with the Bank’s overall ALM policy, regulatory guidelines and business
strategy. Liquidity was ensured at all times while interest rate risks were actively monitored and hedged during the year.
During 2022, the Bank served retail as well as corporate customers amidst renewed market volatility brought on by the Russia-
Ukraine crisis and higher interest rates in the US. The availability of sufficient liquidity in both foreign as well as local currency
was ensured and demonstrated the Bank’s reliability and resilience in lending as well as borrowing markets. The Bank continued
its focus on managing contingency funding plan to mitigate plausible liquidity shortages in near term due to volatile market
environment. The Bank’s digital channels for forex remittance business were strengthened and leveraged to gain a higher market
share.
In 2022, the Bank resumed in-person interactions to better understand customer needs and share market information. It hosted a
workshop featuring renowned Interbank Offered Rates (IBOR) transition experts for its corporate clients to handhold the transition
from London Interbank Offered Rate based (LIBOR) products used previously. This was followed up with extensive bilateral
meetings and presentations for the benefit of customers. The Bank believes that its continued focus on liquidity management,
synergies, the leverage of its digital channels and offering quality service to customers will create a sustainable competitive
advantage for its client-focused businesses in the years ahead.

Annual Report - 2022 93

 Global Financial Institutions
Bank Muscat offers financing, trade and cash management solutions to its banking relationships, and trade finance products
to Corporate and SME clients involved in international trade business through committed teams of relationship and product
specialists. Through its extensive network of banking relationships, the Bank also channelises trade business from Europe, Middle
East, Asia and Africa to Oman and the Bank's international branches in Saudi Arabia and Kuwait. GFI made significant contributions
in supporting prominent local infrastructure projects by issuance of project guarantees against counter guarantees received from
banks abroad. This was well supported by the Bank's International Representative Offices.
Bank Muscat offers tailored solutions to corporates and SMEs in Oman to expand their business while mitigating their risks in
international trade. The knowledge and experience of international markets are utilised to add meaningful value to our clients’
business. Bank Muscat provides cutting edge trade finance solutions to leading export clients from Oman and the GCC region
using its own network of Branches and Representative Offices as well as its large international network of Correspondent Banks.
Despite the challenges in fund raising from international markets, Bank Muscat successfully raised foreign currency borrowings,
for both Conventional and Meethaq Islamic Banking businesses, generated through new funding channels at competitive terms.
The Bank also successfully arranged multiple syndicated loan facilities, for banks in South Asian and the GCC, thereby continuing
to establish Bank Muscat as a strong contender in the regional loan arranger market.

International Operations
The Bank’s branch in Riyadh continued its operations with a renewed strategy of participating in the economic growth of Saudi
Arabia, especially in light of the growing economic relations between the two countries. The focus in the year was given to
growing the approved lines for corporate banking and trade finance by selectively targeting key players in specific segments.
Operational cost controls at branch level, and synergies gained by leveraging efficiencies at the head office, continue to result in
improved efficiencies in the operation. Meanwhile, in accordance with the strategic objectives of achieving long-term sustainable
value, the Bank is gradually reducing the operations of its branch in Kuwait with the aim of closure of the branch by 2025. The
Bank’s Singapore and Dubai Representative Offices located in regional financial hubs, continued to operate as marketing offices,
and also assist the Bank in maintaining relationships with counterparties.

Customer Experience
As customer-centricity is one of its strategic pillars, the Bank ensures that the design of the customer experience is underpinned by
deep meaningful customer insights. In 2022, the Bank continued to enhance the customer experience management framework
and governance mechanism, and improved the tracking of customer-centric key performance indicators in order to ensure that
customer efforts are reduced and their rights respected, while satisfaction, engagement and loyalty with Bank Muscat increases.
Many initiatives have been implemented in order to make customer-centricity a part of the Bank’s DNA and all employees received
awareness and training sessions about the importance of customer experience and customer rights.
The Bank is well aware about the importance of listening to customers through multiple channels such as surveys, customer focus
groups, feedback management system, contact center, social media and the website, and then driving specific actions based on
the feedback received. Hence, a mechanism was implemented to capture customer feedback close to the moment of experience,
thereby allowing more insights about satisfaction and dissatisfaction drivers. Dissatisfied customers are contacted in order to
better understand the nature of their dissatisfaction and to assure them that the Bank takes their feedback very seriously and will
come up with specific solutions to address the root-causes of their issues.
In 2022, Bank Muscat engaged with customers to evaluate each touchpoint and subsequently implemented suitable solutions
for customer pain points. By mapping these journeys, new initiatives were launched to especially improve touchpoints with lower
scores. Responses were gathered from over 80,000 customers through surveys and 2 customer focus groups for both individuals
and corporates during the year.
An analysis on the overall resolution within Service Level Agreements (SLAs) showed continuing improvement through the years,
wherein the resolution within SLA increased from 67% in 2020 to 84% in 2021 and then rose further to 89% in 2022
The number of customers recommending Bank Muscat to their family and friends, i.e., the net promoting score or NPS, was above
the global standard of 37 in 2022.

Technology and Project Management

Timely delivery of high-quality services to customers through innovative solutions and the latest technologies is of paramount
importance to Bank Muscat. With more than 50 projects running simultaneously, as many as 41 projects were delivered in 2022.
These included a number of Grow the Bank (GTB) projects for revenue generation, enhancing operational efficiencies and cost
savings, and Run the Bank (RTB) projects related to risk mitigation, IT security, system upgrades, regulatory and compliance.

94 Annual Report - 2022

Instant Card Issuance Kiosks, automated account opening at branches, syndicated loans, direct debit, treasury application (Murex)
upgrade, middleware upgrade (ESB), upgrading of core banking database, and file and folder-level encryption were some of
the major projects implemented during the year. A large number of digital channel enhancements were also carried out, which
added further momentum to the Bank’s efforts in digitalisation. These included upgrades and new features within Mobile and
Internet banking for both retail and corporate customers such as Soft Token, digital account opening, view and apply for mutual
funds, apply for loans and credit cards, and additional billers.
Bank Muscat also continued to nurture talented Omani youth in line with the strategic goals envisaged by Oman Vision 2040.
Young Omani IT professionals are continuously offered new opportunities to further develop and upgrade their expertise and
skillsets through specialised training programmes and courses, which facilitate excellent career growth, whilst also simultaneously
contributing to the Bank’s long-term growth strategy. To ensure this, a dedicated Technology Academy was initiated in 2022.
Going ahead, in 2023, a number of new initiatives will be implemented so as to enhance IT capabilities, speed up projects and
innovation, enhance availability of IT Systems and channels, and also enhance Data Governance.

Human Resources
Competent and highly-engaged employees provide higher productivity and a competitive advantage to Bank Muscat. Hence,
considerable resources are allocated continuously to enhance the capabilities of its human resources and empower them to
embrace higher responsibility across all levels. The Bank has achieved 93.6% Omanisation by adopting well-structured training
programmes. In 2022, Bank Muscat recruited 234 talented Omanis and initiated an Agile recruitment process for sustainable
Talent Management.
The Bank’s flagship Jadara Academy is accredited against leading global people development standards such as Investors in
People (IIP), People Capability Maturity Model (PCMM), and the Global Association of Corporate Universities and Academies.
In 2022, the Academy organised training programmes wherein 28,911 training seats were utilised by employees over a total of
34,982 training man-days. A total of 34 professional certification programmes were conducted, and over 300 employees were
certified in their respective areas. The Bank also offered 159 educational scholarships within Oman and 13 scholarships at overseas
universities to promising and talented employees. Over 50 inhouse custom-designed eLearning courses were also launched.
These customised eLearning courses include among others, compliance training mandated by the regulators, customised
products and business knowledge and roll out of change initiatives and enterprise projects.
The Bank also continues to assign utmost importance to the development of leadership and management skills among its
managers. In this context, 36 members from the Management Team completed online programmes from Harvard Business
School and Yale School of Management. These programmes prepared executives to confront complex decisions with confidence,
adjust decision velocity to situational demands, and enable intelligent risk-taking. Furthermore, 50 first time managers joined the
Tatweer programme to help prepare for the transition from individual contributors to managerial positions. During 2022, a total
of 69 high potential employees started a two-year graduate development programme.
The Jadara Academy also conducts custom-designed functional development programmes for different job roles blending
international best practices with inhouse business know-how. These provide specialist tracks that ensure that employees in various
departments maintain up-to-date skills and knowledge that are benchmarked with international best practices. For example,
302 employees from the Technology and Enterprise Project Management Group participated in 57 technical certifications and
functional courses offered by the Jadara IT Academy. Similarly, 23 employees are preparing for the Certificate in International
Trade Finance (CITF) at the Trade Finance Academy, with graduation scheduled for Q1 2023. Ten Personal Banking staff have
been successfully certified in Level I of the Retail Banking Academy while over 70 employees are undergoing preparation for
Team Leader, Quality Assurance and Agent certifications as part of the Jadara Contact Centre Academy. Eleven high potential
internal auditors have completed the Internal Audit Development Programme and another 15 are currently in the programme.
Two batches of the 18-month long High Potential Graduate Programme commenced in 2022 with 56 fresh graduates
The Bank’s succession planning process is a key strategic initiative which aims to identify critical roles across the Bank and develop
a successor pool with the aim to minimise the gaps and readiness of successors. The key objective is to develop young talented
Omanis to take on higher responsibilities. An automated internal vacancy process enables mobility of staff so as to fill vacancies
internally.

Risk Management
The Bank seeks to balance the trade-off between risk and return, and operate within the Board-approved risk appetite framework.
The Bank’s risk management practices are benchmarked to industry best practices and it revises its Risk Policy and the Risk
Appetite statement in line with evolving economic, market and regulatory conditions. The risk appetite framed by the Board
is cascaded down to business units at a granular level and compliance to the risk appetite is monitored, reported and suitable

Annual Report - 2022 95

 corrective action, wherever warranted, is initiated. In line with its position as the sole designated Domestic Systemically Important
Bank (DSIB) in Oman, the Bank has a Board-approved Recovery and Resolution Planning (RRP) document to formalise a process
of self-propelled and sustainable recovery in an extreme eventuality.
Though oil prices remained at a comfortable level, the Bank continuously monitored and reviewed its portfolios and took corrective
steps, where necessary, to maintain asset quality and support business growth. During the year, the Bank completed its project
to design Macro-stress testing scenarios and enhance its stress-testing framework. For cyber risks, the Bank maintained security
standards using industry best practices and invested in new security enhancement projects. It conducts cyber response exercises
to ensure its readiness to respond to imminent cyber threats. During the year, the Bank also introduced internal “Risk Appetite”
framework for Cyber and Information Security domains.
Bank Muscat remained vigilant on liquidity and proactively maintained sufficient buffer of high-quality liquid assets to meet any
unforeseen stress. It will continue to take proactive steps to maintain asset quality and strengthen its liquidity position. The Bank
will continue to invest in new technologies to enhance its physical and cyber security posture, enhance internal capabilities to
respond to security incidents and implement effective monitoring to detect and report security incidents. It will also invest in new
projects to comply with the changing regulatory landscape and further strengthen the risk-management framework.

Finance
The Finance Department supports the Management Executive Committee (MEXCO) and the Board of Directors in strategic planning
and decision-making processes by providing vital information and critical analysis of the Bank’s performance. The Bank uses
state-of-the-art profitability systems for in-depth analysis of profit contributions from business lines, products and customers.
The profitability systems enable the Bank to make sound business decisions based on a thorough understanding of the Bank’s
profitability dynamics and focus on key business lines in a challenging and competitive environment. Business planning and
budgeting functions further enhance the performance measurement and accountability across the different line segments of the
Bank and helps in keeping a track of the key drivers of the Bank’s profitability.
The Finance Department, through its representation in several key committees, leads in active and constructive discussions and
decisions at the bank. It has a vital role in capital management, asset liability management, funding plans, investor relations,
and in ensuring compliance towards corporate taxation, Value Added Tax (VAT) and Expected Credit Loss (ECL) provisioning.
Cost management is a key focus area of the Bank and Finance plays an active role in cost management initiatives with a view to
maximising the Bank’s profits and deriving optimum benefits of synergies arising out of various operations.
Finally, during 2022, the department successfully led the Bank’s capital structure optimisation exercise, which entailed issuance of
a one-off dividend comprising bonus shares and perpetual Tier 1 bonds to its shareholders.

Awards and Recognition

The Bank’s achievements were well recognised with it winning 37 prestigious accolades in 2022. Bank Muscat was once again
listed by Forbes Middle East among the Top 30 Banks in the Middle East and the Top 100 Companies in the region. The Bank also
won the Best Bank in Oman award and its equivalent from several prestigious global and local publications including Euromoney,
EMEA Finance, Oman Economic Review and Alam Al Iktisaad. The Bank won the Best Digital Banking in Oman award across the
Consumer and Corporate banking categories from Global Finance.
It was honoured as the Best Private Bank in Oman by The Banker/PWM, Global Finance, EMEA Finance and Euromoney, while also
winning the Exclusive Priority Banking Solution award at the Signature Luxury 100 awards. It was recognised as the Best Retail
Bank in Oman at the MENA Banking Excellence Awards, and also for having the Best Call Centre (Banking) at the prestigious
Insights Middle East Call Centre/CX Awards. Twin awards from Global Finance and Global Trade Review for being the Best Trade
Finance Provider in Oman and an award from the International Banker for being the Best Commercial Bank in Oman added
further sheen to the list of achievements.
Bank Muscat also won the award for being the Best Foreign Exchange Provider in Oman from Global Finance as well as awards
from EMEA Finance for the Best Asset Manager in Oman and Best Investment Bank in Oman.
Meethaq won the prestigious GIFA Market Leadership Award in Islamic Banking Window Operations, the Best Islamic Digital Bank
in Oman from Global Finance and the Leading Islamic Banking Brand in Oman from Global Brands.
Locally, Bank Muscat and Meethaq were respectively recognised as Oman’s Most Trusted Brand for Conventional and Islamic
banking by Apex Media. Bank Muscat won the Digital Transformation award from Al Roya and the Silver Award at the Oman
Sustainability Week Awards. The Ministry of Social Development and the Oman Association for the Disabled honoured the Bank
again in 2022 for its continuous role in social responsibility.

96 Annual Report - 2022

The Year Ahead
The Ministry of Finance estimates that the Sultanate’s economy will grow by 5.5% in 2023, driven primarily by an estimated 10.1%
growth in hydrocarbon GDP and a 2.9% rise in non-hydrocarbon GDP. At the same time, the Government of Oman is moving ahead
on maintaining financial stability and economic diversification in line with Oman Vision 2040. Further pro-business measures are
expected to increase investments in the key sectors of tourism, logistics, manufacturing, fisheries and mining in the future.
Bank Muscat continues to serve Oman and its people by providing world class banking e-services that enhance efficiencies,
transactional speed and sustainability while reducing business costs. Likewise, the Bank’s multiple sustainability programmes
are strengthening Omani society and the economy. Going ahead, Bank Muscat will work to further boost its role as a leader in
both the financial services sector and in sustainability with utmost seriousness. The Bank will continue to strengthen sustainable
development through strategic financing of key sectors and projects, further enabling of digital transformation, and continuous
customer-centric initiatives to remain the leading banking partner of choice for customers in Oman.

Annual Report - 2022 97

 Partnering with
communities to create a
better tomorrow

98
5 Annual Report - 2022
CSR & Sustainability Summary
Financial Inclusion: Access to banking services
As the leading financial institution in the Sultanate, Bank Muscat aims to provide access to its products and services to all segments
of the society. The bank offers a wide range of accounts, loans and cards to individuals from a young age onwards in urban and
rural areas. Bank Muscat provides access to banking services to individuals through its large network with 174 branches, over
800 ATMs, CDMs and other devices spread across Oman, including mobile and Internet banking. Bank Muscat also offers special
channels to listen to its customers suggestion and feedback, i.e., through its WhatsApp and Twitter accounts.
In an effort to spread Financial Literacy, Bank Muscat offers a number of programs and initiatives to accommodate different age
groups and segments of the society.

Irshad
Irshad Financial Coaching Clinic is considered one of the sustainable programs launched by Bank Muscat, which aims to provide
financial coaching and guidance to SMEs, startup companies, entrepreneurs and individuals. The program aims to provide free
financial consultation introduced by a group of qualified coaches in this field on how to benefit from the income generated from
business/private projects. Additionally, Irshad program provides coaching in areas such as managing financial debt, budgeting,
importance of saving, challenges for SMEs and how to raise capital. Till 2022, the bank managed to successfully conduct more
than 120 Irshad sessions.

Maliyat Financial Literacy Program

Maliyat, the complementary online financial literacy program, aims to provide general knowledge to help individuals gain essential
skills needed to manage their finances according to their age group. The program focuses on financial awareness and successful
financial planning. More than 31,500 certificates were completed since the program is launched in 2019

Fraud Awareness Campaign

In an effort to increase awareness amongst the general public, Bank Muscat in partnership with Oman Royal Police extended the
Anti-Fraud Awareness campaign through 2022. The campaign educates the general public on how not to fall prey to various cyber
frauds that are being perpetrated by fraudsters from all across the globe. The special educational campaign is carried out using
various means including print media, radio, television and social media channels.

CSR and Sustainability programs

As the leading financial institution in the Sultanate, Bank Muscat continues its endeavor and commitment to the people and the
nation through partnership in sustainable development, which is making headway with strategic Corporate Social Responsibility
(CSR) programs covering key segments such as youth, sports, education and SMEs. The sustainability and CSR strategy pursued
by Bank Muscat is focused on long-term benefits to the community and the nation, which is derived from its new vision ‘To serve
you better, everyday’. Hereby in this section of the annual report, a brief summary of Bank Muscat’s CSR programs is provided.
A detailed review of the bank’s CSR & Sustainability initiatives is available in our Sustainability Report 2022, which is issued in the
first quarter of every year. The sustainability reports can be accessed on www.bankmuscat.com.

Green Sports
Green Sports program has proven to be a thoroughly successful model for serving the local community. It enhances the role
local sport teams play through developing modern sports infrastructure across the Sultanate, which also complements the
government efforts in building a sporting nation. Making significant contributions to sustainable development, the unique Green
Sports initiative aimed at promoting Oman as a sporting nation by greening and developing football fields. In 2022, the bank
supported a total of 20 new teams reaching total of 163 sports teams across the country to date.

Annual Report - 2022 99

 Tadhamun
Tadhamun program is a fine example of the public-private partnership launched by the bank in association with the Ministry of
Social Development to support social welfare and low-income families. Aimed at reaching out to social welfare families across
the Sultanate and supporting them with essential household appliances, the program focuses on distributing basic electronic
home appliances such as air-conditioners, which reached to 204 families in 2022 with a total of more than 1800 families since the
launch of the program.

Al Wathbah Academy
In recognition of the important role played by the SME sector in the development of Oman, the bank launched the SME Academy
in 2014 to train entrepreneurs and expanded to more locations across the Sultanate due to its popularity and success. In 2022,
the bank launched Advanced Al Wathbah Program, which provides an advanced entrepreneurial program to 30 top graduates
of the bank’s Al Wathbah SME Academy. The central theme of the advanced Al Wathbah Academy Program is to support SMEs
to present their business in a structured format to potential investors, partners and employees. Every module of the Advanced
Al Wathbah Academy Program is designed around this central theme and provides participants with an opportunity to master a
variety of skills and practice life-long learning. To date, 170 entrepreneurs have graduated from the SME Academy.

Green Finance
In the environmental sector and in line with the Sultanate’s strategy to preserve the environment and to adapt to climate change,
Bank Muscat launched its Green Finance product in 2019 The Bank is thus targeting sustainable consumer practices and increasing
energy savings. This product encourages customers to install solar panels on their rooftops and use solar energy for a large part
of their household energy requirements.

Fak Kurba
Due to the humanitarian dimension behind this initiative, in 2022 and in partnership with the Omani Lawyers Association, Bank
Muscat continued for the fifth year the financial contributions to release 260 cases of citizens who have arrest warrants issued
against them due to claims in civil, commercial, legitimate and labor cases. The total number of cases released till date is 1086
cases. It is worth noting that none of these cases are related to banks or financial institutions.

Association of Chartered Certified Accountants (ACCA)

The ACCA program funded by Bank Muscat and PDO, selected 50 bachelor’s degree holders in finance and accounting. Once
students successfully received the ACCA certificate, Bank Muscat offered the certified individuals employment opportunities in
various departments in the bank.

Support Associations, charity organizations and National initiatives

Bank Muscat continued its support serving persons with disabilities where bank contributed number of Laptops to the Oman
Deaf Sports Committee and provided shades to the disability friendly playground in Al Aman Center and a number of TV screens
for the National Heart Center in the Royal Hospital. In addition, the bank successfully completed the artificial grass field for Al Wafa
Rehabilitation Center for Persons with Disabilities in Mudhaibi. Moreover, the bank contributed to provide Sales Kiosks for low
income and social welfare individuals in Wilayat Bidbid. Additionally, the bank signed an agreement with the Ministry of Higher
Education, Research and Innovation to support “Upgrade Program”, as part of the bank CSR initiatives. The aim of the program is
to upgrade and transform graduations projects into startup companies.

Bank Muscat Hearts

CSR plays an integral role in Bank Muscat’s culture. Bank Muscat Hearts (BM Hearts) represents all the bank’s staff that can
participate in the voluntary activities organized by the bank to serve charity purposes. During the year, BM Hearts team managed
to contribute to a number of charity teams across the sultanate to provide Ramdan and Eid Baskets in addition to Udthiya during
Eid AL Adha. Furthermore, the staff contributed to the Back to School campaign in collaboration with Al Rahma Association.

100 Annual Report - 2022

 Delivering steady
performance,
committed to growth.

5 Annual Report - 2022 Annual Report - 2022 101

 Financial Review
The Group posted a net profit of RO 200.75 million in 2022 compared to RO 189.63 million reported in 2021, an increase of 5.9%.
Operating profit of the Group increased from RO 284.02 million in 2021 to RO 295.51 million in 2022, an increase of 4.0%.
Net Interest Income from Conventional Banking and Income from Islamic Financing stood at RO 344.86 million for the year 2022
compared to RO 335.54 million for the same period in 2021, an increase of 2.8%.
Non-interest income at RO 157.96 million was higher by 12.9% compared to RO 139.94 million for the year ended 31 December 2021
mainly due to higher investment income.
Operating expenses for the year ended 31 December 2022 at RO 207.30 million was higher by 8.3% as compared to RO 191.46
million for 2021. The cost to income ratio for the year increased from 40.27% in 2021 to 41.23% in 2022.
Net impairment losses for the year 2022 was RO 59.94 million as Net Profit
against RO 60.22 million for 2021.
(in Rial Omani Millions)
Net loans and advances including Islamic financing receivables
250
increased by 2.5% in 2022 to RO 9,417 million as at 31 December
2022 as against RO 9,191 million as at 31 December 2021. 200.8
200 185.6 189.6
Customer deposits including Islamic customer deposits 179.6
163.4
decreased by 1.5% in 2022 to RO 8,647 million as at 31 December
2022 as against RO 8,775 million as at 31 December 2021. 150
The return on average assets increased to 1.55% in 2022 from
1.49% in 2021. The return on average shareholders’ funds 100
increased to 10.45% in 2022 as compared to 10.12% in 2021.
The basic earnings per share was RO 0.026 in 2022 compared 50
to RO 0.024 in 2021. The banks’ capital adequacy ratio stood at
a healthy level of 21.25% as on 31 December 2022 against the 0
minimum required level of 13.25% as per Basel III regulations
2018

2019

2020

2021

2022
issued by the Central Bank of Oman.

Results of Operations

Net Interest Income

Interest income is the Group’s principal source of income. The Group earns interest income on the customer loans and advances
made by it, on its portfolio of debt investment securities and on its placement of funds with central banks and other banks. The
Group incurs interest expense on its customers, banks and other financial institution deposits, on its unsecured bonds, sukuk, and
euro medium term notes.

2022 2022 2021 2021

RO 000's (% of total) RO 000's (% of total)

Net interest income

Net interest income from conventional 305,552 88.6% 301,685 89.9%

Net income from Islamic financing 39,303 11.4% 33,851 10.1%

Net Interest income and income from Islamic

344,855 100.0% 335,536 100.0%
financing/investments

102 Annual Report - 2022

 Net Interest Income/ Income
from Islamic Financing
(in Rial Omani Millions)
The Group’s net interest income and income from Islamic 400
financing amounted to RO 344.86 million in 2022 against
RO 335.54 million in 2021, an increase of RO 9.32 million or
2.8%. Net interest income from conventional banking for 350 335.5
344.8

the year ended 2022 was RO 305.55 million as compared to 317.0

322.1

RO 301.69 million in 2021, an increase of RO 3.87 million, or 304.3

1.3%. Net income from Islamic financing/investment for the 300

year 2022 was RO 39.30 million as compared to RO 33.85
million, an increase of RO 5.45 million, or 16.1%.
250
The Group’s net interest income reflects the changes in
its interest income and Islamic financing income and its
interest expense and Islamic financing cost described 200
below.

2018

2019

2020

2021

2022
Interest income and Islamic financing income / investments
The table below shows a breakdown of the Group’s interest income from conventional operations and income from Islamic
financing/investments in 2022 and 2021:

2022 2022 2021 2021

RO 000's (% of total) RO 000's (% of total)

Interest income

Loans and advances 389,134 70.4% 380,671 73.0%

Due from banks 17,293 3.1% 7,558 1.4%
Debt investment securities 61,649 11.1% 56,476 10.8%
468,076 84.6% 444,705 85.2%
Income from Islamic financing/investments
Financing receivables 77,107 13.9% 69,044 13.2%
Due from banks 73 0.0% 31 0.0%
Debt investment securities 8,525 1.6% 8,063 1.6%
85,705 15.4% 77,138 14.8%
Interest income and income from Islamic
553,781 100.0% 521,843 100.0%
financing/Investment

The Group’s interest income from conventional operations for Yield on Assets %
2022 amounted to RO 468.08 million compared to RO 444.71
million for 2021. The increase of RO 23.37 million, or 5.26%, was
5
mainly due to an increase of RO 8.46 million, or 2.2% in interest
4.75
income on loans and advances to customers, an increase of RO 4.8
5.17 million in interest on debt investments and an increase of 4.61

RO 9.74 million on interest income on due from banks. 4.6

The Group’s Islamic financing income for 2022 amounted to RO 4.41 4.43 4.41

85.71 million compared to RO 77.14 million for 2021. The increase 4.4
of RO 8.57 million, or 11.1%, was mainly on account of increase
in profit on financing receivables of RO 8.06 million, or 11.7%,
4.2
an increase in profit on Islamic debt investment securities of
RO 0.46 million, or 5.7%, and an increase in profit on due from
4
banks of RO 0.04 million during the year 2022.
2018

2019

2020

2021

2022

Annual Report - 2022 103

 The increase in interest income and income from Islamic financing/investments primarily reflected an increase in the yields in
interest earning assets and growth in loans/financing portfolio. Net loans and advances and Islamic financing portfolio increased
by RO 225.48 million or 2.5% in 2022. This was offset by a decrease in Due from banks by RO 123.67 million or 16.2% in 2022, and
a decrease in debt investment portfolio by RO 271.73 million or 15.9%.
Yield on assets increased from 4.41% in 2021 to 4.75% in 2022, an increase of 0.34% points. The increase was mainly driven by an
increase in the yield on loans from 4.83% in 2021 to 5.08% in 2022, an increase in yield on due from banks from 0.85% in 2021 to
2.04% in 2022 and an increase on yield on debt investments from 3.93% in 2021 to 4.27% in 2022. The increase in yields on interest
earning assets primarily reflect an increase in the benchmark USD rates in 2022.

Interest expense and Islamic financing cost

The table below shows a breakdown of the Group’s interest expense from conventional operations and cost of Islamic depositors
for 2022 and 2021:

2022 2022 2021 2021

Interest expense
RO 000's (% of total) RO 000's (% of total)
Customer deposits 123,574 59.1% 114,746 61.6%
Subordinated liabilities - 0.0% 369 0.2%
Euro medium term notes 19,197 9.2% 16,743 9.0%
Bank borrowings 19,753 9.4% 11,162 6.0%
162,524 77.7% 143,020 76.8%
Islamic customers' deposits 34,810 16.7% 33,388 17.9%
Sukuk 3,338 1.6% 4,895 2.6%
Islamic bank borrowings 8,254 4.0% 5,004 2.7%
Distribution to depositors 46,402 22.2% 43,287 23.2%
Interest expense and distribution to
208,926 100.0% 186,307 100.0%
depositors

The Group’s interest expense from conventional operations for 2022 amounted to RO 162.52 million compared to RO 143.02
million for 2021. The increase of RO 19.50 million, or 13.6% in 2022 principally reflected a RO 8.59 million, or 77.0% increase in
interest expense on due to banks, a RO 8.83 million, or 7.7%, increase in interest expense on customer deposits, and an increase
of RO 2.45 million, or 14.7% in interest expense on medium term notes.
The Group’s distribution to depositors for 2022 amounted to RO 46.40 million compared to RO 43.29 million for 2021. The increases
of RO 3.11 million, or 7.2% in 2022 principally reflected an increase in financing expense for Islamic customers’ deposits of RO 1.42
million or 4.3%, an increased in financing expense for Islamic bank borrowing of RO 3.25 million or 64.9%, and a decrease in
financing expense for Sukuk of RO 1.56 million or 31.8%.
Cost of Funds %
The increase in interest expense and distribution to depositors
primarily reflected an increase in the cost of funds in 2022. 3
Customer deposits and Islamic customer deposits decreased
by RO 128 million or 1.5%, and deposits from banks decreased
by RO 214 million or 17.6% in 2022. Sukuk decreased by RO 45
2.14
million on maturity of Meethaq Sukuk Series 1 in 2022. 2.10

1.92
Cost of funds increased from 1.91% in 2021 to 2.14% in 2022, an 2 1.88 1.91

increase of 0.23% points. Cost of customer deposits increased

from 1.74% in 2021 to 1.89% in 2022 and cost on deposit from
banks increased from 1.70% in 2021 to 3.03% in 2022 mainly
due to increase in benchmark USD rates. Cost of euro medium
term notes / sukuk increased from 4.96% in 2021 to 5.06% in
2022. During the year 2021, there was issuance of euro medium 1
term note at coupon rate of 4.75%, and maturity of a note with
2018

2019

2020

2021

2022

coupon rate of 3.75%.

104 Annual Report - 2022

Fees and other operating income
The Group earns fees and commissions on its deposit accounts, on customer loans advanced by it, on other credit facilities (such
as commitments to lend made by it and letters of credit and guarantees issued by it), on other banking services provided by it,
including treasury, investment banking, asset management, syndication and card-related fees amongst others. The Group’s other
operating income principally includes foreign exchange income, realized and unrealized gains/losses on investments, dividend
income and other income.
The table below shows a breakdown of the Group’s fees and other operating income for 2022 and 2021:

2022 2022 2021 2021

RO 000's (% of total) RO 000's (% of total)

Commission and fee income (net) 110,009 69.6% 99,914 71.4%

Foreign exchange 32,806 20.8% 32,018 22.9%

Change in fair value of financial assets 59 0.0% 1,973 1.4%

Net gain (loss) from sale of investments

9,212 5.9% 641 0.4%
measured at fair value

Dividend income 5,549 3.5% 3,476 2.5%

Other income 320 0.2% 1,922 1.4%

47,946 30.4% 40,030 28.6%

Fees and other operating income 157,955 100.0% 139,944 100.0%

2022 2021

Fee income to total income ratio 31.41% 29.43%

Non-interest income comprises of net commission and fee income and other operating income. Non-interest income at RO
157.96 million was higher by 12.9% compared to RO 139.94 million for the year ended 31 December 2021.
The Group’s net commission and fee income for 2022 amounted to RO 110.01 million compared to RO 99.91 million for 2021,
an increase of RO 10.1 million, or 10.1% for mainly due to increase in transactional income, trade income and advisory, asset
management and private equity services related income.
The Group’s other operating income amounted to RO 47.95 Fees & Other Income
million for 2022 compared to RO 40.03 million for 2021. The (in Rial Omani Millions)
increase of RO 7.92 million, or 19.8%, in 2022 principally reflected 200
an increase in foreign exchange income by RO 0.79 million, an
increase in dividend income by RO 2.07 million, and an increase
in gain from sale of investments measured at fair value by RO
8.57 million mainly due to profit on sale of 4.99% stake in Octal 167 158.0
155.2
Holding SAOC resulting in a capital gain of RO 7.9 million. This
was offset by a decrease in changes in fair value of financials 142.4
139.9
assets by RO 1.91 million, and a decrease in other income by 134.4
133
RO 1.60 million. In 2022, other income includes loss on sale of
remaining sake of associate SICO Capital of RO 0.1 million. In
2021, other income includes profit on disposal of majority stake
in erstwhile subsidiary of RO 0.75 million. 100
Fee income to total income ratio is 31.41% in 2022 compared to
2018

2019

2020

2021

2022

29.43% in 2021.

Annual Report - 2022 105

 Operating expenses

The table below shows a breakdown of the Group’s operating expenses and cost income ratio in 2022 and 2021.

2022 2022 2021 2021

RO 000's (% of total) RO 000's (% of total)

Staff expenses 104,187 50.3% 98,300 51.3%

Administrative expenses 73,773 35.5% 64,025 33.5%

Occupancy costs 11,160 5.4% 11,829 6.2%

Depreciation 18,176 8.8% 17,305 9.0%

Operating expenses 207,296 100.0% 191,459 100.0%

2022 2021

Cost to income ratio 41.23% 40.27%

The Group’s total operating expenses amounted to RO 207.30 Operating Expenses

million for 2022 compared to RO 191.46 million for 2021. (in Rial Omani Millions)
The increase of RO 15.84 million, or 8.3%, in 2022 principally 250
reflected an increase of RO 9.75 million or 15.2%, in other
administrative expenses, an increase of RO 5.89 million or 6.0
207.3
percent in staff expenses and an increase of RO 0.87 million, or
5.0% in depreciation in 2022. Occupancy costs decreased by RO 200 190.3
195.9
191.5
179.9
0.67 million or 5.7% in 2022.
The cost to income ratio was at 41.23% showing an increase of
0.96% points over 2021. Operating income increased by 5.7%
150
whereas operating expenses increased by 8.3%.

Net impairment losses

The Group makes provision for credit losses promptly in 100
line with the applicable accounting standards following the
2018

2019

2020

2021

2022
conservative provisioning norms it has set for itself.
The table below shows details of the Group’s net impairment losses for 2022 and 2021:

2022 2021

RO 000's RO 000's

Impairment on loans, financial guarantees and commitments 101,739 104,467

Impairment for placements (992) 3,376
Impairment for investments (905) 915
Impairment for Cash and Central bank balances (4) 11
99,838 108,769
Recoveries from provision for credit losses 39,897 48,552
Net impairment for credit losses 59,941 60,217

Net impairment loss at 59.94 million in 2022 compared to RO 60.22 million in 2021. The decrease of 0.5%, is mainly due to
a decrease in net impairments in international operations by RO 6.72 million, Consumer banking by RO 3.46 million and in
wholesale banking by RO 2.20 million. This was mostly offset by an increase in net impairment losses in Islamic banking by RO
3.29 million and in corporate banking by RO 8.81 million.
Impairment on placements decreased by RO 4.37 million and impairment on investments decreased by RO 1.82 million in 2022.
The decrease in net impairment losses is mainly attributed to the precautionary and collective provisions created by the Bank
during the first half of 2021, due to the onset of Covid-19 pandemic and the historic decline seen in global crude oil prices. The
bank remains vigilant of the continuing stress in the macro-economic and business conditions and its potential impacts.

106 Annual Report - 2022

The net credit cost has increased from 0.58% for the year 2021 to 0.62% for the year 2022 due to decrease in recoveries from
provision for credit losses by RO 8.66 million.

Net Impairment Losses (RO million)

& Net Credit Cost (%)
100 1.00%
0.82%

75 81.0
0.62%
0.75%
0.60% 0.58%
0.50%
60.2 59.9
50 56.1 60.2 0.50%
43.2

25 0.25%

0 0%
2018

2019

2020

2021

2022
Net credit cost Net impairments for credit losses

The table below shows the impaired loans and loan loss coverage ratio of the Group for 2022 and 2021:

2022 2021

RO 000's RO 000's

Impaired loans 371,020 356,456

Impaired loans ratio (1)

3.72% 3.69%

Loan loss coverage ratio (2) 163.1% 147.3%

(1) Impaired loans as a percentage of total gross loans.

(2) Loan loss provisions as a percentage of impaired loans. Loan loss provisions include loans and advances, financial guarantees, accep-
tances, undrawn commitments and unutilized limits.

Impaired loans increased from RO 356.5 million as at 31 December 2021 to RO 371.0 million as at 31 December 2022, an increase
of RO 14.6 million or 4.1%. Stage 3 corporate loans increased by RO 13.8 million or 5.4% and Stage 3 retail loans increased by RO
0.8 million or 0.8%.
Impaired loans to gross loans ratio increased from 3.69% as at 31 December 2021 to 3.72% as at 31 December 2022. Coverage ratio
increased from 147.3% as at 31 December 2021 to 163.1% as at 31 December 2022.

Liquidity and Funding

Overview
The Group’s liquidity needs arise primarily from making loans, advances and Islamic finance available to customers, the payment
of expenses and its investments in securities. To date, the Group’s liquidity needs have been funded principally through deposits
and operating cash flow, including interest and profit income received on its customer loan portfolio and its portfolio of debt
investment securities.

Annual Report - 2022 107

 Liquidity
The table below shows the Group’s cash flow from operating activities, investing activities and financing activities for 2022 and
2021:

2022 2021

RO 000's RO 000's

Net cash from/(used in) operating activities (233,601) 351,893

Net cash from/(used in) investing activities (73,923) (57,950)

Net cash from/(used in) financing activities (158,992) (101,478)

Cash and short-term funds at the beginning of the year 1,395,450 1,202,985

Cash and short-term funds at the end of the year 928,934 1,395,450

Operating activities
Cash outflow from operating activities in 2022 was RO 234 million compared to inflow of RO 352 million in 2021. The changes
in the Group’s net cash from operating activities principally reflects its net profit for the year (as adjusted for net impairments,
investment income, depreciation and any other non-operating, non-cash income/expenses) and cash generated from (used in)
operating asset and liabilities during the year.
The decrease in cash from operating activities in 2022 was mainly due to decrease in customer deposits including Islamic customer
deposits by RO 128 million in 2022 as compared to an increase by RO 316 million in 2021 and a decrease in deposits from banks
by RO 152 million in 2022 as compared to an increase by RO 83 million in 2021. Further, cash outflows on loans and advances
including Islamic financing receivables was RO 296 million in 2022 as compared to RO 283 million in 2021. Cash inflows from due
from banks was RO 75 million in 2022 as compared to cash outflow of RO 114 million in 2021.

Investing activities
Net cash used in investing activities in 2022 was RO 74 million compared to a usage of RO 58 million in 2021.
In 2022, the Group invested a net amount of RO 71 million in investment securities as compared to a net investment of RO 46
million in 2021. The gross purchases of investment securities at RO 141 million in 2022 was higher compared to RO 76 million 2021.
The sale/redemption proceeds received in 2022 at RO 70 million was higher compared to that of RO 30 million in 2021. In 2022, net
purchases of property, equipment and software amounted to RO 9 million compared to that of RO 15 million in 2021. Besides, the
group also received dividend income of RO 5.5 million in 2022 compared to a RO 3.5 million received in 2021 from its investment
portfolio. Further, in 2022, the bank purchased an additional stake in SICO BSC for RO 1.957 million and sold the remaining stake
in associate SICO Capital for RO 1.95 million.

Financing activities
Net cash used in financing activities in 2022 was RO 159 million, compared to a net cash usage of RO 101 million in 2021. This is
principally reflected dividend payment in 2022 of RO 107 million as compared to RO 81 million in 2021. Further, Sukuk series-1 of
RO 45 million was repaid on maturity in 2022. In addition, interest payment on perpetual tier 1 capital of RO 7 million in both years
2022 and 2021.
The table below shows the liquid assets ratio of the Group for 2022 and 2021:

As at 31 December

2022 2021

Liquid assets to total assets ratio 18.66% 21.96%

Liquid assets to total deposits ratio 25.09% 29.51%

The liquid assets comprise of cash and balances with central banks, treasury bills, government securities and placements with
banks. The liquid assets to total assets ratio liquid assets decreased by 3.30% points. Liquid assets to total deposits ratio decreased
by 4.42% points.

108 Annual Report - 2022

The liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) ratios as of December 2022 and requirements going forward
are as below:

As at 31 December

2022 2021

LCR 219% 268%

NSFR 118% 122%

Funding
The Group’s principal sources of funding are its customer deposits, interbank deposits, subordinated loans, euro-medium term
notes and Sukuk. The Group also has access to a pool of unencumbered and liquid securities in the form of treasury bills and
bonds as well as listed securities that it can access to meet liquidity needs, in addition to its cash balances and placements with
central banks and other financial institutions.
The Group’s customer deposits from conventional operations and Islamic customer deposits were RO 8,647 million, or 82.0% of
its total liabilities, as at 31 December 2022, as compared to RO 8,775 million, or 80.3% of its total liabilities, as at 31 December 2021.
Deposits from Ministries and other Government organizations represent 30.4% of the total customer deposits.
The table below shows the Group’s funding mix as at 31 December in 2022 and 2021:

2022 2022 2021 2021

RO 000's (% of total) RO 000's (% of total)

Customers' deposits(1) 8,646,821 85.6% 8,774,606 83.8%

Deposits from banks 1,004,106 10.0% 1,218,465 11.6%

Sukuk 45,876 0.5% 90,600 0.9%

Euro medium term notes 390,376 3.9% 390,379 3.7%

10,087,179 100.0% 10,474,050 100.0%

(1) including Islamic customer deposits

The table below shows the Group’s product mix of customers’ deposits and Islamic customers’ deposits as at 31 December in
2022 and 2021:

2022 2022 2021 2021

RO 000's (% of total) RO 000's (% of total)

Current, call and margin accounts 2,248,602 26.1% 2,280,329 26.0%

Saving accounts 3,267,636 37.7% 3,316,371 37.8%

Time deposits 3,130,583 36.2% 3,177,906 36.2%

Total customer deposits 8,646,821 100.0% 8,774,606 100.0%

Current, call and margin accounts from conventional and Islamic operations are interest/profit bearing and are available to
depositors on demand basis. Time deposit from conventional operations are interest bearing and have a fixed maturity date.
Similarly, time deposits from Islamic operations are eligible for-profit distribution and have a fixed maturity date.
Till 2021, saving accounts from conventional operations were mostly non-interest bearing but eligible for prize draws. Similarly, till
2021, some Islamic saving accounts were also eligible for a prize draw. In line with CBO directives, the prize linked saving deposit
schemes for conventional and Islamic banking have been withdrawn with effect from 1 January 2022. After the withdrawal, the
bank offered slab-rate based interest/profit bearing saving products based on monthly average saving account balance.
Current, call and margin account balances have decreased from RO 2,280 million as at 31 December 2021 to RO 2,249 as at 31
December 2022, a decrease of RO 32 million or 1.4% during the year. Saving accounts balances have decreased from RO 3,316
million as at 31 December 2021 to RO 3,268 million as at 31 December 2022, a decrease of RO 49 million or 1.5% during the year.
Time deposits have also decreased from RO 3,178 million as at 31 December 2021 to RO 3,131 million as at 31 December 2022, a
decrease of RO 47 million or 1.5% during the year.

Annual Report - 2022 109

 The share of demand deposits, comprising current, call, margin and saving accounts, to total customer deposits is 63.8%, in line
with previous year. The share of time deposits to total customer deposits is 36.2%, also in line with the previous year.
The deposits from banks decreased by RO 214 million or 17.6% mainly due to decrease in inter bank borrowings by RO 99 million
and decrease in other money market deposits by RO 118 million during the year.

Equity funding
The Group’s equity funding portfolio comprises of mainly ordinary share capital, share premium, legal and general and other
reserves, Perpetual tier I capital and retained profit. Equity of the Group increased from RO 2,151 million as at 31 December 2021
to RO 2,232 million as at 31 December 2022, an increase of 3.8%.
The Group’s profit for the year 2022 was RO 200.75 million. For 2021, the Group paid a cash dividend of 30% of paid-up share
capital, equating to RO 107.234 million. In addition, for 2021, the Group paid bonus shares in the proportion of 1 share for
every 10 ordinary shares, equating to RO 17.872 million in 2022.
Further in November 2022, as part of capital optimization plan, Return on Average Equity
the shareholders of the bank approved one-off dividend in the
15%
form of bonus shares of 1 ordinary share of RO 0.100 for each
ordinary share equivalent to RO 375.320 million and perpetual
bonds to the existing shareholders of RO 1 each for every 10 13%
shares equivalent to RO 375.320 million. Accordingly, share 10.88% 10.73%
capital increased from RO 375 million as at 31 December 2021 10.12%
10.45%

to RO 750 million as at 31 December 2022 by transfer from 10%

9.08%
share premium and perpetual tier 1 capital increased from RO
130 million as at 31 December 2021 to RO 505 million as at 31
8%
December 2022 by transfer from retained earnings.
The return on average shareholders’ funds of the Group
increased from 10.12% in 2021 to 10.45% in 2022 due to an 5%
increase in net profit by 5.9% during 2022.
2018

2019

2020

2021

2022
Assets

Total assets decreased by RO 297 million or 2.3% to reach RO 12,776 million as at 31 December 2022. The decrease in total assets
was mainly contributed by a decrease in cash and balances with central bank of RO 164 million, in due from banks by RO 124
million and in investment securities by RO 240 million during the year. The decrease was partly offset by increase in loans and
advances including Islamic financing receivables by RO 225 million.

Total Assets
Return on Average Assets
(in Rial Omani Millions)
13,500 2.00%

13,125 13,073
1.75%

1.53% 1.55%
12,776 1.51% 1.49%
12,750 1.50%

12,454 1.32%

12,375 12,288 12,291 1.25%

12,000 1.00%
2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

110 Annual Report - 2022

Lending

The Group’s net loans and Islamic financing portfolio increased by RO 225 million or 2.5% during the year 2022 to reach RO 9,417
million as at 31 December 2022 as compared to RO 9,191 million as at 31 December 2021.
The table below shows the Group’s customer loan portfolio, provisions and loan to deposit ratios as at 31 December in 2022 and
2021.

As at 31st December

2022 2021

RO 000's RO 000's

Gross loans(1) 9,974,558 9,660,308

Less: Impairment allowance (557,664) (468,891)

Net loans(2) 9,416,894 9,191,417

Net loans/customer deposits 108.9% 104.8%

Net loans/total deposits (3)

93.4% 87.8%

Notes:

(1) Gross loans comprises total loans, advances and Islamic financing provided to customers disregarding impairment.
(2) Net loans comprise gross loans less provisions for impairment.
(3) Total deposits comprises customer deposits and due to banks, EMTN, sukuk and subordinated deposits.

The Group’s customer loan portfolio is principally denominated in Omani rials, although loans are also made in U.S. dollars, Saudi
rials and Kuwaiti dinar, among other currencies. The Group believes that there is only limited structural cross-currency exposure
as the majority of its assets and liabilities are match-funded in currency terms. In addition, the Group hedges a part of its currency
exposure through the use of derivative contracts, such as forward foreign exchange contracts, cross currency swaps and currency
options.
The Group may also, from time to time, enter into forward contracts and cross currency interest rate swaps to manage its interest
rate exposure.
As at 31 December 2022, the Bank’s exposure to personal and housing loans accounted for 41.9% of its total exposure compared
to 42.0% as at 31 December 2021. These loans are mostly backed by salary assignments and/or mortgages as collateral. In
accordance with CBO regulations, conventional personal and housing loans are capped at 35% and 15%., respectively, of total
conventional banking loans. Islamic banks or windows were permitted a combined maximum housing and non-housing personal
finance exposure of 50% of total finance as at 31 December 2022. Further, for Islamic banks or windows operations, maximum
exposure to housing finance should be upto 35% of total finance.
As at 31 December 2022, the Bank’s funded exposure to corporate and other loans accounted for 58.1% of its total funded
exposure compared to 58.0% as at 31 December 2021. Of this, the service sector constituted 7.8% of the Group’s total gross loans
and advances as at 31 December 2022, compared to 6.4% as at 31 December 2021. Similarly, the transport sector accounted for
8.6% of the Group’s total gross loans and advances as at 31 December 2022 compared to 9.3% as at 31 December 2021. The
manufacturing sector, the utilities sector and the mining and quarrying sector accounted for 8.1%, 7.9% and 3.5%, respectively,
compared to 10.4%, 8.0% and 2.7%., respectively, as at 31 December 2021.
With effect from January 01, 2022, the loan deferral program announced by CBO ceased for all customers excluding laid-off
Omani citizens. The deferment scheme for the laid off Omani citizens has been extended until December 31, 2023. In line with
regulatory directives, the bank provided loan deferment options to eligible retail customers and also extended timely financial
relief measures to its corporate and SME customers including restructuring of loans.

Annual Report - 2022 111

 Stage-wise total funded and non-funded gross exposure (in RO millions) and coverage ratios is as shown below:

Stage 1 Stage 2

13,000 0.4% 3,500 15%

12,885
0.32% 3,212

12,750 12,706
0.3% 3,125 12.25%
9.36%

0.21%
12,500 0.2% 2,750 2,670 7.5%
5.58%

12,250 0.1% 2,375 3.75%

12,000 0% 2,000 0%
2021

2022

2021

2022
Stage 3

450 85%
83.39%

425 82.5%

80.00% 403
400 80%
395

375 77.5%

350 75%
2021

2022

Coverage Outstanding

Share of Stage 1 to total gross exposure of financial assets has increased from 77.9% as at 31 December 2021 to 80.8%. Stage 1
gross exposure increased by RO 179 million mainly due to an increase stage 1 gross exposure in loans and advances by RO 379
million and an increase stage 1 gross exposure in non-funded exposures by RO 283 million. This was offset by a decrease in stage
1 gross exposure of Investment securities by RO 269 million, decrease in stage 1 gross exposure of due from banks by RO 137
million and decrease in stage 1 gross exposure of central bank balances by RO 78 million.
Share of stage 2 financial assets to gross exposure decreased from 19.7% as at 31 December 2021 to 16.7%. Stage 2 gross exposure
decreased by RO 542 million mainly due to a decrease in stage 2 non-funded exposures by RO 471 million and in loans and
advances by RO 79 million.
Share of stage 3 financial assets to total gross exposure has increased from 2.4% of gross exposure to 2.5%. Stage 3 gross
exposure increased by RO 9 million mainly due to an increase in stage 3 loans and advances by RO 15 million, which was offset
by a decrease in stage 3 non-funded exposures by RO 6 million.

112 Annual Report - 2022

Capital Adequacy

Capital adequacy indicates the ability of the Group in meeting any contingency without compromising the interest of the
depositors and to provide credit across the business cycles. Sufficient capital in relation to the risk profile of the Group’s assets
helps promote financial stability and confidence of the stakeholders and creditors. The Group aims to maximize the shareholder’s
value through an optimal capital structure that protects the stakeholders’ interests under most extreme stress situations, provides
sufficient room for growth while meeting the regulatory requirements and at the same time gives a reasonable return to the
shareholders. The Group has a forward-looking capital policy which considers the current risk, planned growth and an assessment
of the emerging risk for the forecasted period.
The Group determines regulatory capital as recommended by the Basel III capital accord and in line with the guidelines of Central
Bank of Oman. The Group has adopted Standardised approach for Credit and Market Risk and Basic Indicator approach for
Operational Risk.
The Bank’s regulator, the Central Bank of Oman (CBO) sets and monitors capital requirements for the banks in the Sultanate of
Oman. The Common Equity Tier 1 (CET1) minimum of 7% in common equity and 9.25 % in Tier 1 capital.
Minimum capital adequacy ratio requirement of the bank is as below:

1-April-20 onwards

Common Equity Capital Ratio 7.000%

Capital Conservation Buffer 1.250%

D-SIB* 1.000%

Additional Tier I -Restricted to Max 2.000%

Tier 1 Capital Ratio 11.250%

Tier 2 Capital Ratio -Restricted to Max 2.000%

Total Capital Ratio 13.250%

* The Bank has been identified as a domestic systemically important bank (D-SIB) in Oman. Accordingly, it will be required to maintain incre-
mental capital of 1%.

The table below shows the capital adequacy ratios of the Group for 2022 and 2021:

As at 31st December

2022 2021

Tier 1 capital adequacy ratio 20.11% 20.06%

Total capital adequacy ratio 21.25% 21.30%

Bank’s capital adequacy ratio at 21.25% is well above the regulatory requirement of 13.25% for 2022. It is mainly comprised of Tier
1 capital of 20.11% and Tier 2 capital of 1.14%. The bank’s strong and healthy capital adequacy indicates the ability of the Group in
meeting any contingency without compromising the interest of the depositors and to provide credit across the business cycles. It
also helps promote financial stability and confidence of the stakeholders and creditors.

Annual Report - 2022 113

 Contingent Liabilities and Commitments

The Group has contingent liabilities in respect of funding commitments it has made as well as in relation to acceptances, letters
of credit and guarantees issued by it. It also has commitments in respect of the purchase of property and equipment and partly
paid investments. The table below shows these contingent liabilities and commitments as at 31 December in 2022 and 2021.

2022 2021

RO 000's RO 000's

Irrevocable commitments to extend credit 408,227 222,161

Guarantees 1,285,254 1,357,451

Letters of credit 344,810 475,710

Acceptances 109,146 111,663

Commitments to purchase of property and equipment 2,296 797

Unpaid amount on partly paid investments 8,455 5,810

2,158,188 2,173,592

Credit Rating
It is the Bank’s philosophy to provide transparent and meaningful disclosures in its financial statements. The rating agencies and
industry analysts appreciate the Bank’s disclosures in its financial statements. The Bank values the comments and concerns of the
rating agencies, and it is one of the Bank’s objectives to enhance the credit ratings assigned by them.
Three leading international rating agencies, Standard and Poor’s, Moody’s, and Fitch rated the Bank during the year. The recent
rating of the Bank are as follows:

Rating Agency Long Term Short Term Outlook

Moody's Ba3 NP Positive

Standard & Poor's BB B Stable

Fitch Ratings BB B Stable

114 Annual Report - 2022

Meethaq Financial Review
The Islamic window operations of bank muscat “Meethaq” posted a net profit of RO 13.125 million for the year 2022 as compared
to RO 11.827 million reported during the same period in 2021, increase of 11.0%.
Operating profit of Meethaq increased from RO 24.378 million in 2021 to RO 29.182 in 2022, an increase of 19.7%.
Operating expenses for the year ended 31 December 2022 at RO 14.263 million are higher by 10.3% as compared to RO 12,927
million for the same period in 2021. The cost to income ratio for the year decreased from 34.6% in 2021 to 32.8% in 2022.
Impairment for credit losses for the year 2022 was RO 15.235 million as against RO 12.592 million for the same period in 2021.
Recoveries from impairment for credit loss were RO 1.428 million for the year of 2022 as against RO 2.778 million for the same
period in 2021.
Net Islamic financing receivables amounted to RO 1,449.42 million as at 31 December 2022 compared to RO 1,361.02 million as at
31 December 2021. Customer deposits amounted to RO 1,238.69 million as at 31 December 2022 compared to RO 1,173.6 million
as at 31 December 2021.
The return on average assets increased to 0.79% in 2022 from 0.76% in 2021. The return on average equity increased to 6.45% in
2022 as compared to 6.17% 2021.
The capital adequacy ratio stood at a healthy level of 19.36% as on 31 December 2022 against the minimum required level of 11%
as per the Central Bank of Oman’s guidelines.

Net Profit
(in Rial Omani Millions)
14 13.1

11.8

11.2 10.7 10.8

9.6
9.0
8.3
8.4 7.5

6.0

5.6

2.8

0
2014

2015

2016

2017

2018

2019

2020

2021

2022

Results of Operations
Net income from Islamic finance and investments
Income from Islamic finance is Meethaq’s principal source of income. Meethaq earns income on the Islamic finance made by it,
on its portfolio of investment securities and on its placements with other Islamic banks. The bank incurs expense in the form of
return paid to investment account holders (IAH) and Sukuk holders i.e. Islamic deposits and on deposits from banks and other
financial institutions.
Meethaq’s net income from Islamic financing and investment after deducting return on IAH, Sukuk holders and deposits from
banks amounted to RO 39.815 million in 2022 against RO 34.305 million in 2021, an increase of 16.1%.

Annual Report - 2022 115

 Income from Islamic finance and Investments
The table below shows a breakdown of the income from Islamic financing and Investments in 2022and 2021.

2022 2021

RO 000's (% of total) RO 000's (% of total)

Financing receivables 77,107 89.4 69,044 89.0

Investment securities 9,037 10.6 8,519 11.0

86,144 100 77,563 100

Meethaq’s total financing/investment income for 2022 amounted to RO 86.144 million compared to RO 77.563 million for 2021.
The increase of RO 8.581 million, or 11.1% in 2022 principally reflected growth in both financing and investment securities.

Return paid on IAH, Sukuk holders and Deposits from banks

The table below shows a breakdown of the return paid on IAH and deposits from banks for 2022 and 2021.

2022 2021

RO 000's (% of total) RO 000's (% of total)

Return paid on IAH 38,037 82.1 34,947 80.8

Return paid on Sukuk holders 3,339 7.2 4,895 11.3

Net return paid on Bank deposits 4,953 10.7 3,416 7.9

46,329 100 43,258 100

Meethaq’s total return paid on IAH, Sukuk holders and deposits from bank for 2022 amounted to RO 46.329 million compared to
RO 43.258 million for 2021. The increase of RO 3.071 million, or 7.1% in 2022 principally reflected higher cost of fund.

Net Income from Financing & Investments

(in Rial Omani Millions)
39.8
40
34.3

32
28.3 28.4
26.8
25.6
23.7
24
19.2
17.3

16

0
2014

2015

2016

2017

2018

2019

2020

2021

2022

116 Annual Report - 2022

Net fees/ commissions and other operating income
Meethaq earns fees and commissions on Islamic Financing (where allowed by Shari’a ) and letters of credit and guarantees issued
by it, and on other bank services provided by it, including account servicing and syndication fees and Ujra card-related income.
Other operating income principally includes foreign exchange gain or loss, service charges and other miscellaneous income.
Net fee/commission and other operating income for 2022 amounted to RO 3.630 million compared to RO 3.000 million for 2021.
The net increase of RO 0.630 million, or 21.00% in 2022 principally reflected increase in fee and commission income.

Net fee/commission & other operating income

(in Rial Omani Millions)
4
3.6

3.2
3.0
3 2.8

2.1
2 1.8

1.4

1.0
1 0.7

0
2014

2015

2016

2017

2018

2019

2020

2021

2022
Operating expenses
Meethaq’s operating expenses comprise staff costs, occupancy costs, other administrative expenses and depreciation.
The table below shows a breakdown of the operating expenses in 2022 and 2021.

2022 2021

RO 000's (% of total) RO 000's (% of total)

Staff expenses 7,078 49.6 6,345 49.8

Occupancy costs 1,259 8.8 949 7.3

Other administrative
4,662 32.7 4,314 33.4
costs

Depreciation 1,264 8.9 1,229 9.5

Total operating expenses 14,263 100.0 12,927 100.0

2022 2021

Cost to income ratio(1) 32.83 34.6

(1) Operating expenses divided by operating income.

Annual Report - 2022 117

 Meethaq’s total operating expenses amounted to RO 14.263 million for 2022 compared to RO 12.927 million for 2021. The increase
of RO 1.336 million, or 10.3% in 2022 principally reflected RO 0.643 million, or 10.0 % increase in salary expenses and RO 0.348
million, or 8.1 % increase in other administrative costs and is due to growth in business. Cost to income ratio has decreased from
34.6% to 32.83% due to overall growth in income.

Operating Expenses
(in Rial Omani Millions)
15 14.3
13.5
12.9 13.1 12.9

12.5 12.2
11.5

10 9.2

7.5 6.9

5
2014

2015

2016

2017

2018

2019

2020

2021

2022
Provision charges and impairment losses
Meethaq makes provision for impairment for Islamic finance promptly when required in line with the conservative provisioning
norms it has set for itself. Meethaq makes adequate provision against non-performing credit exposures.
The table below shows details of the Meethaq’s provision charges and impairment losses for 2022 and 2021.

For the year ended

2022 2021

RO 000's RO 000's

Provision charge for credit losses

Specific / Stage 3 702 1,051

Non-specific / Stage 1 and 2 14,533 11,541

Total provision charge for Financing losses 15,235 12,592

Recoveries from impairment for financing loss 1,428 2,778

Total 13,807 9,814

Net impairment provision/net Islamic financing 0.95% 0.72%

Meethaq’s net provision charge for impaired financing losses amounted to RO 13.807 million for 2022 compared to RO 9.814
million for 2021. The increase of RO 3.993 million or 40.7% in net provision is principally on account of stage 1&2 impairment for
financing loss.
The net impairment losses cost percentages of Islamic financing for the year ended 31 December 2022 is 0.95% as against 0. 72%
for the year ended 31 December 2021.

118 Annual Report - 2022

The table below shows the impaired Islamic finance and coverage ratio of Meethaq for 2022 and 2021 :

As at 31 December

2022 2021

Impaired Islamic Finance (RO 000's) 11,677 13,175

Impaired Islamic Financing ratio(1) 0.81% 0.96%

Financing loss coverage ratio(2) 501.2% 333.4%

(1) Impaired financing as a percentage of total gross financing.

(2) Impairment provisions as a percentage of impaired financing.

Provision for Impairment of Financing (Net)

(in Rial Omani Millions)
15 13.8

11.25
9.8

7.8
7.5

4.4
3.6 3.9
3.4
3.75 2.5
3.0

0
2014

2015

2016

2017

2018

2019

2020

2021

2022
Liquidity and Funding
Overview
Meethaq’s liquidity needs arise primarily from making Islamic Financing, the payment of expenses and its investments in
securities. To date, Meethaq’s liquidity needs have been funded principally through Islamic deposits (IAH), Sukuk and operating
cash flow, including income received on its financing portfolio and its portfolio of investment securities.

Liquidity
The table below shows Meethaq’s cash flow from operating activities, investing activities and financing activities for 2022 and
2021.

2022 2021

RO 000's RO 000's

Net cash from/(used in) operating activities (124,636) (87,000)

Net cash from/(used in) investing activities (20,051) (5,772)

Net cash from/(used in) financing activities 90,974 173,080

Cash and short-term funds at the beginning of the year 111,314 31,006

Cash and short-term funds at the end of the year 57,601 111,314

Annual Report - 2022 119

 Operating activities
Net cash used from operating activities for 2022 was RO 124.636 million compared to RO 87 million generated in for 2021. For both
2022 and 2021, Meethaq’s net cash from operating activities before changes in operating assets and liabilities principally reflected
its profit for the year adjusted to reflect its net impairment for financing, impairment charges for investments and due from banks,
profit on sale of investments, dividend income and depreciation.

Investing activities
Net cash used in investing activities for 2022 was RO 20.051 million compared to RO 5.772 million in 2021. In each period, the
principal investment activities were the purchase and sale or redemption of investment securities and the purchase of property
and equipment. In 2022, Meethaq spent a net RO 20.811 million on investment securities compared to RO 4.396 million in 2021
and RO 0.297 million on property and equipment compared to RO 1.7 million in 2021.

Financing activities
Net cash inflow from financing activities for 2022 was RO 90.974 million compared to RO 173.08 million in 2021, principally reflecting
the decrease in cash flow from customer deposits of RO 135.69 million in 2022 compared to increase of RO 173.08 million in 2021.
The table below shows the liquid assets ratio of Meethaq for 2022 and 2021

As at 31 December

2022 2021

Liquid assets to total assets ratio 16.5 15.0

Liquid assets to total deposits ratio(1) 18.4 20.9

(1) Total deposits include current accounts and IAH

Funding
Meethaq’s principal sources of funding are its Islamic deposits (IAH), Sukuk and interbank deposits. Meethaq also has access to a
pool of unencumbered and liquid securities in the form of Sukuk as well as quoted available for sale securities that it can access
to meet liquidity needs, in addition to its cash balances and placements with central banks and other financial institutions.
The table below shows Meethaq’s composition of funding as at 31 December in 2022 and 2021:

As at 31 December

2022 2021

RO 000's (% of total) RO 000's (% of total)

Deposits from banks 55,832 3.8 81,274 5.7

Current accounts 138,660 9.4 144,855 10.2

Sukuk 45,876 3.1 90,600 6.4

Equity of IAH 1,236,387 83.7 1,101,803 77.7

Total 1,476,755 100.0 1,418,532 100.0

Meethaq’s current accounts comprise of current, and margin accounts. Current and margin accounts are mostly non-profit
bearing. Equity of IAHs has two types of accounts; savings account and time deposits which are eligible for profit distribution.
Equity from IAH is accepted on Mudarabah basis. In 2022, Deposits from banks decreased by RO 25.442 million or 31.3%, current
account decreased by RO 6.195 million or 4.3%, Sukuk decreased by RO 44.724 million or 49.4% and equity of IAH increased by RO
134.584 million or 12.2% as compared to 2021.

120 Annual Report - 2022

Equity funding
Meethaq’s equity funding portfolio comprises of mainly capital assigned by head office and retained profits. Equity of Meethaq
increased from RO 197.3 million as at 31 December 2021 to RO 209.8 million as at 31 December 2022, an increase of 6.3%.
Meethaq’s profit for the year was RO 13.125 million which contributed to the increase in the equity in 2022.

Meethaq's Equity
(in Rial Omani Millions)
250
209.9
197.3
200 186.1

150 127.6
117.1
102.8
100 89.1
69.6

50 43.7

0
2014

2015

2016

2017

2018

2019

2020

2021

2022
Assets
Total assets increased from RO 1,634.0 million in 2021 to RO 1,705.8 million in 2022, an increase of RO 71.8 million or 4.4%. The
increase in assets were mainly on account of net increase in Islamic financing by RO 88.4 million and investment by RO 20.7
million. This was partially offset by a reduction in balance with Central Bank of Oman by RO 35.8 million and due from banks by
RO 0.53 million.

Total Assets
(in Rial Omani Millions)
1,800 1,705.8
1,634.0

1,441.5 1,466.2
1,375.6
1,350 1,197.6

1,039.7

900 767.2

426.6
450

0
2014

2015

2016

2017

2018

2019

2020

2021

2022

Annual Report - 2022 121

 Islamic Financing

Meethaq’s total Islamic Financing portfolio (net of provisions) was RO 1,449.42 million as at 31 December 2022.
The table below shows Meethaq’s financing portfolio, provisions and certain ratios as at 31 December in 2022 and 2021.

As at 31 December
2022 2021
RO 000's RO 000's
Gross Islamic Financing(1) 1,507,953 1,404,954
Less: provisions (58,529) (43,936)
Net financing (2)
1,449,424 1 361,018
Net financing/current accounts and IAH 99.0% 109.2%
Net financing/total deposits (3)
92.2% 95.9%

Notes:
(1) Gross financing comprises total financing made under various modes allowed by Shari’s.
(2) Net financing comprise gross financing less provisions for impairment.
(3) Total deposits comprises current accounts, equity of IAH, Sukuk and deposits from banks.

Meethaq’s Islamic financing portfolio is principally denominated in Omani Rial, although financing is also made in U.S. dollars.
Meethaq believes that there is only limited structural cross-currency exposure as the majority of its assets and liabilities are
match-funded in currency terms.
These financing consist of personal/housing finance and corporate finance. Personal/housing finance are mainly backed by
salary assignments and as per CBO regulations, these finance are capped at 50 per cent of a Meethaq’s total finance.
In corporate finance, Meethaq’s major sector of financing exposure is the manufacture sector, which accounted for 10.3%
of Meethaq’s total gross financing as at 31 December 2022. The Construction sector, accounted for 14.1% and Transport and
Communication sector, accounted for 14.0%.

Capital Adequacy

Capital adequacy indicates the ability of Meethaq in meeting any contingency without compromising the interest of the IAH and
other depositors and to provide financing across the business cycles. Sufficient capital in relation to the risk profile of Meethaq’s
assets helps promote financial stability and confidence of the stakeholders and customers. Meethaq aims to maximize the
shareholder’s value through an optimal capital structure that protects the stakeholder’s interests under most extreme stress
situations, provides sufficient room for growth while meeting the regulatory requirements and at the same time gives a reasonable
return to the shareholders. Meethaq has a forward looking capital policy which considers the current risk, planned growth and an
assessment of the emerging risk for the forecasted period.
Meethaq determines regulatory capital as recommended by the Basel II & III capital accord and in line with the guidelines of
Central Bank of Oman. Meethaq has adopted Standardised approach for credit and Market Risk and Basic Indicator approach for
Operational Risk.
The Bank’s regulator, the Central Bank of Oman (CBO) sets and monitors capital requirements for the banks in the Sultanate of
Oman. CBO requires Islamic Windows to maintain a minimum ratio of 11% of total capital to risk-weighted assets. The capital
adequacy ratio requirement is as below:

Common Equity Capital Ratio 7.00%

Additional Tier I -Restricted to Max 2.00%
Tier 1 Capital Ratio 9.00%
Tier 2 Capital Ratio -Restricted to Max 2.00%
Total Capital Ratio 11.00%

The Basel III liquidity coverage ratio (LCR) was set at 60 per cent for 2015 and it increased by 10 per cent a year until it reached 100
per cent in 2019. The CBO has issued guidelines on the net stable funding ratio (NSFR) in Oct 2016, the same is being reported to
the CBO. The NSFR ratio is applicable from 2018 at 100 per cent and thereafter.

122 Annual Report - 2022

Basel III Liquidity Norms: The LCR and NSFR ratios as of 31 December 2022 and requirements going forward are as below:

As at 31-Dec-2022 Requirement 2022

LCR 152% 100%
NSFR 142% 100%

The table below shows the capital adequacy ratios of the Meethaq for 2022 and 2021:

As at 31 December
2022 2021
Tier 1 capital adequacy ratio 17.38% 17.86%
Total capital adequacy ratio 19.36% 19.91%

In accordance with Basel III regulatory norms.

Contingent Liabilities and Commitments

Meethaq has contingent liabilities in respect of funding commitments it has made as well as in relation to letters of credit and
guarantees issued by it. The table below shows these contingent liabilities as at 31 December in 2022 and 2021.

As at 31 December 2022 2021

RO 000's RO 000's
Letters of credit 14,346 65,137
Guarantees 16,891 24,137
Total 31,237 89,274

Annual Report - 2022 123

 Ten-Year Summary
Amounts in RO 000's
Balance sheet
2022 2021 2020 2019
ASSETS
Cash and balances with Central Bank 883,060 1,047,224 656,898 781,755
Due From banks 641,480 765,151 574,786 869,804
Loans and advances 7,967,470 7,830,398 7,731,286 7,712,193
Islamic financing receivables 1,449,424 1,361,019 1,251,369 1,165,848
Investment securities 1,571,984 1,811,496 1,847,349 1,444,832
Investment in associates 8,795 8,266 - -
Other assets 185,465 174,797 320,688 236,694
Property, equipment and software 68,304 74,187 71,389 79,482
Total Assets 12,775,982 13,072,538 12,453,765 12,290,608

Liabilities and Shareholders' Funds

Liabilities
Deposits from banks 1,004,106 1,218,465 939,621 1,173,479
Customers’ deposits 7,409,967 7,604,051 7,428,737 7,011,266
Islamic customers' deposits 1,236,854 1,170,555 1,029,768 1,032,400
Certificates of deposit - - - -
Sukuk 45,876 90,600 90,600 90,205
Euro medium term notes 390,376 390,379 390,570 385,410
Mandatory convertible bonds - - - -
Other liabilities 400,973 394,713 469,802 521,864
Taxation 55,706 52,931 47,821 47,168
Subordinated liabilities - - 13,198 26,180
10,543,858 10,921,694 10,410,117 10,287,972

Shareholders' Funds
Share capital 750,640 357,448 324,952 309,478
Share premium 156,215 531,535 531,535 531,535
General reserve 410,258 410,258 397,168 384,078
Non distributable reserves 146,463 126,399 128,668 123,760
Cash flow hedge reserve - - (140) (34)
Cumulative changes in fair value (587) 2,855 (3,683) (372)
Foreign currency translation reserve (3,881) (2,498) (2,407) (2,296)
Retained earnings 267,696 594,847 537,555 526,487
1,726,804 2,020,844 1,913,648 1,872,636
Perpetual Tier I capital 505,320 130,000 130,000 130,000
Non-controlling interest in equity - - - -
Total Equity 2,232,124 2,150,844 2,043,648 2,002,636
Total Liabilities & Shareholders' Funds 12,775,982 13,072,538 12,453,765 12,290,608
Contingent liabilities & commitments 1,630,064 1,833,161 1,866,147 2,322,957

Operating cost to income 41.23% 40.27% 39.39% 41.50%

Return on average assets 1.55% 1.49% 1.32% 1.51%
Return on average shareholders funds 10.45% 10.12% 9.08% 10.73%
Basic Earnings Per Share (RO) 0.026 0.024 0.044 0.055
Share price (RO) 0.275* 0.484 0.394 0.434
BIS Capital adequacy ratio 21.25% 21.30% 20.77% 19.72%

* Market price from November 9, 2022 reflects the impact of issuance of 1:1 bonus shares as part of the bank's capital structure optimisation.
124 Annual Report - 2022
 Amounts in RO 000's
2018 2017 2016 2015 2014 2013

1,306,756 934,745 1,041,572 2,412,052 836,944 582,310

476,043 592,026 526,615 991,491 1,038,826 866,981
7,828,485 7,358,603 7,102,323 6,695,486 6,385,625 5,863,533
1,110,430 970,113 855,007 634,729 400,290 279,313
1,269,582 1,027,176 1,009,924 1,518,384 740,770 562,040
- - 48,074 47,746 47,449 36,547
227,242 194,440 162,323 168,020 206,550 229,075
69,501 72,119 74,232 76,621 71,864 66,651
12,288,039 11,149,222 10,820,070 12,544,529 9,728,318 8,486,450

951,878 910,125 831,792 2,859,563 888,819 668,857

7,504,219 6,459,410 6,694,808 6,738,315 6,299,350 5,552,913
958,466 959,902 762,919 625,133 282,759 92,957
- - - - 46,000 47,000
44,608 44,608 - - - 29,803
385,000 384,508 383,595 191,185 189,979 188,102
- 32,416 64,380 94,655 62,239 46,432
433,349 375,646 337,356 369,699 377,811 369,323
43,507 42,914 33,030 28,570 28,844 31,902
39,270 121,360 165,450 240,450 240,450 246,867
10,360,297 9,330,889 9,273,330 11,147,570 8,416,251 7,274,156

294,741 270,936 249,625 229,183 218,269 215,226

531,535 509,377 486,242 464,951 464,951 451,837
370,988 288,898 244,808 169,808 169,808 163,392
121,730 183,272 185,203 220,299 196,501 165,613
437 (186) (301) (718) (576) 384
(5,023) 16,813 19,234 19,264 21,639 16,440
(2,068) (1,323) (1,966) (1,820) (925) (3,589)
485,402 420,546 363,895 295,992 242,400 202,774
1,797,742 1,688,333 1,546,740 1,396,959 1,312,067 1,212,077
130,000 130,000 - - - -
- - - - - 217
1,927,742 1,818,333 1,546,740 1,396,959 1,312,067 1,212,294
12,288,039 11,149,222 10,820,070 12,544,529 9,728,318 8,486,450
2,676,435 2,860,070 2,988,489 3,186,412 2,497,661 2,108,576

42.61% 42.22% 41.83% 41.95% 41.21% 42.24%

1.53% 1.61% 1.64% 1.72% 1.79% 1.86%
10.88% 11.44% 12.50% 13.68% 13.89% 14.49%
0.059 0.061 0.064 0.067 0.071 0.072
0.410 0.394 0.472 0.472 0.582 0.636
19.22% 18.45% 16.90% 16.10% 15.92% 16.42%

Annual Report - 2022 125

 Amounts in RO 000's
Income statement
2022 2021 2020 2019
Interest income 468,076 444,705 437,772 452,017
Interest expense (162,524) (143,020) (143,536) (161,137)
Net interest income 305,552 301,685 294,236 290,880
Income from Islamic financing/investments 85,705 77,138 68,263 66,081
Distribution to depositors (46,402) (43,287) (40,369) (39,989)
Net income from Islamic financing 39,303 33,851 27,894 26,092
Net interest income and income from Islamic
financing 344,855 335,536 322,130 316,972
Other operating income 157,955 139,944 134,409 155,199
Operating income 502,810 475,480 456,539 472,171

Operating expenses
Other operating expenses (189,120) (174,154) (159,602) (175,262)
Depreciation and amortisation (18,176) (17,305) (20,250) (20,669)
(207,296) (191,459) (179,852) (195,931)
Net Impairment losses on financial assets (59,941) (60,217) (81,038) (56,127)
Share of results from associates 927 167 - -
Profit before taxation 236,500 223,971 195,649 220,113
Tax expense (35,747) (34,346) (32,291) (34,563)
Profit for the year 200,753 189,625 163,358 185,550

126 Annual Report - 2022

 Amounts in RO 000's
2018 2017 2016 2015 2014 2013
420,037 378,298 356,178 332,514 324,576 319,524
(143,308) (121,615) (105,612) (90,661) (97,660) (96,878)
276,729 256,683 250,566 241,853 226,916 222,646
58,608 46,097 37,004 25,842 20,381 14,435
(31,048) (21,434) (13,422) (7,184) (3,659) (1,759)
27,560 24,663 23,582 18,658 16,722 12,676

304,289 281,346 274,148 260,511 243,638 235,322

142,447 154,620 142,027 147,225 139,472 104,834
446,736 435,966 416,175 407,736 383,110 340,156

(176,984) (170,857) (161,357) (159,871) (146,686) (132,687)

(13,359) (13,222) (12,721) (11,185) (11,204) (10,997)
(190,343) (184,079) (174,078) (171,056) (157,890) (143,684)
(43,242) (43,279) (39,451) (41,723) (40,465) (22,883)
- 2,438 1,727 2,561 1,515 1,304
213,151 211,046 204,373 197,518 186,270 174,893
(33,518) (34,228) (27,813) (22,067) (23,043) (22,701)
179,633 176,818 176,560 175,451 163,227 152,192

Annual Report - 2022 127

128 Annual Report - 2022
Annual Report - 2022 129
130 Annual Report - 2022
Annual Report - 2022 131
132 Annual Report - 2022
Financial Statements
Bank Muscat SAOG
Consolidated statement of Financial Position
As at 31 December 2022

2022 2021
Notes
RO 000's RO 000's

ASSETS
Cash and balances with Central Banks 5 883,060 1,047,224
Due from banks 6 641,480 765,151
Loans and advances 7 7,967,470 7,830,398
Islamic financing receivables 7 1,449,424 1,361,019
Investment securities 9 1,571,984 1,811,496
Investment in associates 10 8,795 8,266
Other assets 8 185,465 174,797
Property, equipment and software 11 68,304 74,187
TOTAL ASSETS 12,775,982 13,072,538
LIABILITIES AND EQUITY
LIABILITIES
Deposits from banks 14 1,004,106 1,218,465
Customers' deposits 15 7,409,967 7,604,051
Islamic customers' deposits 15 1,236,854 1,170,555
Sukuk 16 45,876 90,600
Euro medium term notes 17 390,376 390,379
Other liabilities 18 400,973 394,713
Taxation 19 55,706 52,931
Total liabilites 10,543,858 10,921,694
Equity

Equity attributable to equity holders of parent

Share capital 20 750,640 357,448
Share premium 21 156,215 531,535
General reserve 22 410,258 410,258
Legal reserve 22 139,229 119,149
Revaluation reserve 11 4,904 4,904
Cumulative changes in fair value (587) 2,855
Foreign curency translation reserve (3,881) (2,498)
Impairment reserve / restructured loan reserve 23 2,330 2,346
Retained earnings 267,696 594,847
Total equity attributable to the equity holders 1,726,804 2,020,844
Perpetual Tier I Capital 24 505,320 130,000
Total equity 2,232,124 2,150,844
Total liabilities and equity 12,775,982 13,072,538
Net assets per share 26 RO 0.230 RO 0.565
Contingent liabilities and commitments 27 1,630,064 1,833,161

The consolidated financial statements were authorised 28 th February 2023 for issue in accordance with a resolution of the
Board of Directors..

Chairman Director Chief Executive Officer

The attached notes 1 to 44 form part of these consolidated financial statements................................................................................................

Annual Report - 2022 133

 Bank Muscat SAOG
Consolidated statement of Comprehensive Income
For the year ended 31 December 2022

2022 2021
Notes
RO 000's RO 000's
Interest income 28 468,076 444,705
Interest expense 29 (162,524) (143,020)
Net interest income 305,552 301,685
Income from Islamic financing/investments 28 85,705 77,138
Distribution to depositors 29 (46,402) (43,287)
Net income from Islamic financing 39,303 33,851
Net interest income and income from Islamic financing 344,855 335,536
Commission and fee income (net) 30 110,009 99,914
Other operating income 31 47,946 40,030
Operating income 502,810 475,480
Operating expenses
Other operating expenses 32 (189,120) (174,154)
Depreciation 11 (18,176) (17,305)
(207,296) (191,459)
Share of results from associates 10 927 167
Net impairment losses on financial assets 41 (59,941) (60,217)
(266,310) (251,509)
Profit before taxation 236,500 223,971
Tax expense 19 (35,747) (34,346)
Profit for the year 200,753 189,625
Other comprehensive (expense)/ income
Net other comprehensive (expense) / income to be reclassified to profit or loss
in subsequent periods, net of tax:
Translation of net investments in foreign operations (1,383) (91)
Change in fair value of FVOCI debt investments 19 (4,977) (2,641)
Share of other comprehensive income of associates 10 (70) 24
Change in fair value of cash flow hedge 19 - 140
(6,430) (2,568)
Net other comprehensive (expense)/ income not to be reclassified to profit or
loss in subsequent periods, net of tax:
Change in fair value of FVOCI Equity investments 19 1,341 8,527
1,341 8,527
Other comprehensive income / (expense) for the year (5,089) 5,959
Total comprehensive income for the year 195,664 195,584

Total comprehensive income attributable to:

Equity holders of Parent Company 195,664 195,584
Profit attributable to:
Equity holders of Parent Company 200,753 189,625
Earnings per share:
Basic and diluted 34 RO 0.026 RO 0.024

The attached notes 1 to 44 form part of these consolidated financial statements................................................................................................

134 Annual Report - 2022

 Bank Muscat SAOG
Consolidated statement of Changes in Equity
For the year ended 31 December 2022

Attributable to equity holders of parent

Foreign Impairment Perpetual
Cumulative Tier I Total
Share Share General Legal Revaluation currency reserve / Retained
2022 Notes changes in Total capital
capital premium reserve reserve reserve translation restructured earnings
fair value
reserve loan reserve
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Balance at 1 January 2022 357,448 531,535 410,258 119,149 4,904 2,855 (2,498) 2,346 594,847 2,020,844 130,000 2,150,844

Profit for the year - - - - - - - - 200,753 200,753 - 200,753

Other comprehensive income /
(expense) - - - - - (3,706) (1,383) - - (5,089) - (5,089)
Total comprehensive income /
(expense) - - - - - (3,706) (1,383) - 200,753 195,664 - 195,664
Transfer within equity upon disposal
of FVOCI equity investments 9 - - - - - 264 - - (264) - - -

Dividends paid 25 - - - - - - - - (107,234) (107,234) - (107,234)

Issue of bonus shares 20,25 393,192 (375,320) - - - - - - (17,872) - - -

Issue of perpetual bonds 24 - - - - - - - - (375,320) (375,320) 375,320 -

Transfer to legal reserve 22 - - - 20,080 - - - - (20,080) - - -

Transfer from restructured loan
reserve to retained earnings - - - - - - - (16) 16 - - -

Interest on Perpetual Tier I capital 24 - - - - - - - - (7,150) (7,150) - (7,150)

Balance at 31 December 2022 750,640 156,215 410,258 139,229 4,904 (587) (3,881) 2,330 267,696 1,726,804 505,320 2,232,124

Annual Report - 2022

The attached notes 1 to 44 form part of these consolidated financial statements.................................................................................................................................................................................................................

135
136
Attributable to equity holders of parent
Cash Foreign Impairment Perpetual
Cumulative Tier I Total
Share Share General Legal Revaluation Subordinated flow currency reserve / Retained
2021 Notes changes in Total capital
capital premium reserve reserve reserve loan reserve hedge translation restructured earnings
fair value

Annual Report - 2022

reserve reserve loan reserve
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Balance at 1
January 2021 324,952 531,535 397,168 108,318 4,904 13,090 (140) (3,683) (2,407) 2,356 537,555 1,913,648 130,000 2,043,648
Profit for the year - - - - - - - - - - 189,625 189,625 - 189,625
Other
comprenhensive
income /
(expense) - - - - - 140 5,910 (91) - - 5,959 - 5,959
Total
comprehensive
income /
(expense) - - - - - - 140 5,910 (91) - 189,625 195,584 - 195,584
Transfer within
equity upon
disposal of 9
FVOCI equity
investments - - - - - - - 628 - - (628) - - -
Dividends paid 25 - - - - - - - - - - (81,238) (81,238) - (81,238)
Issue of bonus
25
shares 32,496 - - - - - - - - - (32,496) - - -
Transfer to legal
22
reserve - - - 10,831 - - - - - - (10,831) - -
Transfer from
subordinated
loan reserve - - 13,090 - - (13,090) - - - - - - - -
Transfer from
restructured
loan reserve to
retained earnings - - - - - - - - - (10) 10 - - -
Interest on
Perpetual Tier I 24
capital - - - - - - - - - - (7,150) (7,150) - (7,150)
Balance at 31
December 2021 357,448 531,535 410,258 119,149 4,904 - - 2,855 (2,498) 2,346 594,847 2,020,844 130,000 2,150,844

The attached notes 1 to 44 form part of these consolidated financial statements.................................................................................................................................................................................................................

Bank Muscat SAOG
Consolidated statement of Cash Flows
For the year ended 31 December 2022

2022 2021
Notes
RO 000's RO 000's
Cash flows from operating activities
Profit for the year before taxation 236,500 223,971
Adjustments for :
Depreciation 11 18,176 17,305
Net impairment losses on financial assets 41 59,941 60,217
Share of results from associates 10 (927) (167)
Loss on disposal of remaining stake in associate 10 108 -
Profit on disposal of majority stake in subsidiary 10 - (745)
Loss / (profit) on sale of property and equipment 11 4 (11)
Profit on sale of investments 31 (9,271) (2,614)
Dividends income 31 (5,549) (3,476)
Operating profit before working capital changes 298,982 294,480
Due from banks 75,281 (113,780)
Loans and advances (193,374) (163,689)
Islamic financing receivables (102,624) (119,478)
Other assets (11,077) 146,856
Deposits from banks (152,087) 82,969
Customers' deposits (194,084) 175,314
Islamic customers' deposits 66,299 140,787
Other liabilities 11,604 (61,869)
Cash from operations (201,080) 381,590
Income taxes paid (32,521) (29,697)
Net cash (used in) / from operating activities (233,601) 351,893
Cash flows from investing activities
Purchase of additional stake in an associate 10 (1,957) (830)
Proceeds on sale of remaining stake in an associate 10 1,950 -
Dividend from an associate 10 227 197
Dividend income 31 5,549 3,476
Purchase of investments (140,626) (76,011)
Proceeds from sale/maturity of investments 69,996 30,356
Purchase of property and equipment 11 (9,062) (15,157)
Proceeds from sale of property and equipment - 19
Net cash used in investing activities (73,923) (57,950)
Cash flows from financing activities
Dividends paid (107,234) (81,238)
Interest on perpetual Tier I capital (7,150) (7,150)
Repayment of Euro medium term notes 17 - (192,500)
Issuance of Euro medium term notes 17 - 192,500
Repayment of Sukuk 16 (44,608) -
Subordinated loan repaid - (13,090)
Net cash used in financing activities (158,992) (101,478)
Net change in cash and cash equivalents (466,516) 192,465
Cash and cash equivalents at 1 January 1,395,450 1,202,985
Cash and cash equivalents at 31 December 33 928,934 1,395,450
Interest received was RO 590.790 million (2021: RO 496.567 million) and interest paid was RO 194.242 million (2021: RO 183.772 million).
These form part of operating cash flows of the Bank.
For details of non-cash transactions refer note 10 and note 20.
The attached notes 1 to 44 form part of these consolidated financial statements................................................................................................

Annual Report - 2022 137

 Bank Muscat SAOG
Notes to the consolidated financial statements
As at 31 December 2022

1. Legal status and principal activities

Bank muscat SAOG (the Group, the Bank or the Parent Company) is a joint stock company incorporated in the Sultanate of
Oman and is engaged in commercial and investment banking activities through a network of 173 branches (2021 - 174 branches)
within the Sultanate of Oman and one branch each in Riyadh, Kingdom of Saudi Arabia and Kuwait. The Bank has representative
offices in Dubai, United Arab Emirates, Singapore and Iran. The Bank operates in Oman under a banking license issued by the
Central Bank of Oman (CBO) and is covered by its deposit insurance scheme. The Bank has its primary listing on the Muscat
Stock Exchange. The Bank operates in 6 countries (2021 - 6 countries) and employed 3,973 employees as of 31 December 2022
(2021: 3,896).
During 2013, the Parent Company inaugurated "Meethaq Islamic banking window" (“Meethaq”) in the Sultanate of Oman to
carry out banking and other financial activities in accordance with Islamic Shari’a rules and regulations. Meethaq operates
under an Islamic banking license granted by the CBO on 13 January 2013. Meethaq’s Shari’a Supervisory Board is entrusted to
ensure Meethaq's adherence to Shari’a rules and principles in its transactions and activities. The principal activities of Meethaq
include: accepting customer deposits; providing Shari'a compliant financing based on various Shari'a compliant modes;
undertaking Shari'a compliant investment activities permitted under the CBO's Regulated Islamic Banking Services as defined
in the licensing framework. As of 31 December 2022, Meethaq has 24 branches (2021 - 24 branches) in the Sultanate of Oman.

2. Basis of preparation
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”), the applicable regulations of the CBO, the requirements of the new Commercial Companies Law of 2019, as amended
and the relevant disclosure requirements of the Capital Market Authority (“CMA”) of the Sultanate of Oman.
The Islamic window operation of the Parent Company; "Meethaq" uses Financial Accounting Standards ("FAS"), issued by the
Accounting and Auditing Organisation for Islamic Financial Institutions ("AAOIFI"), for preparation and reporting of its financial
information. Meethaq's financial information is included in the results of the Bank, after adjusting for financial reporting
differences, if any, between AAOIFI and IFRS.

2.2 Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, modified to include the application
of fair value measurements thet are required or allowed by relevant accounting standards. The carrying values of recognised
assets and liabilities that are designated as hedged items in fair value hedges that would otherwise be carried at amortised cost
are adjusted to record changes in the fair values attributable to the risks that are being hedged in effective hedge relationships.
The consolidated statement of financial position is presented in descending order of liquidity as this presentation is more
appropriate to the Group’s operations.
For the ease of users, relevant balances of Meethaq are separately presented in these consolidated financial statements
wherever applicable. A complete set of carve out financial statements of Meethaq, prepared under AAOIFI, is included in the
Group’s annual report.
CMA of the Sultanate of Oman requires all Public Joint Stock Companies to disclose the financials of the Parent Company in a
separate column in the financial statements vide circular E/2/2007 dated 21 January 2007.
The Group has the following fuly owned Special Purpose Vehicles (“SPVs”):

Name Type Country of registration 2022 2021

Muscat Real estate Company Limited liability company Kingdom of Saudi Arabia 100% 100%

BM Innovate Limited Limited liability company Cayman Islands 100% 100%

Meethaq Sukuk Company LLC Limited liability company Oman 100% 100%

The size, operations, and financial statements of the above SPVs are not material to the consolidated financial statements of the
Group. Hence, financial statements of the Parent Company has not been provided in a separate column in these consolidated

138 Annual Report - 2022

financial statements.
In March 2021, the Parent Company sold 72.71 per cent stake in its wholly owned subsidiary, Muscat Capital Company (cjsc)
(MC), based in Riyadh, Kingdom of Saudi Arabia to SICO BSC (c), a leading regional asset manager, broker, market maker and
investment bank (licensed as a wholesale bank by the Central Bank of Bahrain), after obtaining all relevant approvals. Due to
above transaction, the Parent Company shareholding in MC was effectively reduced from 100 per cent to 27.29 per cent. The
Group lost control over MC due to disposal of 72.71 per cent stake with control to SICO. Resultantly, MC had been accounted for
as an associate on disposal of majority stake in the subsidiary. On 23 October 2022, the Bank sold it’s remaining 27.29 per cent
stake in erstwhile subsidiary to SICO BSC (c).

2.3 Functional and presentation currency

These consolidated financial statements are presented in Rial Omani, which is the Parent company’s functional currency. All
financial information presented in Rial Omani has been rounded to the nearest thousand, unless otherwise stated.

2.4 New standards, implementations and amendments in existing standards

A. New and amended standards,interpretations and amendments adopted by the Group
The Group has not early adopted any new standards, interpretations or amendments that have been issued but are not yet
effective in these consolidated financial statements. Other amendments and interpretations apply for the first time in 2022, but
do not have an impact on the Group’s consolidated financial statements.

Property, Plant and Equipment: Proceeds before Intended Use – Amendments to IAS 16
The amendment prohibits entities from deducting from the cost of an item of property, plant and equipment, any proceeds of
the sale of items produced while bringing that asset to the location and condition necessary for it to be capable of operating
in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the costs
of producing those items, in profit or loss. In accordance with the transitional provisions, the Group applies the amendments
retrospectively only to items of PP&E made available for use on or after the beginning of the earliest period presented when
the entity first applies the amendment (the date of initial application). These amendments had no impact on the consolidated
financial statements of the Group as there were no sales of such items produced by property, plant and equipment made
available for use on or after the beginning of the earliest period presented.

IFRS 9 Financial Instruments – Fees in the ’10 per cent’ test for derecognition of financial liabilities
The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial
liability are substantially different from the terms of the original financial liability. These fees include only those paid or received
between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.
There is no similar amendment proposed for IAS 39 Financial Instruments: Recognition and Measurement. In accordance with
the transitional provisions, the Group applies the amendment to financial liabilities that are modified or exchanged on or after
the beginning of the annual reporting period in which the entity first applies the amendment (the date of initial application).
These amendments had no impact on the consolidated financial statements of the Group as there were no modifications of
the Group’s financial instruments during the period.
Other amendments which became effective as at 1 January 2022:

• Reference to the Conceptual Framework – Amendments to IFRS 3

• Onerous Contracts – Costs of Fulfilling a Contract – Amendments to IAS 37
• IFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter
• IAS 41 Agriculture – Taxation in fair value measurements

The effects of the above amendments are not material to these consolidated financial statements.

B. New standards, interpretations and amendments issued but not yet effective
The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the
Group’s consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable,
when they become effective.

• IFRS 17 – Insurance contracts

• Definition of Accounting Estimates - Amendments to IAS 8
• Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS Practice Statement 2

Annual Report - 2022 139

 • Amendments to IAS 1: Classification of Liabilities as Current or Non-current
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction - Amendments to IAS 12

The Group is currently assessing the impact of the amendments to determine the impact they will have on the Group’s
accounting policy disclosures.

2.5 Consolidation
(a) Basis of consolidation
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries (refer note 2.2).
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and
only if the Group has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee that
significantly affect their returns)
• Exposure, or rights, to variable returns from its involvement with the investee, and
• The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee.
• Rights arising from other contractual arrangements.
• The Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to
one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the date
the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income are attributed to the equity holders of the parent of the
Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with
the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary, it:

• derecognises the assets (including goodwill) and liabilities of the subsidiary

• derecognises the carrying amount of any non-controlling interests
• derecognises the cumulative translation differences recorded in equity
• recognises the fair value of the consideration received
• recognises the fair value of any investment retained
• recognises any surplus or deficit in profit or loss
• reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or
retained earnings, as appropriate, as would be required if the Group had directly disposed off the related assets or liabilities

B. Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. The acquisition
of an additional ownership interest in a subsidiary without a change of control is accounted for as an equity transaction in
accordance with IFRS 10. Any excess or deficit of consideration paid over the carrying amount of the non-controlling interests
is recognised in equity of the Group in transactions where the non-controlling interests are acquired or sold without loss of
control.
When the Group ceases to have control or significant influence, any retained interest in the entity is measured to its fair value,
with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes

140 Annual Report - 2022

of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts
previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly
disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income
are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the
amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

C. Investment in associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the
financial and operating policy decisions of the investee, but is not control or joint control.
The considerations made in determining significant influence or joint control is similar to those necessary to determine control
over subsidiaries. The Group’s investments in its associates are accounted for using the equity method.
Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment
is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. Goodwill relating
to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for
impairment.
The statement of profit or loss reflects the Group’s share of the results of operations of the associate. Any change in other
comprehensive income of those investees is presented as part of the Group’s other comprehensive income. In addition, when
there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when
applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group
and the associate are eliminated to the extent of the interest in the associate.
The aggregate of the Group’s share of profit or loss of an associate is shown on the face of the statement of comprehensive
income.
The financial statements of the associate are prepared for the same reporting period as the Group. When necessary, adjustments
are made to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is necessary to recognise an impairment loss on
its investment in its associate. At each reporting date, the Group determines whether there is objective evidence that the
investment in the associate is impaired. If there is such evidence, the Group calculates the amount of impairment as the
difference between the recoverable amount of the associate and its carrying value.
Upon loss of significant influence over the associate, the Group measures and recognises any retained investment at its fair
value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the
retained investment is recognised in the profit or loss.
When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in the entity, including any
other unsecured long-term receivables, the Group does not recognise further losses, unless it has incurred obligations or made
payments on behalf of the other entity.
Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment.
The Group’s investment in associates is disclosed in note 10.

3. Significant accounting policies

3.1 Application of accounting policies
The Group has consistently applied the accounting policies as set out below to all periods presented in these consolidated
financial statements.

3.2 Revenue from Contracts with Customers

Revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach to measuring and
recognising revenue. Specifically, the standard introduces a 5 step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.

Annual Report - 2022 141

 Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.
The products and services of the Group covered under IFRS 15 along with its nature, timing of satisfaction of performance
obligations and significant payment terms are as follows:

Nature, timing of satisfaction of performance obligations and

Products and services Revenue Recognition
significant payment terms

The Group recognises

The services include opening, closing and maintenance of deposit revenue on
accounts, cheque issuance, clearing, deposit and payments completion of service
transactions, remittances, safe deposit lockers. It also include card and or proportionate
e-channel services like interchange and merchant services generated completion basis
Transactional services from card issuance and usage. or satisfaction
Transaction-based fees are charged to the customer’s account when of performance
the transaction takes place. obligation as per the
terms of contract.

The services cover issuance of letter of credit or guarantee, negotiations Income is recognised
and other trade transactions. on service completion
basis or time
Trade services Trade services fees are charged to the customer’s account when the proportionate basis
services are provided or over the period of contract in line with the over the period of
terms and conditions of contract. contract.

The services include processing for credit, setting up credit limits,

documentation, security and agency services and prepayment and The Group recognises
closure of credit facilities. revenue on
Syndication and other
completion of service
loan related services Syndication and other loan related services charges are charged to the basis or on time
customer’s account when the services are provided or over the period proportion basis.
of contract in line with the terms and conditions of contract.

Advisory services include advising for debt syndications, fund raising,

financial structuring etc. This also includes business restructuring
services like advising for mergers and acquisitions, joint ventures, bid
process etc.
Advisory income
Advisory fees are charged to the customer’s account on milestone is recognised
completion basis or over the period of contract in line with the terms on satisfaction
and conditions of contract. of performance
obligation at a point
Asset management services cover: in time or over a
period of time or
a) portfolio management services including managing investment on achievement of
portfolios primarily for institutional clients for investing into local, agreed milestones as
Advisory and asset regional and international listed equities, fixed income securities, per contract.
management services commodities, currencies, derivatives, structured products
Asset management
b) Fund Management includes structuring, setting up and ongoing income is recognised
management of fund and its investments either in Oman or in other on time proportion
jurisdictions as per business requirements and activities basis or on completion
of performance
c) Ancilliary services including custody services, trade executions etc. obligations as per the
terms of the contract.
Private Equity business cover structuring of funds, mobilization of
capital for Funds and investment management of funds.
Fees for asset management services and private equity are charged
to the customer’s account when the services are provided or over the
period of contract in line with the terms and conditions of contract.

3.3 Foreign currency translation

• Transactions in foreign currencies are translated into Rial Omani at exchange rates ruling at the value dates of the transactions.
• Monetary assets and liabilities denominated in foreign currencies are translated into Rial Omani at exchange rates ruling
at the reporting date. The foreign currency gain or loss on monetary items is the difference between amortised costs in
the Rial Omani at the beginning of the period, adjusted for effective interest and payments during the period and the
amortised costs in foreign currency translated at the exchange rate at the end of the period. Foreign exchange gains and
losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the profit or loss, except when deferred in other
comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.
• Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to
Rial Omani at the exchange rate at the date that the fair value was determined. Translation differences on non-monetary

142 Annual Report - 2022

 financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of
the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as fair value
through other comprehensive income (FVOCI), are included in other comprehensive income.
• On consolidation, the assets and liabilities of foreign operations are translated into Rial Omani at the rate of exchange
prevailing at the reporting date and their income statements are translated at exchange rates prevailing at the dates of
the transactions. The exchange differences arising on translation for consolidation are recognised in other comprehensive
income. On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular
foreign operation is recognised in the profit or loss in other operating expenses or other operating income. Any goodwill
arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and
liabilities arising on the acquisition are treated as assets and liabilities of the foreign operations and translated at closing
rate.

3.4 Revenue and expense recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can
be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

3.4.1 Interest
Effective interest rate (EIR)
Interest income and expense are recognised in profit or loss using the effective interest method. The ‘effective interest rate’ is
the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument
to:

• the gross carrying amount of the financial asset; or

• the amortised cost of the financial liability.

When calculating the effective interest rate for financial instruments other than credit-impaired assets, the Group estimates
future cash flows considering all contractual terms of the financial instrument, but not expected credit losses. For credit-
impaired financial assets, a credit-adjusted effective interest rate is calculated using estimated future cash flows including
expected credit losses.
The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral
part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or
issue of a financial asset or financial liability.
The Bank has early adopted IBOR reform Phase 2 for its 2020 year end, which allows as a practical expedient for changes to the
basis for determining contractual cash flows to be treated as changes to a floating rate of interest, provided certain conditions
are met. The conditions include that the change is necessary as a direct consequence of IBOR reform and that the transition
takes place on an economically equivalent basis.

Amortised cost and gross carrying amount

The ‘amortised cost’ of a financial asset or a financial liability is the amount at which the financial asset or the financial liability is
measured on initial recognition, minus the principal repayments, plus or minus the cumulative amortisation using the effective
interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for
any expected credit loss allowance or impairment allowance.
The ‘gross carrying amount of a financial asset’ is the amortised cost of a financial asset before adjusting for any expected
credit loss allowance.

Calculation of interest income and expense

In calculating interest income and expense, the effective interest rate is applied to the gross carrying amount of the asset
(when the asset is not credit-impaired) or to the amortised cost of the liability.
However, for financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated
by applying the effective interest rate to the amortised cost of the financial asset. If the asset is no longer credit-impaired, then
the calculation of interest income reverts to the gross basis.
For financial assets that were credit-impaired on initial recognition, interest income is calculated by applying the credit-adjusted
effective interest rate to the amortised cost of the asset. The calculation of interest income does not revert to a gross basis,
even if the credit risk of the asset improves.
For information on when financial assets are credit-impaired, see Note 3.6.

Annual Report - 2022 143

 Presentation
Interest income and expense presented in the statement of profit or loss and OCI include:

• interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest basis;
• interest on debt instruments measured at FVOCI calculated on an effective interest basis;
• the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in
interest cash flows, in the same period as the hedged cash flows affect interest income/expense; and
• the effective portion of fair value changes in qualifying hedging derivatives designated in fair value hedges of interest rate
risk.

Interest income and expense on other financial assets and financial liabilities at fair value through profit or loss (FVTPL) are
presented in net income from other financial instruments at FVTPL.

3.4.2 Fees and commission

Fees integral to the effective interest rate (EIR) are included in the EIR calculation, and are recognised over the life of the financial
instrument. This include fees integral to the origination of a financial instrument (fees received or paid by the entity relating to
the creation or acquisition of a financial asset or issuance of a financial liability) and commitment fees (if it is probable that the
Group will enter into a specific lending arrangement and does not expect to sell the resulting loan shortly after origination). The
Group does not designate loan commitments as financial liabilities at fair value through profit or loss.
All other fees, commissions and other income and expense items are generally recorded on an accrual basis by reference to
completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services
to be provided. Loan syndication fees are recognised as income when the syndication has been completed and the Group
retains no part of the loan package for itself, or retains a part at the same effective interest rate as for the other participants.
Commissions and fees arising from negotiating, or participating in the negotiation of a transaction for a third party, such as
the acquisition of loans, shares or other securities or the purchase or sale of businesses, and which are earned on execution
of the underlying transaction, are recorded on its completion. Portfolio and other management advisory and service fees are
recognised based on the applicable service contracts, usually on a time-proportion basis or based on a right to receive. Fees
or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria. Asset
management fees relating to investment funds are recorded rateably over the period that the service is provided. The same
principle is applied for wealth management, financial planning and custody services that are continually provided over an
extended period of time.

3.4.3 Dividends
Dividend income is recognised in the consolidated statement of comprehensive income in ‘Other operating income’, when the
Group’s right to receive the dividend is established.

3.4.4 Provisions
A provision is recognised if, as a result of past event, the Group has a present legal or constructive obligation that can be
estimated reliably and it is probable that an outflow of economic benefits will be required to settle the obligations. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money and the risk specific to the liability.

3.5 Financial assets and liabilities

3.5.1 Recognition and initial measurement
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date
on which they originated. All other financial instruments (including regular-way purchases and sales of financial assets) are
recognised on the trade date, which is the date on which the Group becomes a party to the contractual provisions of the
instrument.
A financial asset or financial liability is measured initially at fair value plus, for an item not at FVTPL, transaction costs that are
directly attributable to its acquisition or issue.
Transaction cost of financial assets and financial liabilities carried at FVTPL are expensed in profit or loss.

144 Annual Report - 2022

3.5.2 Classification
The Group classifies its financial assets in the following measurement categories:

• Fair value through profit or loss (FVTPL);

• Fair value through other comprehensive income (FVOCI); or
• Amortised cost (AC).

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

• 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 FVTPL:

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

Business model assessment

The Group makes an assessment of the objective of a business model in which an 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. In particular, whether
management’s strategy focuses on earning contractual interest revenue, maintaining a particular interest rate profile,
matching the duration of the financial assets to the duration of the liabilities that are funding those assets or realising cash
flows through the sale of the assets;
• how the performance of the portfolio is evaluated and reported to the Group’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;
• how managers of the business are compensated – e.g. whether compensation is based on the fair value of the assets
managed or the contractual cash flows collected; and
• the frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales
activity. However, information about sales activity is not considered in isolation, but as part of an overall assessment of how
the Group’s stated objective for managing the financial assets is achieved and how cash flows are realised.

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

Annual Report - 2022 145

 Assessment whether contractual cash flows are solely payments of principal and interest (‘SPPI’)
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 Group 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 Group considers:

• contingent events that would change the amount and timing of cash flows;
• leverage features;
• prepayment and extension terms;
• terms that limit the Group’s claim to cash flows from specified assets (e.g. non-recourse asset arrangements); and
• features that modify consideration of the time value of money (e.g. periodical reset of interest rates).

a. Loans and advances

‘Loans and advances’ captions in the statement of financial position include:

• loans and advances measured at amortised cost; they are initially measured at fair value plus incremental direct transaction
costs, and subsequently at their amortised cost using the effective interest method;
• loans and advances mandatorily measured at FVTPL or designated as at FVTPL; these are measured at fair value with
changes recognised immediately in profit or loss; and
• finance lease receivables.

When the Group purchases a financial asset and simultaneously enters into an agreement to resell the asset (or a substantially
similar asset) at a fixed price on a future date (reverse repo or stock borrowing), the arrangement is accounted for as a loan or
advance, and the underlying asset is not recognised in the Group’s consolidated financial statements.

b. Investment securities
The ‘investment securities’ caption in the statement of financial position includes:

• debt investment securities measured at amortised cost; these are initially measured at fair value plus incremental direct
transaction costs, and subsequently at their amortised cost using the effective interest method;
• debt and equity investment securities mandatorily measured at FVTPL or designated as at FVTPL; these are at fair value with
changes recognised immediately in profit or loss;
• debt securities measured at FVOCI; and
• equity investment securities designated as at FVOCI.

For debt securities measured at FVOCI, gains and losses are recognised in OCI, except for the following, which are recognised
in profit or loss in the same manner as for financial assets measured at amortised cost:

• interest revenue using the effective interest method;

• ECL and reversals; and foreign exchange gains and losses.

When debt security measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified
from equity to profit or loss.
The Group elects to present in OCI changes in the fair value of certain investments in equity instruments that are not held for
trading. The election is made on an instrument-by-instrument basis on initial recognition and is irrevocable.
Gains and losses on such equity instruments are never reclassified to profit or loss and no impairment is recognised in profit or
loss. Dividends are recognised in profit or loss unless they clearly represent a recovery of part of the cost of the investment, in
which case they are recognised in OCI. Cumulative gains and losses recognised in OCI are transferred to retained earnings on
disposal of an investment.

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

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3.5.3 Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured
at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:

• Hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or
• Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (cash flow
hedge);or
• Hedges of a net investment in a foreign operation (net investment hedge).

The Group makes use of derivative instruments to manage exposures to interest rate, foreign currency risks, including
exposures arising from highly probable forecast transactions and firm commitments. In order to manage particular risks, the
Group applies hedge accounting for transactions which meet specified criteria. Certain derivative instruments do not qualify
for hedge accounting. Changes in the fair value of any such derivative instruments are recognised immediately in the profit or
loss within ‘Other operating income’.

Hedge documentation, effectiveness assessment, and discontinuation

At the inception of the hedge, the Group formally designates and documents the hedging relationship to which the Group wishes
to apply hedge accounting, and the risk management objective and strategy for undertaking the hedge. That documentation
shall include identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity
will assess whether the hedging relationship meets the hedge effectiveness requirements (including its analysis of the sources
of hedge ineffectiveness and how it determines the hedge ratio). Such hedges are expected to be highly effective in achieving
offsetting changes in fair value or cash flows and are assessed on an ongoing basis at each reporting date or upon a significant
change in the circumstances affecting the hedge effectiveness requirements, whichever comes first. The assessment relates
to expectations about hedge effectiveness and is therefore only forward-looking.
When the hedging instrument or instruments have been sold or terminated, or when a hedging relationship no longer meets
the risk management objective or the criteria for hedge accounting, any cumulative gain or loss that has been recognised
in other comprehensive income at that time remains in other comprehensive income and is recognised when the hedged
forecast transaction is ultimately recognised in the profit or loss. When a forecast transaction is no longer expected to occur,
the cumulative gain or loss that was reported in other comprehensive income is immediately transferred to the profit or loss.

3.5.4 Recognition
The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the date
that they are originated. All other financial assets and liabilities are initially recognised on the trade date at which the Group
becomes a party to the contractual provisions of the instrument.

3.5.5 Derecognition
i) Financial assets
A financial asset (or, where applicable a part of a financial asset or part of a Group of similar financial assets) is derecognised
when:

• The rights to receive cash flows from the asset have expired
• The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received
cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either:

• The Group has transferred substantially all the risks and rewards of the asset; or
• The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement,
and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset,
the asset is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises
an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and
obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset
is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the
Group could be required to repay.

Annual Report - 2022 147

 Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised
in profit or loss on derecognition of such securities. Any interest in transferred financial assets that qualify for derecognition
that is created or retained by the Group is recognised as a separate asset or liability.

ii) Financial liabilities

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. Where an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original
liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and
the consideration paid is recognised in profit or loss.

3.5.6 Modifications of financial assets and financial liabilities

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 Group 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 profit or
loss. 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.
If the terms of a financial asset are modified, the Group 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 terms of a financial asset were modified because of financial difficulties of the borrower and the asset was not derecognised,
then impairment of the asset was measured using the pre-modification interest rate.

3.5.7 Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial position when
there is a legally enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis or to
realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted
by the accounting standards or for gains and losses arising from a Group of similar transactions.

3.5.8 Amortised cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial
recognition, minus principal repayments, plus or minus the cumulative amortisation using the EIR of any difference between
the initial amount recognised and the maturity amount, minus any reduction for impairment.

3.5.9 Fair value measurement

A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on a
number of accounting policies and methods. Where applicable, information about the assumptions made in determining fair
values is disclosed in the notes specific to that asset or liability. Details are set out in note 42.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to
sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability, or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the
asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in
its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.

148 Annual Report - 2022

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised
within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value
measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
• Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or
indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group determines
whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level
input that is significant to the fair value measurement as a whole) at the end of each reporting period.
At each reporting date, the Group analyses the movements in the values of assets and liabilities which are required to be re-
measured or re-assessed as per the Group’s accounting policies. For this analysis, the Group verifies the major inputs applied
in the latest valuation by agreeing the information in the Valuation computation to contracts and other relevant documents.
The Group also compares each of the changes in the fair value of each asset and liability with relevant external sources to
determine whether the change is reasonable.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature,
characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.

Investment in equity and debt securities

For investments traded in organised financial markets, fair value is determined by reference to Stock Exchange quoted market
prices (active market) at the close of business on the reporting date.
The fair value of interest-bearing items is estimated based on discounted cash flows using interest rates for items with similar
terms and risk characteristics.
For unquoted equity investments fair value is determined by reference to the market value of a similar investment or is based
on the expected discounted cash flows.

Fair value measurement of derivatives

The fair value of forward contracts/options and others are estimated based on observable market inputs for such contracts as
on the reporting date.
The fair value of interest rate/cross currency swaps are arrived at by discounting estimated future cash flows based on the
terms and maturity of each contract and using market interest rates for similar instrument at measurement date.
The fair value of options is determined based on its intrinsic values, term to maturity and implied volatility.

3.6 Identification and measurement of impairment of financial assets

Loss allowances are recognised for ECL on the following financial instruments that are not measured at FVTPL:

• financial assets that are debt instruments;

• financial guarantee contracts issued; and
• loan commitments issued.

No impairment loss is recognised on equity investments. Loss allowances are measured 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 (other than lease receivables) on which credit risk has not increased significantly since their initial
recognition.

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 Group 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;

Annual Report - 2022 149

 • undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the
Group if the commitment is drawn down and the cash flows that the Group expects to receive; and
• financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to
recover.

Also see Credit risk note 41.2

Restructured financial assets

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to
financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and
ECL are measured as follows.

• If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from
the modified financial asset are included in calculating the cash shortfalls from the existing asset.
• If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset
is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in
calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition
to the reporting date using the original effective interest rate of the existing financial asset.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried
at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on
the estimated future cash flows of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:

• significant financial difficulty of the borrower or issuer;

• a breach of contract such as a default or past due event;
• the restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise;
• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or
• the disappearance of an active market for a security because of financial difficulties.

A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired
unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other
indicators of impairment. In addition, any loan that is overdue for 90 days or more is considered impaired.

Presentation of allowance for ECL in the statement of financial position

Loss allowances for ECL are presented in the statement of financial position as follows:

• financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;
• loan commitments and financial guarantee contracts: generally, as a provision under other liabilities;
• where a financial instrument includes both a drawn and an undrawn component, and the Group cannot identify the ECL on
the loan commitment component separately from those on the drawn component: the Group presents a combined loss
allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of
the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a
provision; and
• debt instruments measured at FVOCI: no loss allowance is recognised in the statement of financial position because the
carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognised in the fair value
reserve.

Write-off
• Loans and debt securities are written off (either partially or in full) when there is no realistic prospect of recovery. This is
generally the case when the Group determines that the borrower does not have assets or sources of income that could
generate sufficient cash flows to repay the amounts subject to the write-off. However, certain financial assets that are
technically written off and held through memorandum accounts could still be subject to enforcement activities in order to
comply with the Group’s procedures for recovery of amounts due.

150 Annual Report - 2022

3.7 Cash and cash equivalents
Cash and cash equivalents consist of cash in hand and bank balances, treasury bills and money market placements and
deposits maturing within three months of the date of acquisition. Cash and cash equivalents are carried at amortised cost in
the statement of financial position.

3.8 Due from banks

These are stated at amortised cost, less any amounts written off and provisions for impairment. Due from banks include
Nostro balances, placements and loans to banks.

3.9 Property, equipment and software

Items of property and equipment are measured at cost less accumulated depreciation and impairment loss. Cost includes
expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property and equipment
have different useful lives, they are accounted for as separate items (major components) of property and equipment.
Computer software costs that are directly associated with identifiable and unique software products controlled by the Group
and have probable economic benefit exceeding the costs beyond one year are recognised as an intangible asset. Computer
software costs recognised as an asset are amortised using the straight-line method over the estimated useful life of 5-10 years.
Revaluations of freehold land and buildings are carried out every five years on an open market value for existing use basis, by
an independent valuer. Increases in the carrying amount arising on revaluation are credited to other comprehensive income
and shown as revaluation reserve in shareholders’ equity. Decreases that offset previous increases of the same asset are
charged in other comprehensive income and debited against other reserves directly in equity; all other decreases are charged
to the consolidated statement of comprehensive income. On disposal the related revaluation surplus is transferred directly to
retained earnings. Transfers from revaluation surplus to retained earnings are not made through consolidated statement of
comprehensive income. The revaluation reserve is not available for distribution until the related asset is disposed. Land is
not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued
amounts to their residual values over their estimated useful lives, as follows::

Years

Buildings 20 - 50

Furniture, fixtures and equipment 5 - 10

Motor vehicles 3-5

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing the sale proceeds with the carrying amount and are recognised
within ‘Other operating income’ in the consolidated statement of comprehensive income.
Repairs and renewals are charged to the consolidated statement of comprehensive income when the expense is incurred.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property
and equipment. All other expenditure is recognised in the statement of comprehensive income as an expense as incurred.

3.10 Collateral pending sale

The Group occasionally acquires real estate in settlement of certain loans and advances. Real estate is stated at the lower of
the outstanding amount of the related loans and advances or the fair value of the collateral held. Gains or losses on disposal
and unrealised losses on revaluation are recognised in the consolidated statement of comprehensive income.

3.11 Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate
of the consideration transferred measured at acquisition date fair value and the amount of any non-controlling interests in the
acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree
at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition
date. This includes separation of embedded derivatives in host contracts by the acquiree.

Annual Report - 2022 151

 If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date at
fair value and any resulting gain or loss is recognised in profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent
consideration classified as an asset or liability that is a financial instrument and within the scope of IFRS 9 Financial Instruments,
is measured at fair value with changes in fair value recognised either in either profit or loss or as a change to OCI. If the
contingent consideration is not within the scope of IFRS 9, it is measured in accordance with the appropriate IFRS. Contingent
consideration that is classified as equity is not re-measured and subsequent settlement is accounted for within equity.

3.12 Deposits
Deposits from banks and customers, debt securities and subordinated liabilities are the Group’s sources of funding. These are
initially measured at fair value plus transaction costs and subsequently measured at their amortised cost using the EIR.

3.13 Income tax

Income tax expense comprises current and deferred tax. Taxation is provided in accordance with Omani fiscal regulations.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at
the reporting date and any adjustments to tax payable in respect of previous years.
Income tax is recognised in the profit or loss except to the extent that it relates to items recognised directly in equity, in which
case it is recognised in equity.
Deferred tax assets/liabilities are calculated using the balance sheet method, providing for temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The
amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets
and liabilities, using tax rates enacted or substantially enacted at the reporting date.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

3.14 Fiduciary assets

The Group provides trustee, corporate administration, investment management and advisory services to third parties, which
involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those
assets that are held in a fiduciary capacity are not included in these consolidated financial statements.

3.15 Acceptances
Acceptances are disclosed on the consolidated statement of financial position under other assets with corresponding liability
disclosed under other liabilities. Therefore, there is no off-balance sheet commitment for acceptances.

3.16 Repurchase and resale agreements

Securities sold subject to repurchase agreements (‘repos’) are reclassified in the consolidated financial statements as pledged
assets when the transferee has the right by contract or custom to sell or repledge the collateral; the counterparty liability is
included in deposits from banks or deposits from customers, as appropriate. Securities purchased under agreements to resell
(‘reverse repos’) are recorded as loans and advances to other banks or customers, as appropriate. The difference between sale
and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.
Securities lent to counterparties are also retained in the consolidated financial statements.

3.17 Trade and settlement date accounting

All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date that the entity commits
to purchase the asset. Regular way purchase or sales are purchases or sales of financial assets that require delivery of assets
within the timeframe generally established by regulation or convention in the market place..

152 Annual Report - 2022

3.18 Leases
i. The Group’s leasing activities and how these are accounted for
The Bank leases various offices, storage facilities, and retail space for its branches. Rental contracts are typically made for fixed
periods of 1 to 5 years.
Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the
lease and non-lease components based on their relative stand-alone prices. However, for leases of real estate for which the
Bank is a lessee, it has elected not to separate lease and non-lease components and instead accounts for these as a single
lease component.
Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present
value of the fixed payments (including in-substance fixed payments), less any lease incentives receivable.
Lease payments are included in the measurement of the liability if the Group has enforceable rights and is reasonably certain
to exercise extension options. The lease payments are discounted using the lessee’s incremental borrowing rate, being the
rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar
economic environment with similar terms and conditions.
The Group uses the rate which approximates to the risk free rate adjusted for its credit risk, lease tenure and collateral if any.
Each lease payment is allocated between principle and finance cost. The finance cost is charged to profit or loss in other
operating expenses as “finance charges on lease” over the lease period so as to produce a constant periodic rate of interest on
the remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability

• any lease payments made at or before the commencement date less any lease incentives received
• any initial direct costs, and
• any restoration costs.

The right-of-use assets are depreciated over the lease term on a straight-line basis, unless the lease term is higher than the
asset's useful life.
Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an
expense in consolidated statement of comprehensive income. Short-term leases are leases with a lease term of 12 months or
less. The Group does not have any significant low-value assets as of the respective reporting date.

ii. Extension and termination options

Extension and termination options are included in a number of leases across the Group. The majority of extension and
termination options held are exercisable by the Group and by the respective lessor. Extension options are not included in the
lease term only if the lease is reasonably certain to be extended (or not terminated). The Group considers several factors to
determine the lease term, as mentioned in note 4 (d).

3.19 Employees’ end of service benefits

Contributions to a defined contribution retirement plan, for Omani employees, in accordance with the Oman Social Insurance
Scheme, are recognised as expense in the consolidated statement of comprehensive income when accrued.
The Group’s obligation in respect of non-Omani end of service benefits, which is an unfunded defined benefit retirement plan,
is the amount of future benefit that such employees have earned in return for their service in current and prior periods.

3.20 Earnings per share

The Group presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing
the profit or loss attributable to ordinary shareholders of the Group, after interest on perpetual tier 1 capital, by the weighted
average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss
attributable to ordinary shareholders of the Group, after interest on perpetual tier 1 capital, and the weighted average number
of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprises convertible notes.

Annual Report - 2022 153

 3.21 Share capital
Ordinary shares with discretionary dividends and other eligible shares / instruments are classified as equity. Incremental costs
directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Any excess of
the fair value of consideration received over the par value of shares issued is recorded as share premium in equity.

3.22 Borrowings
Borrowings are recognised initially at fair value, being their issue proceeds (fair value of consideration received) net of transaction
costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds, net of transaction
costs, and the redemption value is recognised in the consolidated statement of comprehensive income over the period of the
borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable
that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent
there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment
for liquidity services and amortised over the period of the facility to which it relates.

3.23 Dividend on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Parent
Company’s shareholders. Interim dividends are deducted from equity when they are paid.
Dividends for the year that are approved after the reporting date are dealt with as an event after the balance sheet date.

3.24 Directors’ remuneration

The board of directors’ remuneration is accrued within the limits specified by the Capital Market Authority and the requirements
of the Commercial Companies Law of the Sultanate of Oman. These costs are recorded as expenses in the period in which they
are incurred.

4. Critical accounting estimates and judgements

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments,
estimates and assumptions that affect the application of accounting 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 judgement or complexity,
or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in this note.
Specific fair value estimates are disclosed in note 42.
The Group’s significant accounting estimates were on:

A. Measurement of expected credit loss allowance

The measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVOCI is an area
that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour
(e.g. the likelihood of customers defaulting and the resulting losses).
Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is further detailed in note 41.2.7.
A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:.

• Determining criteria for significant increase in credit risk;

• Choosing appropriate models and assumptions for the measurement of ECL;
• Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the
associated ECL; and
• Establishing groups of similar financial assets for the purposes of measuring ECL.

154 Annual Report - 2022

The following table shows a comparison of the Bank's allowances for credit losses on non-impaired financial assets (Stages 1
and 2) under IFRS 9 as at December 31, 2022 based on the probability weightings of three scenarios with allowances for credit
losses resulting from simulations of each scenario weighted at 100%.

At 31 December 2022 At 31 December 2021

Sensitivity of impairment estimates ECL Impact on ECL ECL Impact on ECL

RO 000's RO 000's RO 000's RO 000's

ECL on non-impaired financial assets under IFRS9 277,560 220,090

Simulations

Upside case - 100% weighted 269,660 (7,900) 192,467 (27,623)

Base case - 100% weighted 274,650 (2,910) 208,352 (11,738)

Downside scenario - 100% weighted 289,340 11,780 263,364 43,274

For computation of ECL, the Group considers three scenario viz. base case, upside case and downside case with weightage of
30%, 40% & 30% respectively. For further information on the key indicators, refer to note 41.2.7.

B. Fair value of derivatives and other financial instruments

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions
that are mainly based on market conditions existing at the end of each reporting period. The Group uses expected cash flow
analysis for various financial assets that are not traded in active markets.
The sensitivity analysis of the fair value of derivatives and other financial instruments is shown in note 42, fair value information.

C. Taxes
Uncertainties exist with respect to the interpretation of tax regulations and the amount and timing of future taxable income.
Given the wide range of business relationships and nature of existing contractual agreements, differences arising between
the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments
to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible
consequences of finalisation of tax assessments of the Group. The amount of such provisions is based on various factors,
such as experience of previous tax assessments and differing interpretations of tax regulations by the taxable entity and the
responsible tax authority.
Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred
tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax
planning strategies.
A table showing the impact of change in tax is as follows:

At 31 December 2022 At 31 December 2021

Sensitivity of assumptions used in the tax
% of change (+/-) Change (+/-) % of change (+/-) Change (+/-)
calculations
RO 000's RO 000's

Change in tax expense 5% 1,787 5% 1,717

Accordingly, the table showing the impact of change in deferred tax by 5 per cent is as follows:

At 31 December 2022 At 31 December 2021

Deferred tax asset/ liability (net) % of change (+/-) Change (+/-) % of change (+/-) Change (+/-)

RO 000's RO 000's

Impact of change 5% 320 5% 280

Annual Report - 2022 155

 D. Assessment of significant influence
Certain judgments were involved in assessment of significant influence that the Group has on SICO BSC (c), even though the
Group holds less than the 20% voting rights. For more information, refer note 10.

E. Going concern
The Group’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has
the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material
uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern. Therefore, these consolidated
financial statements continue to be prepared on the going concern basis.

5. Cash and balances with Central Banks

2022 2021

RO 000's RO 000's

Cash 174,233 199,602

Capital deposit with Central Banks 500 500

Other balances with Central Banks 551,817 612,746

Placements with Central Banks 156,517 234,387

883,067 1,047,235

Less: impairment loss allowance (7) (11)

883,060 1,047,224

The movement in impairment loss allowance is analysed below:

2022 2021

RO 000's RO 000's

At 1 January 11 -

Provided during the year (4) 11

At 31 December 7 11

The capital deposit with the Central Banks cannot be withdrawn without the approval of the respective Central Bank. During
the year, the average minimum balance to be kept with Central Banks as statutory reserves was RO 292.9 million (2021: RO
288.0 million).

6. Due from banks

2022 2021

RO 000's RO 000's

At amortised cost

Nostro balances 84,535 83,249

Inter-bank placements 265,148 447,754

Loans to banks 296,677 240,020

646,360 771,023

Less: impairment loss allowance (4,880) (5,872)

641,480 765,151

156 Annual Report - 2022

The movement in impairment loss allowance is analysed below:

2022 2021

RO 000's RO 000's

At 1 January 5,872 2,496

(Released) / provided during the year (992) 3,376

At 31 December 4,880 5,872

7. Loans and advances / Islamic financing receivables

Loans and advances

2022 2021

RO 000's RO 000's

Loans 3,976,232 3,906,951

Overdrafts and credit cards 312,207 318,756

Loans against trust receipts 199,502 159,223

Bills purchased and discounted 185,681 110,929

Other advances 221,915 283,739

Personal and housing loans 3,571,068 3,475,756

8,466,605 8,255,354

Less: impairment loss allowance (499,135) (424,956)

7,967,470 7,830,398

Islamic financing receivables

2022 2021

RO 000's RO 000's

Housing finance 514,125 499,093

Consumer finance 51,742 44,787

Corporate finance 942,086 861,074

1,507,953 1,404,954

Less: impairment loss allowance (58,529) (43,935)

1,449,424 1,361,019

The movement in impairment loss allowance is analysed below:

2022 2021

RO 000's RO 000's

At 1 January 468,891 396,078

Impairment for credit losses 110,418 120,962

Interest reserved during the year 23,781 18,984

Recoveries from impairment for credit losses (38,990) (47,277)

Reserve interest recovered during the year (4,587) (5,955)

Written off during the year (3,859) (13,961)

Transfer from memorandum portfolio 2,056 66

Foreign currency translation difference (60) 39

Other movements 14 (45)

At 31 December 557,664 468,891

Annual Report - 2022 157

 As of 31 December 2022, loans and advances on which contractual interest is not being accrued or has not been recognised
amounted to RO 371.0 million (2021 - RO 356.5 million). Contractual interest reserved and recovery thereof is shown under net
interest income and income from Islamic financing in the statement of comprehensive income.

8. Other assets
2022 2021

RO 000's RO 000's

Acceptances (note 18) 109,146 111,663

Less: impairment loss allowance (254) (229)

Net Acceptances 108,892 111,434

Other debtors and prepaid expenses 39,944 31,183

Positive fair value of derivatives (note 37) 25,736 21,813

Deferred tax asset (note 19) 7,265 6,474

Others 3,528 3,793

Collateral pending sale (net) 100 100

185,465 174,797

9. Investment securities
Amortised
FVTPL FVOCI Total
As at 31 December 2022 Cost
RO 000's RO 000's RO 000's RO 000's
Quoted Equities:

Foreign securities 90 101,944 - 102,034

Other services sector - 6,650 - 6,650

Unit funds 3,397 - - 3,397

Financial services sector 39 6,762 - 6,801

Industrial sector - 1,598 - 1,598

Unquoted equities:

Foreign securities 7,425 - - 7,425

Local securities 4,893 1,592 - 6,485

Equity investments 15,844 118,546 - 134,390

Quoted Debt:

Government bonds - 3,316 981,624 984,940

Foreign bonds - 32,963 1,971 34,934

Local bonds - 67,423 75,224 142,647

Unquoted debt:

Treasury bills - - 273,684 273,684

Local bonds - - 5,132 5,132

Gross debt investments - 103,702 1,337,635 1,441,337

Less: impairment loss allowance - (1,277) (2,466) (3,743)

Debt investments - 102,425 1,335,169 1,437,594

Investments securities 15,844 220,971 1,335,169 1,571,984

158 Annual Report - 2022

The Group has designated some investments in equity instruments at FVOCI as these are investments that the Group plans to
hold in the long-term for strategic reasons.

Amortised
FVTPL FVOCI Total
As at 31 December 2021 Cost
RO 000's RO 000's RO 000's RO 000's
Quoted Equities:
Foreign securities 376 69,867 - 70,243
Other services sector - 5,572 - 5,572
Unit funds 2,094 - - 2,094
Financial services sector 549 5,967 - 6,516
Industrial sector - 1,789 - 1,789
Unquoted equities:
Foreign securities 5,300 - - 5,300
Local securities 9,278 1,379 - 10,657
Equity investments 17,597 84,574 - 102,171

Quoted debt:
Government bonds - 3,503 977,670 981,173
Foreign bonds - 33,413 5,055 38,468
Local bonds - 21,203 75,105 96,308
Unquoted debt:
Treasury bills - - 588,922 588,922
Local bonds - 3,968 5,133 9,101
Gross debt investments - 62,087 1,651,885 1,713,972
Less: impairment loss allowance - (2,145) (2,502) (4,647)
Debt investments - 59,942 1,649,383 1,709,325

Investments securities 17,597 144,516 1,649,383 1,811,496

The movement in impairment of debt investments is summarised as follows:

2022 2021

RO 000's RO 000's

At 1 January 4,647 3,733

(Released) / provided during the year (905) 915

Exchange difference / others 1 (1)

At 31 December 3,743 4,647

Annual Report - 2022 159

 The movements in investment securities are summarised as follows:

FVOCI Debt FVOCI Equity Amortised

FVTPL Total
investments investments cost

RO 000's RO 000's RO 000's RO 000's RO 000's

At 1 January 2022 59,942 84,574 1,649,383 17,597 1,811,496
Exchange differences - (404) (63) (4) (471)
Additions 61,659 34,305 3,046,719 3,834 3,146,517
Disposals and redemption (15,537) (118) (3,360,551) (14,862) (3,391,068)
(Loss) / gain from change in fair value (5,030) 452 - 59 (4,519)
Provision for impairment losses 852 - 53 - 905
Amortisation of discount / premium (34) - (1,017) - (1,051)
Movement in accrued interest 581 - 645 - 1,226
Realised (loss) / gain on sale (8) (263) - 9,220 8,949
At 31 December 2022 102,425 118,546 1,335,169 15,844 1,571,984

FVOCI Debt FVOCI Equity

Amortised cost FVTPL Total
investments investments
RO 000's RO 000's RO 000's RO 000's RO 000's
At 1 January 2021 59,116 79,451 1,688,017 20,765 1,847,349
Exchange differences 1 (216) 32 3 (180)
Additions 6,965 6,728 2,990,237 3,182 3,007,112
Disposals and redemption (4,072) (11,182) (3,026,975) (9,036) (3,051,265)
Gain / (loss) from change in fair value (2,664) 10,421 - 1,973 9,730
Provision for impairment losses 730 - (1,645) - (915)
Amortisation of discount /premium 17 - (1,031) - (1,014)
Movement in accrued interest (82) - 748 - 666
Realised gain / (loss) on sale (69) (628) - 710 13
At 31 December 2021 59,942 84,574 1,649,383 17,597 1,811,496

10. Investment in associates

The summary of carrying value of investments in associates as at 31 December are as follows:

2022 2021

RO 000's RO 000's

SICO Capital - 1,759

SICO BSC (c ) 8,795 6,507

8,795 8,266

The summary of share of results from associates for 2022 & 2021 are as follows:

2022 2021

RO 000's RO 000's

SICO Capital 299 (69)

SICO BSC (c ) 628 236

927 167

160 Annual Report - 2022

SICO Capital
As at 31 December 2021, the Bank held a stake of 27.29% in SICO Capital and had a board representation. Accordingly, the
bank had significant influence over SICO Capital and the investment had been recognized as an investment in associate. On 23
October 2022, the Bank sold it’s remaining 27.29% stake in SICO Capital to SICO BSC (c). The Bank received RO 1.95 million as
sale consideration. Subsequent to this transaction, the Bank has now fully exited the shareholding interest in SICO Capital. The
associate accounting for SICO Capital has been performed for the period from 1 October 2021 till disposal.
The movement in carrying values of the investment in SICO Capital is as follows:

2022 2021

RO 000's RO 000's

At 1 January 1,759 -

Carrying value of the investment after derecognition of subsidary - 1,828

Share of results 299 (69)

Carrying value of remaining 27.29% stake sold (2,058) -

At 31 December - 1,759

Loss on sale of remaining stake in SICO Capital in 2022 is as follows:

2022
RO 000's
Proceeds from sale of remaining stake 1,950

Less: carrying value of stake sold 2,058

Loss on sale (108)

SICO BSC (c )
In 2021, on disposal of majority stake in SICO Capital, the bank acquired a 9% stake by way of share swap arrangement in SICO
BSC (c) (“SICO”). On 16 August 2021, the bank acquired a further 1.38% shareholding in SICO via a secondary market purchase.
Subsequent to this transaction, the bank's shareholding had increased to 10.38% as of 31 December 2021.
On 23 October 2022, the Bank also acquired a further 2.76% shareholding in SICO BSC (c) for RO 1.957 million. Subsequent
to this transaction, the Bank has increased its stake in SICO BSC (c) to 13.14%, and it’s investment in SICO continues to be
designated as an associate.
In cases where the Bank holds less than the 20% voting rights, management exercises judgment which takes into account
certain factors laid down by IAS 28 to reach a conclusion on whether the entity has significant influence. Management has
assessed the level of influence that the Bank has on SICO and determined that it has significant influence, because of the board
representation and contractual terms even though the shareholding is below 20%. Accordingly, from 2021, this investment has
been classified as an associate.
The carrying value of the investment in SICO as at 31 December was as follows:

2022 2021

RO 000's RO 000's

At 1 January 6,507 -

Carrying value of the investment on acquisition of 9 per cent stake - 5,614

Acquisition of additional shareholding of 2.76 per cent stake 1,957 -

Acquisition of additional shareholding of 1.38 per cent stake - 830

Cost of investment in associate 8,464 6,444

Dividend received (227) (197)

Share of results 628 236

Share of other comprehensive income (70) 24

At 31 December 8,795 6,507

Annual Report - 2022 161

 The associate accounting for SICO has been performed for the 12 month period from 1 October 2021 – 30 September 2022 (2021:
from date of acquisition – 30 September 2021). The one quarter lag is not material to these consolidated financial statements.
Financial information relating to the associate as at 30 September is summarised as follows:

2022 2021

RO 000's RO 000's

Total assets 271,255 245,611

Total liabilities 200,619 176,406

Issued share capital 45,061 43,749

Operating income 11,865 11,082

Total expenses (8,941) (7,460)

Net profit after tax 2,924 3,622

11. Property, equipment and software

Property, equipment Right-of-use assets
Total
and software (note 12)

RO 000's RO 000's RO 000's

At 31 December 2022

Gross Book value 157,162 56,054 213,216

Accumulated Depreciation (125,090) (19,822) (144,912)

Net book value 32,072 36,232 68,304

Depreciation charge for the year 11,451 6,725 18,176

At 31 December 2021

Gross Book value 148,206 58,639 206,845

Accumulated Depreciation (113,735) (18,923) (132,658)

Net book value 34,471 39,716 74,187

Depreciation charge for the year 10,825 6,480 17,305

162 Annual Report - 2022

The details of property, equipment and software are given below:

Furniture,
Land and
fixtures and Motor vehicles Total
buildings
equipment
RO 000's RO 000's RO 000's RO 000's
Cost or valuation:
At 1 January 2022 10,715 136,643 848 148,206
Additions during the year - 9,012 50 9,062
Disposals - (91) - (91)
Translation adjustment - (15) - (15)
At 31 December 2022 10,715 145,549 898 157,162

Accumulated depreciation:
At 1 January 2022 5,170 107,932 633 113,735
Charge for the year 218 11,155 78 11,451
Relating to disposals - (87) - (87)
Translation adjustment - (9) - (9)
At 31 December 2022 5,388 118,991 711 125,090

Net book value:

At 31 December 2022 5,327 26,558 187 32,072

Furniture,
Land and
fixtures and Motor vehicles Total
buildings
equipment
RO 000's RO 000's RO 000's RO 000's
Cost or valuation:
At 1 January 2021 10,793 122,474 1,190 134,457
Additions during the year - 15,137 20 15,157
Disposals - - (479) (479)
Transfers (78) (19) 117 20
Derecognition of subsidiary - (955) - (955)
Translation adjustment - 6 - 6
At 31 December 2021 10,715 136,643 848 148,206

Accumulated depreciation:
At 1 January 2021 5,047 98,341 901 104,289
Charge for the year 201 10,538 86 10,825
Relating to disposals - - (471) (471)
Transfers (78) (19) 117 20
Derecognition of subsidiary - (932) - (932)
Translation adjustment - 4 - 4
At 31 December 2021 5,170 107,932 633 113,735
Net book value:
At 31 December 2021 5,545 28,711 215 34,471

Annual Report - 2022 163

 Cost of furniture, fixtures and equipment above includes acquired software of RO 65.918 million (2021: RO 61.590 million).
Accumulated depreciation of the same is RO 52.052 million (2021: RO 45.749 million).
The Bank has a policy to revalue its owned land and buildings at the end of every five years. In accordance with the Bank's
policy, the owned land and buildings were revalued during 2022 by independent professional valuers on an open market basis.
The value ascertained by the independent professional valuers is not materially different from the existing carrying value and
accordingly, no adjustment has been made in these consolidated financial statements. Had the freehold land and buildings
been carried at cost less depreciation, the carrying amount would have been RO 2.774 million (2021: RO 2.803 million).
During the year 2022, the Bank has recognised deferred tax liability on the outstanding balance of revaluation reserve of RO nil
(2021 : RO nil) in other comprehensive income.

12. Right of use assets

Furniture,
Land and
fixtures and Motor vehicles Total
buildings
equipment
RO 000's RO 000's RO 000's RO 000's
Cost or valuation:
At 1 January 2022 54,005 3,686 948 58,639
Additions during the year 2,528 - 713 3,241
Leases closed during the year (4,538) (399) (885) (5,822)
Translation Adjustment (4) - - (4)
At 31 December 2022 51,991 3,287 776 56,054
Accumulated depreciation:
At 1 January 2022 16,246 2,125 552 18,923
Charge for the year 5,472 702 551 6,725
Leases closed during the year (4,538) (399) (885) (5,822)
Translation Adjustment (4) - - (4)
At 31 December 2022 17,176 2,428 218 19,822
Net book value:
At 31 December 2022 34,815 859 558 36,232

Furniture,
Land and
fixtures and Motor vehicles Total
buildings
equipment
RO 000's RO 000's RO 000's RO 000's
Cost or valuation:
At 1 January 2021 52,743 4,817 1,503 59,063
Additions during the year 4,638 - 424 5,062
Leases closed during the year (3,378) (809) (979) (5,166)
Derecognition of subsidiary - (322) - (322)
Translation Adjustment 2 - - 2
At 31 December 2021 54,005 3,686 948 58,639
Accumulated depreciation:
At 1 January 2021 14,660 2,193 989 17,842
Charge for the year 4,963 975 542 6,480
Leases closed during the year (3,378) (809) (979) (5,166)
Derecognition of subsidiary - (234) - (234)
Translation Adjustment 1 - - 1
At 31 December 2021 16,246 2,125 552 18,923
Net book value:
At 31 December 2021 37,759 1,561 396 39,716

164 Annual Report - 2022

13. Lease liabilities
The lease liabilities as at 31 December 2022 and 2021 are presented as below:

2022 2021

RO 000’s RO 000's

At 1 January 49,838 50,501

Additions during the year 3,241 5,062

Finance charges on lease (note 32) 3,267 3,315

Lease payments (9,176) (9,039)

Derecognition of subsidiary - (3)

Translation adjustment (1) 2

At 31 December 47,169 49,838

Less: prepaid expenses (2,699) (2,260)

Lease liabilities (note 18) 44,470 47,578

2022 2021

RO 000’s RO 000's

Lease liabilities

Current 1,771 2,721

Non current 42,699 44,857

44,470 47,578

Expense relating to short-term leases 2,385 819

The following table shows the maturity analysis of lease liabilities:

Less than 1 Between 1 Between 2 More than 5

Total
year and 2 years and 5 years years
RO 000's RO 000's RO 000's RO 000's RO 000's
As at 31 December 2022

Total minimum lease payments 7,540 4,509 9,907 111,031 132,987

Less: Amounts representing finance

(3,070) (2,923) (8,554) (71,271) (85,818)
charges

Lease liabilities 4,470 1,586 1,353 39,760 47,169

As at 31 December 2021

Total minimum lease payments 8,177 5,893 10,549 114,142 138,761

Less: Amounts representing finance

(3,196) (3,003) (8,619) (74,105) (88,923)
charges

Lease liabilities 4,981 2,890 1,930 40,037 49,838

14. Deposits from banks

2022 2021
RO 000's RO 000's
Inter bank borrowings 393,736 492,576
Vostro balances 51,983 49,860
Other money market deposits 558,387 676,029
1,004,106 1,218,465

Annual Report - 2022 165

 15. Customers' deposits
Customers' deposits – Conventional
2022 2021
RO 000's RO 000's
Deposit accounts 2,449,597 2,569,139
Savings accounts 2,970,908 3,019,363
Current accounts 1,694,395 1,688,774
Call accounts 243,411 283,860
Margin accounts 51,656 42,915
7,409,967 7,604,051

Customers' deposits - Islamic

2022 2021
RO 000's RO 000's
Deposit accounts 680,986 608,767
Savings accounts 296,728 297,008
Current accounts 96,990 104,262
Call accounts 80,074 78,137
Margin accounts 82,076 82,381
1,236,854 1,170,555

As on the reporting date, deposits from Ministries and other Government organisations represent 30.4% of the total customer
deposits (2021: 28.1%).

16. Sukuk
In 2017, the Bank issued Sukuk Al Musharaka Certificates. A special purpose vehicle (SPV) was formed for this purpose (Meethaq
Sukuk Company LLC) which is the issuer and trustee of Sukuk program. As part of the program, the first series of certificates was
issued in June 2017 amounting to RO 44.6 million (face value RO 1 per certificate) and had a tenor of five years through a sharia’a
compliant financing arrangement. The second series of certificates was issued in May 2019 amounting to RO 45.6 million (face
value RO 1 per certificate) and has a tenor of five years. The profit on Sukuk is payable bi-annually and it is listed in Muscat Stock
Exchange. Details of Sukuk issuance is as follows:

2022 2021
Issued in Expected Annual Profit rate Maturity
RO 000's RO 000's

June 2017 5.00% June 2022 - 44,608

May 2019 5.50% May 2024 45,597 45,597

45,597 90,205

The first series amounting to RO 44.608 million was repaid on maturity in June 2022.

166 Annual Report - 2022

17. Euro medium term notes
Euro medium term notes are issued by the Parent Company under its Euro medium term note programme and are denominated
in US Dollars. These are non-convertible, unsecured and listed on Irish stock exchange. During 2022, notes amounting to RO
nil (2021: RO 192.5 million) were issued and RO nil (2021: RO 192.5 million) matured.
Details of the notes are as follows:

2022 2021
Issued in Coupon rate Maturity
RO 000's RO 000's

March 2018 4.875% March 2023 192,500 192,500

March 2021 4.750% March 2026 192,500 192,500

385,000 385,000

18. Other liabilities

2022 2021

RO 000's RO 000's

Other liabilities and accrued expenses 158,302 149,224

Acceptances (note 8) 109,146 111,663

Impairment on financial guarantees 41,313 47,032

Impairment on undrawn commitments and unutilised limits 6,022 9,042

Lease liabilities (note 13) 44,470 47,578

Negative fair value of derivatives (note 37) 26,863 15,896

Unearned discount and interest 7,236 6,585

Employee end of service benefits 6,755 6,827

Deferred tax liability (note 19) 866 866

400,973 394,713

The charge for the year and amounts paid in respect of employees’ end of service benefits were RO 1.062 million (2021: RO 1.101
million) and RO 1.132 million (2021: RO 1.501 million), respectively.
The movements in impairment loss allowance on financial guarantees / undrawn commitments and unutilised limits are
analysed below::

Impairment on financial guarantees

2022 2021

RO 000's RO 000's

At 1 January 47,032 63,607

Provided / (reversed) during the year (5,684) (16,590)

Exchange differences / others (35) 15

At 31 December 41,313 47,032

Impairment on undrawn commitments and unutilised limits

2022 2021

RO 000's RO 000's

At 1 January 9,042 8,999

Provided / (reversed) during the year (3,020) 43

At 31 December 6,022 9,042

Annual Report - 2022 167

 19. Taxation
2022 2021

RO 000's RO 000's

Current liability:

Current year 41,912 37,761

Prior years 13,794 15,170

55,706 52,931

2022 2021
RO 000's RO 000's
Statement of comprehensive income:
Current year 41,912 37,761
Prior years (6,528) (2,943)

35,384 34,818

Relating to origination and reversal of temporary differences 363 (472)

35,747 34,346

(i) The tax rate applicable to the Parent Company is 15% (2021: 15%). For the purpose of determining the tax expense for the
year, the accounting profit has been adjusted for tax purposes. Adjustments for tax purposes include items relating to both
income and expense. After giving effect to these adjustments, the average effective tax rate is estimated to be 15.12% (2021:
15.34%).
The difference between the applicable tax rate of 15 % (2021: 15%) and effective tax rate of 15.12% (2021: 15.34%) arises due to
tax effect of income not considered to be taxable and expenses not considered to be deductible. The adjustments are based
on the current understanding of the existing tax laws, regulations and practices.
(ii) The reconciliation of taxation on the accounting profit before tax for the year at RO 236.5 million (2021: RO 223.971 million)
and the taxation charge in the consolidated financial statements is as follows:

2022 2021
RO 000's RO 000's
Tax charge at 15% (2021:15%) on accounting profit before tax 35,475 33,596
Add tax effect of:
Income not taxable (399) (290)
Expenses not deductible or deferred 6,291 4,436
Foreign taxes on foreign-sourced income 545 19
Relating to origination and reversal of temporary differences 363 (472)
Reversal of provision for prior years (6,528) (2,943)
Tax charge as per statement of comprehensive income 35,747 34,346

(iii) The deferred tax asset / liability has been recognised at the effective tax rate of 15% (2021 - 15%).
Deferred tax asset / (liability) in the statement of financial position and the deferred tax credit / (charge) in the statement of

168 Annual Report - 2022

comprehensive income relates to the tax effect of provisions, right-of-use assets, changes in fair value of FVOCI investment,
accelerated depreciation and changes in fair value hedge.

Reversal/ Reversal/
(charged) to (charged) to
At 1 January 2022 statement of statement of other 31 December 2022
Deferred Tax Asset comprehensive comprehensive
income income

RO 000's RO 000's RO 000's RO 000's

Asset:
Tax effect of provisions 3,420 (414) - 3,006
Tax effect of right-of-use assets 63 (2) - 61
Change in fair value of investments 4,160 - 1,155 5,315
Liability:
Tax effect of accelerated tax
(1,169) 52 - (1,117)
depreciation
6,474 (364) 1,155 7,265

Reversal/
Reversal/ (charged)
(charged) to
to statement of
At 1 January 2021 statement of other 31 December 2021
Deferred Tax Asset comprehensive
comprehensive
income
income
RO 000's RO 000's RO 000's RO 000's
Asset:
Tax effect of provisions 2,774 646 - 3,420
Tax effect of right-of-use assets 63 - - 63
Change in fair value of investments 5,428 - (1,268) 4,160
Change in fair value of hedge 25 - (25) -
Liability:
Tax effect of accelerated tax
depreciation (996) (173) - (1,169)
7,294 473 (1,293) 6,474

During the year, the Group charged deferred tax asset through comprehensive income of RO 0.363 million (2021: RO 0.472
million) relating to provisions, right-of-use assets and depreciation. The deferred tax (charge) / reversal is disclosed under
comprehensive income.
During the year, the Group credited deferred tax asset through other comprehensive income of RO 1.155 million (2021: RO 1.293
million) relating to fair value changes of FVOCI investments. The deferred tax charged / (reversal) is disclosed under other
comprehensive income.

Tax (charge)/ 31 December 1 January Tax (charge)/ 31 December

1 January 2022
Deferred Tax Liability credit 2022 2021 credit 2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Revaluation reserve 866 - 866 866 - 866
866 - 866 866 - 866

During the year, the Group charged deferred tax liability of RO nil (2021: RO nil) relating to revaluation reserve, which may be
taxable in the future. The deferred tax charge is disclosed under other comprehensive income.

Annual Report - 2022 169

 The tax (charge) / credit relating to components of other comprehensive income is as follows:

31 December 2022 31 December 2021

Tax (charge)/ Tax (charge)/
Before tax After tax Before tax After tax
credit credit
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Translation of net
investments in foreign
operations (1,383) - (1,383) (91) - (91)
Change in fair value of
hedge - - - 165 (25) 140
Change in fair value of
investments (4,791) 1,155 (3,636) 7,154 (1,268) 5,886
Share of other
comprehensive income
of associate (70) - (70) 24 - 24

(6,244) 1,155 (5,089) 7,252 (1,293) 5,959

The Bank’s tax assessments have been completed by the tax authorities in Oman up to tax year 2018. The Bank filed an
objection against certain adjustments carried out in tax assessments issued for tax years 2017 and 2018 and a decision was
issued rejecting the same. The Bank has filed an appeal against the objection decision with the Tax Grievance Committee.
These adjustments have been adequately provided for in these consolidated financial statements.

20. Share capital

Share capital
The authorised share capital of the Bank is 8,000,000,000 shares of RO 0.100 each (2021: 4,500,000,000 of RO 0.100 each). At
31 December 2022, 7,506,397,062 shares of RO 0.100 each (2021: 3,574,474,792 shares of RO 0.100 each) have been issued and
fully paid. The Bank's shares are listed in Muscat, Bahrain and London stock exchanges. Listing in London stock exchange is
through Global Depository Receipts issued by the Bank.
In the Bank's extraordinary general meeting and ordinary general meeting held on 9 November 2022, the shareholders
approved the increase in the authorised share capital of the Bank to RO 800 million. The shareholders also approved one-off
dividend in the form of bonus shares of 1 ordinary share of RO 0.100 for each ordinary share aggregating to 3,753,198,531 shares
equivalent to RO 375.320 million and 1 perpetual bond of RO 1 for every 10 ordinary shares aggregating to 375,319,853 bonds
equivalent to RO 375.320 million.
Share premium and retained earnings have been utilised for the issuance of bonus shares and perpetual bonds respectively.
For more details on perpetual bonds, refer note 24.

Significant shareholders
The following shareholders held 10 percent or more of the Bank’s capital, either individually or together with other Group
companies:

2021 2022

No. of shares % holding No. of shares % holding

844,805,580 23.63% Royal Court Affairs 1,774,091,718 23.63%

420,590,963 11.77% Dubai Financial Group 883,241,022 11.77%

170 Annual Report - 2022

21. Share premium
Share premium represents the premium collected on issuance of shares through public offer, rights issue, and conversion of
mandatory covertible bonds during the prior years. The balance in share premium is not available for distribution. For details
on the utilisation of share premium in 2022, refer note 20.

22. Legal and general reserves

(i) Legal reserve
In accordance with the Omani Commercial Companies Law of 2019, the Parent Company is required to transfer 10 percent of its
profit for the year to legal reserve until the accumulated balance of the reserve equals one third of the Parent Company’s paid
up share capital.
During the year the Bank issued bonus shares of 1 ordinary share of RO 0.100 for each ordinary share aggregating to 3,753,198,531
shares equivalent to RO 375.320 million and the share capital doubled to RO 750.640 million. Accordingly, legal reserve of
10 per cent of the net profit equivalent to RO 20.080 million (2021: RO 10.831 million) was transferred from profits to the legal
reserve. Post-transer, the Bank’s legal reserve is equal to 18.6% (2021: one third) of its share capital.

(ii) General reserve

The general reserve is established to support the operations and the capital structure of the Group.

23. Impairment reserve / reserve for restructured loans

A. Impairment Reserve:
As per the CBO circular BM 1149, in the year of adoption, if IFRS 9 based provision for impairment is lower than the provision
for impairment as per regulatory guidelines, the excess, shall be transferred as an appropriation from net profit after taxes to
a regulatory reserve “Impairment reserve” under Parent Company’s equity. In subsequent years, if IFRS 9 based provision for
impairment (i.e. charge to the profit and loss) is lower than provision for impairment as per regulatory guidelines, the shortfall
shall be transferred as an appropriation from net profit after taxes to aforementioned Impairment reserve.
The regulatory impairment reserve cannot be used by the bank for capital adequacy calculation or for declaration of any
dividends. Utilization of the impairment reserve created above would require prior approval of the Central Bank of Oman.

B. Reserve for restructured loans:

The Parent Company has created a reserve for restructured accounts in accordance with the regulations of the Central Bank
of Oman (CBO). This reserve represents provisions on performing but restructured loans. This reserve is not available for
regulatory capital or distribution of dividends. The reserve will be released to retained earnings on satisfactory performance
of these accounts as per regulatory guidelines.

24. Perpetual Tier I Capital

The AET1 capital constitute direct, unconditional, subordinated and unsecured obligations of the Bank and are classified as
equity in accordance with IAS 32: Financial Instruments – Classification. The AET 1 capital do not have a fixed or final redemption
date. They are first callable by the Bank after a minimum of 5 years from the instrument date and thereafter in accordance
with the terms of the agreement and subject to prior approval of Central Bank of Oman. The AET1 capital bear interest on their
nominal amount from the issue date to the first call date at a fixed annual rate for first 5 years. Thereafter the interest rate will be
reset as per the terms of the agreement. Interest will be payable semi-annually in arrears and treated as deduction from equity.
Interest will be paid exclusively out of the distributable profits of the Bank, and shall not be cumulative, and any interest which
is not paid will not accumulate or compound. The holder will have no right to receive such unpaid interest in the future, even
if interest is paid in respect of any subsequent period. The Instrument meets all requirements of AET 1 issuance mandated by
Basel and Central Bank of Oman norms.
In November 2022, the bank’s shareholders received 1 perpetual bond of RO 1 for every 10 shares aggregating to 375,319,853
bonds equivalent to RO 375.320 million as part of dividend distribution. The perpetual bonds are listed in Muscat Stock
Exchange.

Annual Report - 2022 171

 Details of Perpetual Tier I capital is shown below:

2022 2021
Instrument type Coupon rate Issued in
RO 000's RO 000's
Perpetual Capital Deposit 5.50% Apr-2017 130,000 130,000
Perpetual bonds 4.25% Nov-2022 375,320 -
505,320 130,000

25. Proposed dividends

For 2022, the Board of Directors has proposed a dividend of 15% in the form of cash. Thus shareholders would receive cash
dividend of RO 0.015 per ordinary share of RO 0.100 each aggregating to RO 112.596 million on Bank’s existing share capital.
The proposed cash dividend is subject to formal approval of the Annual General Meeting of the shareholders and regulatory
authorities.
For 2021, the Board of Directors has proposed a dividend of 35%, 30% in the form of cash and 5% in the form of bonus shares
which was approved by the shareholders in the annual general meeting held on 22 March 2022. Thus shareholders would
receive cash dividend of RO 0.030 per ordinary share aggregating to RO 107.234 million on Bank’s existing share capital. In
addition, they would receive bonus shares in the proportion of 1 share for every 20 ordinary shares aggregating to 178,723,739
shares amounting to RO 17.872 million.

26. Net assets per share

The calculation of net assets per share is based on net assets as at 31 December 2022 attributable to ordinary shareholders of
RO 1,726.804 million (2021: RO 2,020.844 million) and on 7,506,397,062 ordinary shares (2021: 3,574,474,792 ordinary shares)
being the number of shares outstanding as at 31 December 2022.

27. Contingent liabilities and commitments

A. Legal proceedings
There were a number of legal proceedings outstanding against the Parent Company at 31 December 2022. Management is of
the view that these claims are not probable or material.

B. Credit related commitments

Credit related commitments include commitments to extend credit, standby letters of credit and guarantees which are designed
to meet the requirements of the Parent Company's customers.
Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commitments
generally have fixed expiration dates or other termination clauses and require the payment of a fee.
Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash
obligations.
Standby letters of credit and guarantees commit the Parent Company to make payments on behalf of customers contingent
upon the failure of the customer to perform under the terms of the contract.
Irrevocable credit commitments at the reporting date amounted to RO 408.227 million (2021: RO 222.2 million).
As of the reporting date, commitments on behalf of customers consisted of the following:
2022 2021
RO 000's RO 000's
Letters of credit 344,810 475,710

Guarantees 1,285,254 1,357,451

1,630,064 1,833,161

172 Annual Report - 2022

C. Capital commitments
As of the reporting date, capital commitments were as follows:

2022 2021

RO 000's RO 000's

Purchase of property and equipment 2,296 797

D. As of the reporting date, the Group has not pledged any of its assets as security (2021: no assets pledged), except as
reported in note 38.
E. As of the reporting date, the amount payable on partly paid investments in shares held by the Group was RO 8.5 million
(2021: RO 5.8 million).

28. Interest income / income from Islamic financing / investments

2022 2021
RO 000's RO 000's
Loans and advances 389,134 380,671
Due from banks 17,293 7,558
Investments 61,649 56,476
468,076 444,705
Islamic financing receivables 77,107 69,044
Islamic due from banks 73 31
Islamic investment 8,525 8,063
85,705 77,138
553,781 521,843

Effective annual rates on yielding assets are provided in note 41.4.4.

29. Interest expense / distribution to depositors

2022 2021
RO 000's RO 000's
Customers’ deposits 123,574 114,746

Subordinated liabilities - 369

Bank borrowings 19,753 11,162

Euro medium term notes 19,197 16,743

162,524 143,020

Islamic customers’ deposits 34,810 33,388

Sukuk 3,338 4,895

Islamic bank borrowings 8,254 5,004

46,402 43,287

208,926 186,307

Effective annual rate of interest bearing liabilities are provided in note 41.4.4.

30. Commission and fee income (net)

The commission and fee income shown in the statement of comprehensive income is net of commission and fee paid of RO
1.250 million (2021 : RO 1.525 million).

Annual Report - 2022 173

 31. Other operating income
2022 2021
RO 000's RO 000's
Foreign exchange 32,806 32,018
Changes in fair value of financial assets 59 1,973
Net realised gain on sale of fair value investments 9,212 641
Dividend income 5,549 3,476
Other income 320 1,922
47,946 40,030

Dividend income recognised on FVOCI investments during the year ended 31 December 2022 is RO 5.016 million (2021 : RO
2.753 million), out of which RO nil (2021: RO 162 thousands) pertains to investments sold during the year.
Other income for 2022 includes loss on sale of remaining stake of associate SICO Capital of RO 108 thousands.
Other income for 2021 includes profit on disposal of majority stake in SICO Capital of RO 745 thousands..

32. Other operating expenses

2022 2021
RO 000's RO 000's
Employees' salaries 71,401 68,453
Other staff costs 25,198 22,430
Contribution to social insurance schemes 6,526 6,316
Employees' end of service benefits 1,062 1,101
104,187 98,300
Administrative expenses 73,387 63,597
Occupancy costs 7,893 8,514
Finance charges on lease (note 13) 3,267 3,315
Directors’ remuneration 386 428
189,120 174,154

33. Cash and cash equivalents

Cash and cash equivalents included in the statement of cash flows comprise the following amounts:

2022 2021
RO 000's RO 000's
Due from banks 295,577 344,959
Cash and balances with Central Banks 882,567 1,046,735
Treasury bills 273,684 588,922
Deposits from banks (522,894) (585,166)
928,934 1,395,450

174 Annual Report - 2022

34. Earnings per share
Basic earnings per share are calculated by dividing the profit for the year after interest on perpetual tier 1 capital, by the
weighted average number of shares outstanding during the year as follows:

2022 2021
Profit attributable to ordinary shareholders of parent company for basic earnings per
share (RO 000's) 200,753 189,625
Less: interest on Perpetual Tier I capital (RO 000's) (7,150) (7,150)
193,603 182,475
Weighted average number of ordinary shares in issue during the year (in 000's) 7,506,397 7,506,397
Basic earnings per share (RO) 0.026 0.024

There are no instruments that are dilutive in nature, hence the basic and diluted earnings per share are same for both the years.
The weighted number of ordinary shares (in 000’s) have been calculated as follows:

2022 2021
At 1 January 3,574,475 3,249,523
Effect of bonus shares issued in 2022 3,931,922 3,931,922
Effect of bonus shares issued in 2021 - 324,952
Weighted average number of ordinary shares 7,506,397 7,506,397

35. Related party transactions

In the ordinary course of business, the Group conducts transactions with certain of its directors, shareholders, senior
management and companies in which they have a significant interest. The Group engages in transactions with related parties
only on arm’s length terms and in accordance with relevant laws and regulations. Terms of these transactions are approved
by the Bank’s Board and Management. The balances in respect of related parties included in the consolidated statement of
financial position as at the reporting date are as follows:

2022 2021
RO 000's RO 000's
a) Directors and senior management
Loans and advances 764 792
Current, deposit and other accounts 2,138 1,625
b) Major shareholders and others
Loans and advances 190,296 130,211
Current, deposit and other accounts 38,738 34,029
Customers' liabilities under documentary credits, guarantees and other commitments 4,148 4,657

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

2022 2021
RO 000's RO 000's
a) Directors and senior management
Interest income 37 30
Interest expense 68 43
Directors' remuneration 300 343
Directors' sitting fees 86 85
b) Major shareholders and others
Interest income 6,648 5,857
Interest expenditure 1,058 770

Annual Report - 2022 175

 Loans, advances or receivables and non-funded exposure due from related parties or holders of 10 percent or more of Banks
shares, or their family members, less all provisions and write-offs, are further analysed as follows:

2022 2021
RO 000's RO 000's
Royal Court Affairs 46,058 31,482
H.E.Sheikh Mustahail Ahmed Al Mashani group companies 31,761 24,295
Others 117,389 79,883
195,208 135,660

Interest expense incurred on deposits

Items of expense which were paid to related parties or holders of 10 percent or more of the Bank's shares, or their family
members, during the year can be further analysed as follows:

2022 2021
RO 000's RO 000's
Royal Court Affairs 543 214
H.E. Sheikh Mustahail Ahmed Al Mashani group companies 343 337
Others 240 262
1,126 813

Key management compensation

Key management comprises of 5 personnel (2021: 5) of the management executive committee in the year 2022. The Bank
considers the personnel of Management Executive Committee to be key management personnel for the purposes of IAS 24
‘Related Party Disclosures’.
In the ordinary course of business, the Bank conducts transactions with certain of its key management personnel and companies
in which they have a significant interest. The balances in respect of these related parties included in the statement of financial
position as at the reporting date are as follows:

2022 2021
RO 000's RO 000's
Loans and advances 181 296
Current, deposit and other accounts 1,788 1,473

The income and expenses in respect of these related parties included in the consolidated financial statements are as follows:

2022 2021
RO 000's RO 000's
Interest income 9 12
Interest expenditure 65 43
Salaries and other short-term benefits 2,807 2,599
Post-employment benefits 37 36

The amounts disclosed in the table are the amounts accrued / paid, recognised as an expense during the reporting period
related to key management personnel. Certain components of key management compensation are paid on deferral basis, as
per regulatory guidelines.

176 Annual Report - 2022

36. Fiduciary activities
The Group's fiduciary activities consist of investment management activities conducted as trustee and manager for a number of
investment funds and individuals. The aggregate amounts of funds managed, which are not included in the Group's statement
of financial position, are as follows:

2022 2021
RO 000's RO 000's
Funds under management 864,844 708,111

Involvement with unconsolidated structured entities

The Group's fiduciary activities consist of investment management activities conducted as trustee and manager for a number
of investment funds and individuals.
The following table describes the types of structured entities that the Group does not consolidate but in which it holds an
interest.
2022 2021
RO 000's RO 000's
Funds under management 235,104 184,886

The following table sets out an analysis of the carrying amounts of interests held by the Group in unconsolidated structured
entities. The maximum exposure to loss is the carrying amount of the assets held.

2022 2021
RO 000's RO 000's
Carrying amount of funds invested 6,551 6,402

The Group considers itself a sponsor of a structured entity when it facilitates the establishment of the structured entity. The
following table sets out information in respect of structured entities that the Group sponsors, but in which the Group does not
have an interest.

2022 2021
RO 000's RO 000's
Funds under management 172,100 157,559
Commission and fees 548 515

37. Derivatives
In the ordinary course of business, the Group enters into various types of transactions that involve derivative financial
instruments. A derivative financial instrument is a financial contract between two parties where payments may dependent on
movements in price in one or more underlying financial instrument, reference rate or index. These derivatives are stated at
fair value. The fair value of a derivative is the equivalent of the unrealised gain or loss from marking to market the derivative
using prevailing market rates or internal pricing models. Unrealised gains and losses are either recognised in profit and loss or
in other comprehensive income. The Group uses the following derivative financial instruments:

Derivative product types

Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at
a specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Forward
rate agreements are effectively tailor-made interest rate futures which fix a forward rate of interest on a notional loan, for an
agreed period of time starting on a specified future date.
Interest rate swaps are contractual agreements between two parties to exchange interest differentials based on a specific
notional amount. Counter parties generally exchange fixed and floating rate interest payments based on a notional value in a
single currency.
Options are contractual agreements that convey the right, but not the obligation, to either buy or sell a specific amount of a
commodity, foreign currency or financial instrument at a fixed price, either at a fixed future date or at any time within a specified
period.

Annual Report - 2022 177

 Derivatives held or issued for hedging purposes
As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to reduce its exposure
to currency and/or interest rate risks. This is achieved by hedging specific financial instruments and forecasted transactions as
well as strategic hedging against overall financial position exposures.
The Group uses forward foreign exchange contracts and swaps to hedge against specifically identified currency risks. In
addition, the Group uses interest rate swaps to hedge against the changes in the cash flow arising from certain fixed interest
rate loans and deposits.
For interest rate risks strategic hedging is carried out by monitoring the repricing of financial assets and liabilities and entering
into interest rate swaps to hedge a proportion of the interest rate exposure. As strategic hedging does not qualify for hedge
accounting, the related derivatives are accounted for as regular derivative transactions.
The Parent Company had entered into interest rate swaps that are designated as fair value hedges, for hedging the interest
rate risk movement on Euro medium term notes and certain of its customer deposits. Further, the Group had also entered
into interest rate swaps that are designated as cash flow hedges for hedging the cash flow volatility risk on its subordinated
liabilities. The cumulative change in the fair value of the hedged liabilities attributable to the risk hedged is recorded as part
of their respective carrying values and are accordingly presented in statement of financial position. As of the reporting date,
there are no outstanding cash flow or fair value hedges.
The table below shows the positive and negative fair values of derivative financial instruments, which are equivalent to the
market values, together with the notional amounts analysed by the term to maturity. The notional is the amount of a derivative’s
underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured.

Notional amounts by term to maturity

Positive Negative Notional
fair value fair value amount within 3
31 December 2022 (note 8) (note 18) total 4-12 months > 12 months
months

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Interest rate swaps 16,048 15,890 459,061 - 8,291 450,770

Commodities purchase contract 2,713 2,800 106,605 71,587 32,059 2,959

Commodities sale contracts 2,885 2,666 106,605 71,587 32,059 2,959

Forward purchase contracts 2,382 210 1,563,714 748,515 326,199 489,000

Forward sales contracts 1,708 5,297 1,563,497 748,783 327,065 487,649

Total 25,736 26,863 3,799,482 1,640,472 725,673 1,433,337

Notional amounts by term to maturity

Positive Negative
Notional
fair value fair value within 3
31 December 2021 amount total 4-12 months > 12 months
(note 8) (note 18) months

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Interest rate swaps 13,059 12,250 757,880 - 189,320 568,560

Commodities purchase contract 2,092 483 90,254 78,321 10,944 989

Commodities sale contracts 497 2,061 90,254 78,321 10,944 989

Forward purchase contracts 501 614 1,530,089 1,014,565 289,713 225,811

Forward sales contracts 5,664 488 1,523,534 1,010,528 288,238 224,768

Total 21,813 15,896 3,992,011 2,181,735 789,159 1,021,117

178 Annual Report - 2022

38. Repurchase agreements
The following table provides outstanding value of securities sold and corresponding liabilities as at the reporting date in the
statement of financial position:
2022 2021
RO 000's RO 000's
Investment securities sold under repo transactions 87,466 87,368
The following table shows the corresponding liabilities under the above repo transactions:
2022 2021
RO 000's RO 000's
Due from banks 62,410 62,410

39. Geographical distribution of assets and liabilities

The geographical distribution of assets and liabilities was as follows:

Sultanate of Other GCC United States

At 31 December Europe Others Total
Oman countries of America
2022
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Cash and balances
with Central Banks 820,372 62,688 - - - 883,060
Due from banks 48,169 316,964 99,021 58,375 118,951 641,480
Loans and
advances 9,072,269 282,372 2,408 - 59,845 9,416,894
Investments 1,402,694 120,824 102 9,079 48,080 1,580,779
Property and
equipment and
other assets 250,999 2,747 - - 23 253,769
Total assets 11,594,503 785,595 101,531 67,454 226,899 12,775,982
Deposits from
banks 64,556 624,651 86,239 - 228,660 1,004,106
Customers'
deposits 8,232,957 401,617 371 464 11,412 8,646,821
Euro medium term
notes/ Sukuk 45,876 - 390,376 - - 436,252
Other liabilities and
taxation 440,272 16,407 - - - 456,679
Shareholders' funds 2,232,124 - - - - 2,232,124
Total liabilities and
equity 11,015,785 1,042,675 476,986 464 240,072 12,775,982

Sultanate of Other GCC United States

At 31 December Europe Others Total
Oman countries of America
2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Cash and balances
with central banks 940,219 107,005 - - - 1,047,224
Due from banks 82,195 461,786 58,672 39,350 123,148 765,151
Loans and
advances 8,961,427 169,349 233 - 60,408 9,191,417
Investments 1,481,367 109,018 90 - 229,287 1,819,762
Property and
equipment and
other assets 247,926 1,021 - - 37 248,984
Total assets 11,713,134 848,179 58,995 39,350 412,880 13,072,538
Deposits from
banks 37,080 753,047 105,477 - 322,861 1,218,465
Customers'
deposits 8,355,126 408,665 617 509 9,689 8,774,606
Euro medium term
notes/ Sukuk 90,600 - 390,379 - - 480,979
Other liabilities and
taxation 432,446 15,173 - - 25 447,644
Shareholders' funds 2,150,844 - - - - 2,150,844
Total liabilities and
equity 11,066,096 1,176,885 496,473 509 332,575 13,072,538

Annual Report - 2022 179

 40. Segmental information
Management has determined the operating segments based on the reports reviewed by the executive committee that are
used to make strategic decisions. The committee considers the business from both a geographic and product perspective.
Geographically, management considers the performance of whole bank in Oman and International markets. The Oman market
is further segregated into corporate, consumer, wholesale and Islamic banking, as all of these business lines are located in
Oman. Segment information in respect of geographical locations is as follows:
2022 2021
For the year ended 31 December: Oman International Total Oman International Total
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Interest income 461,330 6,746 468,076 438,827 5,878 444,705

Interest expense (159,437) (3,087) (162,524) (141,203) (1,817) (143,020)

Income from Islamic financing /

investments 85,705 - 85,705 77,138 - 77,138

Distribution to depositors (46,402) - (46,402) (43,287) - (43,287)

Commission and fee income (net) 108,611 1,398 110,009 98,044 1,870 99,914

Other operating income 46,028 1,918 47,946 39,686 344 40,030

Operating income 495,835 6,975 502,810 469,205 6,275 475,480

Other operating expenses (185,417) (3,703) (189,120) (170,228) (3,926) (174,154)

Depreciation (17,837) (339) (18,176) (16,911) (394) (17,305)

Net impairment losses on financial

assets (61,789) 1,848 (59,941) (58,880) (1,337) (60,217)

Share of income from associates - 927 927 - 167 167

Tax expense (35,202) (545) (35,747) (34,327) (19) (34,346)

Total (300,245) (1,812) (302,057) (280,346) (5,509) (285,855)

Profit for the year 195,590 5,163 200,753 188,859 766 189,625

Total assets 12,518,198 257,784 12,775,982 12,761,815 310,723 13,072,538

Total liabilities 10,365,033 178,825 10,543,858 10,685,375 236,319 10,921,694

Capital expenses 8,875 187 9,062 14,966 191 15,157

The Group reports the segment information by the following business segments viz. Corporate, Consumer, Wholesale,
International and Islamic Banking. The following table shows the distribution of the Group's operating income, profit and total
assets by business segments:

• Corporate banking provides a comprehensive product and service offering to business and corporate customers, including
lending, deposit taking, trade finance, foreign exchange, transaction banking, cash management and other related services;
• Personal banking provides a diversified range of products and services to individuals, including consumer loans, credit
cards, deposit accounts including saving deposits, foreign exchange, e-banking, remittances, bancassurance, premier
banking and other branch-related services;
• Wholesale Banking includes treasury, financial institutions, investments, advisory, and asset management services;
• International banking includes activities of overseas branches, representative offices, subsidiary and strategic investment
outside Oman. International banking includes overseas operations and cost allocations from Oman operations.
• Islamic banking represents the banking activities of the bank's Islamic window in Oman.

180 Annual Report - 2022

 Conventional banking
Islamic
Corporate Personal Wholesale International Banking
31 December 2022 Subtotal Total
Banking Banking Banking Banking

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Net interest income 104,732 150,815 46,344 3,661 305,552 - 305,552

Net income from Islamic

financing - - - - - 39,303 39,303

Commission, fees and

other income (net) 23,272 83,947 43,277 3,316 153,812 4,143 157,955

Operating income 128,004 234,762 89,621 6,977 459,364 43,446 502,810

Operating expenses (incl.

depreciation) (34,008) (136,855) (16,243) (5,927) (193,033) (14,263) (207,296)

Net impairment losses

on financial assets (35,672) (11,260) (1,653) 2,392 (46,193) (13,748) (59,941)

Share of income from

associates - - - 927 927 - 927

Tax expense (8,842) (13,166) (10,884) (545) (33,437) (2,310) (35,747)

(78,522) (161,281) (28,780) (3,153) (271,736) (30,321) (302,057)

Profit (loss) for the year 49,482 73,481 60,841 3,824 187,628 13,125 200,753

Total assets 4,346,526 3,735,452 2,745,495 242,687 11,070,160 1,705,822 12,775,982

Total liabilities 3,296,317 4,315,564 1,257,188 178,825 9,047,894 1,495,964 10,543,858

Conventional banking
Islamic
Corporate Personal Wholesale International Banking
31 December 2021 Subtotal Total
Banking Banking Banking Banking

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Net interest income 110,658 142,954 43,866 4,207 301,685 - 301,685

Net income from Islamic

- - - - - 33,851 33,851
financing

Commission, fees and

19,295 73,358 41,225 2,611 136,489 3,455 139,944
other income (net)

Operating income 129,953 216,312 85,091 6,818 438,174 37,306 475,480

Operating expenses (incl.

(31,647) (125,333) (15,628) (5,923) (178,531) (12,928) (191,459)
depreciation)

Net impairment losses

(26,864) (14,717) (3,856) (4,324) (49,761) (10,456) (60,217)
on financial assets

Share of income from

- - - 167 167 - 167
associates

Tax expense (10,796) (11,522) (9,914) (19) (32,251) (2,095) (34,346)

(69,307) (151,572) (29,398) (10,099) (260,376) (25,479) (285,855)

Profit (loss) for the year 60,646 64,740 55,693 (3,281) 177,798 11,827 189,625

Total assets 4,328,118 3,671,584 3,143,486 295,394 11,438,582 1,633,956 13,072,538

Total liabilities 3,365,173 4,408,020 1,475,565 236,319 9,485,077 1,436,617 10,921,694

Annual Report - 2022 181

 Disaggregated revenues 2022
IFRS15 requires the disclosure of disaggregated revenue from contracts with customers for major products / service lines. The
below table provides disaggregation of commission and fee income (net) and other operating income into contract revenues
and non-contract revenues within Group’s reportable segments. Contract revenue is further segregated based on the products
and services:

Commission and fee

income (net) and other Corporate Personal Wholesale International Islamic
operating income Banking Banking Banking Banking Subtotal Banking Total

2022 RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Contract revenue

Transactional income 3,170 69,290 1,624 77 74,161 1,891 76,052

Trade income 8,614 762 1,987 1,025 12,388 415 12,803

Syndication and other

loan related income 8,839 172 947 305 10,263 744 11,007

Advisory, asset
management and private
equity services related
income - 1,233 10,003 - 11,236 143 11,379

Total contract revenue 20,623 71,457 14,561 1,407 108,048 3,193 111,241

Non contract revenue 2,649 12,490 28,716 1,909 45,764 950 46,714

23,272 83,947 43,277 3,316 153,812 4,143 157,955

Commission and fee

income (net) and other Corporate Personal Wholesale International Islamic
operating income Banking Banking Banking Banking Subtotal Banking Total

2021 RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Contract revenue

Transactional income 590 59,436 5,900 120 66,046 1,380 67,426

Trade income 7,512 630 2,515 1,321 11,978 507 12,485

Syndication and other

loan related income 7,655 1,674 2,205 237 11,771 590 12,361

Advisory, asset
management and private
equity services related
income - 1,882 7,226 204 9,312 96 9,408

Total contract revenue 15,757 63,622 17,846 1,882 99,107 2,573 101,680

Non contract revenue 3,538 9,736 23,379 729 37,382 882 38,264

19,295 73,358 41,225 2,611 136,489 3,455 139,944

The Group has contract assets and contract liabilities amounting to RO 5.937 million (2021 : RO 3.664 million) and RO 4.230
million (2021: RO 5.445 million) respectively.
No impairment losses have been recognised relating to the contract assets (2021: RO nil). Further, the contracts do not have a
significant financing component.
The contract liabilities primarily relate to the non-refundable fees received from customers where revenue is recognised over
a period of time as mentioned in note 3.2. The amount of RO 1.676 million (2021: RO 0.960 million) recognised in contract
liabilities at the beginning of the period has been recognised as revenue for the period ended 31 December 2022. Management
expects revenue from the remaining performance obligations will be recognised as 25% in 2023, 19% in 2024 and 19% in 2025.
The revenue from contracts with customers does not include revenue recognised from performance obligations satisfied in
previous periods.

182 Annual Report - 2022

41. Financial risk management
41.1 Introduction and overview
Risk Management is a process by which the Group identifies key risks by applying consistent risk measurement techniques,
recommends which risks to accept or reject or mitigate, by what means and establishes procedures to monitor and report the
resulting risk position for necessary action.
The objective of risk management is to ensure that the Group operates within the risk appetite levels set by its Board of
Directors while various business functions pursue their objective of maximizing the risk adjusted returns ensuring fair balance
between risk and reward. In the Group, risk is defined as the potential for loss or an undesirable outcome in relation to expected
earnings, capital adequacy or liquidity, leading to volatility in earnings. The Bank has exposure to the following core risks:

• Credit risk
• Liquidity risk
• Market risk
• Operational risk

Risk management is the overall responsibility of the Group’s Board of Directors and managed through the Board Risk
Committee (BRC). The Board of Directors reviews and approves the risk management strategy and defines the risk appetite of
the Group. To facilitate achievement of the Group’s strategic objectives within the Board approved risk appetite, the Group has
established a Management Risk Committee (MRC). The Management Risk Committee provides recommendations to the Board
of Directors through BRC on the risk-reward strategy, risk appetite, policies and framework for managing various risks. For the
purpose of day-to-day management of risks, the Group has established an independent Risk Management Department (RMD),
which objectively reviews and ensures that the various functions of the Group operate in compliance with the risk parameters
set by the Board of Directors. The Risk Management Department acts independently of the business with direct reporting to
the Board of Directors.
The risk appetite in various business areas is defined and communicated through a well-established Enterprise-wide risk
policy. Enterprise wide risks are managed with the objective of maximising risk adjusted returns through a well-defined risk
management framework. The Group’s risk policy, approved by the Board of Directors, analyses and sets risk limits/thresholds
for Credit, Market, Liquidity, Operational and other risks. The risk levels of each of these categories is measured and monitored
on a continuous basis and compliance to prescribed risk levels is reported on a regular basis. This ensures prudent management
of risks assumed by the Group in its normal course of business. The risk policy is updated regularly, based on changes in
Group’s strategy/ organisational goals, regulatory guidelines, analysis of the economic trends and the operating environment
in the countries where the Group operates.
The Group’s risk management processes have proven to be effective throughout the year and remains well supported
by a strong risk culture. The Group’s Board has remained closely involved with key risk management initiatives, ensuring
effective management of the Group’s risks, maintenance of appropriate levels of liquidity and capital in line with the evolving
requirements.
The Group recognises risk management process as a key to achieve its objective of enhancing shareholder value and as an
area of core competence. It continues to invest in enhancing its risk management capabilities, to ensure that it is able to deliver
on its growth plans while managing the underlying risks in an effective manner.

41.2 Credit risk

41.2.1 Management of credit risk
Credit risk is the potential loss resulting from the failure of a borrower or counter party to honour its financial or contractual
obligations in accordance with the agreed terms. It includes the below sub types:

• Sovereign/ Country risk

• Counterparty Risk
• Settlement risk

The function of credit risk management is to maximise the Group's risk-adjusted rate of return by maintaining credit risk
exposure within acceptable parameters. Credit risk makes up the largest part of the Group's risk exposure.

Annual Report - 2022 183

 Risk limit control and mitigation policies
The credit risk management process in the Group begins with the risk policy, which defines indicators to address different
dimensions of credit risk including credit concentration risk, single borrower limit etc. For each of the indicator, the Group has
set for itself, clear and well-defined limit and trigger point. Compliance with the various indicators is monitored and reported
on a regular basis and exceptions, if any are escalated to enable remedial actions.

• All credit processes – Approval, disbursal, administration, classification, recoveries and write-off – all are governed by
the Group’s credit manual which is reviewed by Risk Management department and approved by appropriate approval
authorities. The credit policy stipulates clear guidelines for each of these functions and the lending authority at various
levels as stipulated in appropriate ‘Lending Authority Limits’.
• All Corporate lending proposals, where the proposed credit limit for a borrower or related Group exceeds a threshold,
are submitted for approval/renewal to the appropriate authority after an independent review by the Risk Management
Department whose comments are incorporated into the proposal.
• All Corporate relationships are reviewed at least once a year. Retail portfolio, including credit cards and mortgage portfolio,
is reviewed on a portfolio basis at a product level at least once a year.
• Concentration of exposure to counterparties, geographies and sector are governed and monitored according to regulatory
norms and limits prescribed in the Group’s risk policy.
• The analysis of large customers at group level is conducted on a regular basis. The lending division undertakes account
updates, monitoring and management of exposures on a continuous basis. Industry and sectoral analysis, benchmark
reports are analysed as a part of credit risk management process to understand the trends in industry.
• Credit exposures are risk rated to provide support for credit decisions. The portfolio is analysed based on risk grades and risk
grade migration to focus on management of prevalent credit risk.
• Retail portfolio is rated using a score card.

A robust collateral management system is in place to mitigate any credit risk. The Group has a strong credit administration
process that ensures compliance with terms of approval, documentation and continuous review to ensure quality of credit and
collateral. While securities such as listed equities are valued regularly, credit policy mandates securities obtained by way of
legal mortgage over real estate to be valued at least once in 3 years or more frequently if situation warrants.
The Group executes Credit Support annex to the International Swaps and Derivatives Association (ISDA) document with major
counterparty banks to mitigate credit risk arising out of change in the value of underlying for the derivative exposures. The
Treasury Middle office undertakes daily valuation of all the derivative deals and raises appropriate margin calls.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally
unsecured. In addition, in order to minimise the credit loss, the Group will seek additional collateral from the counterparty
as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for
financial assets other than loans and advances, is determined by the nature of the instrument. Debt securities, treasury and
other eligible bills are generally unsecured.

41.2.2 Credit quality analysis

All loans and advances of the Group are regularly monitored to ensure compliance with the stipulated repayment terms. Those
loans and advances are classified into one of the 5 risk classification categories: Standard, Special Mention, Substandard,
Doubtful, and Loss – as stipulated by Central Bank of Oman regulations and guidelines. The responsibility for identifying
problem accounts and classifying them rests with business line function.
The Group’s policies regarding obtaining collateral have not significantly changed during the reporting period and there has
been no significant change in the overall quality of the collateral held by the Group since the prior period.
As required under IFRS 9, the Group classifies its financial assets into Stage 1, Stage 2 and Stage 3, as described below:

• Stage 1: Financial instruments which are not credit impaired and for which the credit risk has not increased significantly since
initial recognition are classified as Stage 1. When a Credit Facility is first recognised, the Group recognises a loss allowance
based on 12 month ECL.
• Stage 2: Financial instruments having Significant Increase in Credit Risk (“SICR”) since origination will be classified under
Stage 2 (if not impaired). When a Credit Facility has shown a significant increase in credit risk since origination, the Group
records a loss allowance for the life time (LT) ECL; and
• Stage 3: All credit facilities that are credit impaired either at origination or at reporting date (for e.g. in default stage) i.e.
having objective evidence of default / credit impaired, shall be classified under Stage 3. Credit Facilities, considered as

184 Annual Report - 2022

 credit-impaired, are those facilities where any payment of principal or interest is overdue by more than 89 days. Besides
quantitative and qualitative criteria are also applied for assigning Stage 3. In such cases, the Group records a loss allowance
for the LTECL.

The following table sets out information about the credit quality of financial assets measured at amortised cost and FVOCI
debt investments. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.
For loan commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or
guaranteed, respectively.

31 December 2021 31 December 2022

Total Stage 3 Stage 2 Stage 1 Stage 1 Stage 2 Stage 3 Total

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Gross exposure
234,387 - - 234,387 Central Bank balances 156,517 - - 156,517
771,023 - 8,150 762,873 Due from Banks 626,272 20,088 - 646,360
9,660,308 356,456 1,948,922 7,354,930 Loans and advances 7,733,928 1,869,610 371,020 9,974,558
62,087 - 4,077 58,010 Investment securities at FVOCI 102,730 972 - 103,702
1,651,885 - 13,124 1,638,761 Investment securities at amortised cost 1,325,450 12,185 - 1,337,635
12,379,690 356,456 1,974,273 10,048,961 Total funded gross exposure 9,944,897 1,902,855 371,020 12,218,772
1,833,161 37,798 590,097 1,205,266 Financial guarantee contracts 1,177,051 420,766 32,247 1,630,064
111,663 287 50,007 61,369 Acceptances 70,816 38,280 50 109,146
1,987,754 - 597,311 1,390,443 Loan commitment/unutilised limits 1,692,226 307,660 - 1,999,886
3,932,578 38,085 1,237,415 2,657,078 Total non-funded gross exposure 2,940,093 766,706 32,297 3,739,096
16,312,268 394,541 3,211,688 12,706,039 Total gross exposure 12,884,990 2,669,561 403,317 15,957,868
Impairment
11 - - 11 Central Bank balances 7 - - 7
5,872 - 3,642 2,230 Due from Banks 1,350 3,530 - 4,880
468,891 285,918 152,119 30,854 Loans and advances 17,802 231,551 308,311 557,664
2,145 - 1,968 177 Investment securities at FVOCI 503 774 - 1,277
2,502 - 709 1,793 Investment securities at amortised cost 1,825 641 - 2,466
479,421 285,918 158,438 35,065 Total funded impairment 21,487 236,496 308,311 566,294
47,032 29,606 15,393 2,033 Financial guarantee contracts 2,197 11,154 27,962 41,313
229 110 68 51 Acceptances 104 100 50 254
9,042 - 5,245 3,797 Loan commitment/unutilised limits 3,866 2,156 - 6,022
56,303 29,716 20,706 5,881 Total non-funded impairment 6,167 13,410 28,012 47,589
535,724 315,634 179,144 40,946 Total impairment 27,654 249,906 336,323 613,883
Net exposure
234,376 - - 234,376 Central Bank balances 156,510 - - 156,510
765,151 - 4,508 760,643 Due from Banks 624,922 16,558 - 641,480
9,191,417 70,538 1,796,803 7,324,076 Loans and advances 7,716,126 1,638,059 62,709 9,416,894
59,942 - 2,109 57,833 Investment securities at FVOCI 102,227 198 - 102,425
1,649,383 - 12,415 1,636,968 Investment securities at amortised cost 1,323,625 11,544 - 1,335,169
11,900,269 70,538 1,815,835 10,013,896 Total funded net exposure 9,923,410 1,666,359 62,709 11,652,478
1,786,129 8,192 574,704 1,203,233 Financial guarantee contracts 1,174,854 409,612 4,285 1,588,751
111,434 177 49,939 61,318 Acceptances 70,712 38,180 - 108,892
1,978,712 - 592,066 1,386,646 Loan commitment/unutilised limits 1,688,360 305,504 - 1,993,864
3,876,275 8,369 1,216,709 2,651,197 Total net non-funded exposure 2,933,926 753,296 4,285 3,691,507
15,776,544 78,907 3,032,544 12,665,093 Total net exposure 12,857,336 2,419,655 66,994 15,343,985

Stage 1: 80.8% (2021: 77.9%)of gross exposure in scope for IFRS 9 is in Stage 1 and has not experienced a significant increase in
credit risk since origination.
Stage 2: 16.7% (2021: 19.7%) of gross exposure is in Stage 2 and has seen an increase in credit risk since origination. These assets
are the key driver of increase in impairment allowances under IFRS9.
Stage 3: 2.5% (2021: 2.4%) of gross exposure is in Stage 3 which is credit impaired including defaulted assets and some
forbearance assets.

Annual Report - 2022 185

 Net impairment losses on financial assets
Details of net impairment losses on financial assets charged in income statement is set out as follows:

2022 2021

RO 000's RO 000's

(Impairment) / reversal of impairment for credit losses:

Due from banks 992 (3,376)

Cash and Central bank balances 4 (11)

Loans and advances to customers (110,418) (120,962)

Financial guarantees 5,684 16,590

Acceptances (25) (52)

Loan commitments/ unutilised limits 3,020 (43)

Investments 905 (915)

(99,838) (108,769)

Recoveries from impairment for credit losses 38,990 47,277

Recoveries from loans previously written off 907 1,275

39,897 48,552

(59,941) (60,217)

Maximum exposure to credit risk before collateral held or other credit enhancements for all on-balance sheet assets are based
on net carrying amounts as reported in the statement of financial position.
The maximum credit risk equivalents relating to off-balance sheet items calculated as per Basel III guidelines are as follows:

2022 2021

RO 000's RO 000's

Financial guarantees 351,945 357,219

Other credit related liabilities 593,635 651,089

Loan commitments 103,507 56,912

1,049,087 1,065,220

The above table represents a worst case scenario of credit risk exposure as of 31 December 2022 and 2021, without taking into
account of any collateral held or other credit enhancements attached.

41.2.3 Impaired loans and securities

Impaired loans and securities are those for which the Group determines that it is probable that it will be unable to collect all
principal and interest due according to the contractual terms of the loan and security agreements. Those loans are categorised
either as sub-standard, doubtful or loss in the internal credit risk system and as Stage 3 under IFRS 9.

41.2.4 Past due but not impaired loans

Loans and securities where contractual interest or principal payments are past due but the Group believes that impairment is
not appropriate on the basis of the stage of collection of amounts owed to the Group.

41.2.5 Write-off policy

The Group writes off a loan or security and any related allowances for impairment when the Group determines that the loan or
security is uncollectible. This determination is reached after considering factors such as the occurrence of significant changes
in the borrower’s financial position such that the borrower can no longer pay the obligation or that proceeds from collateral
will not be sufficient to pay back the entire exposure or legal measures to recover the dues. For smaller balance standardised
loans, charge off decisions generally based on a product specific past due status and borrower’s capacity to repay the loan.

186 Annual Report - 2022

41.2.6 Analysis of impairment and collateral
A. An estimate of the fair value of collateral and other security enhancements held against financial assets is shown below:

Loans and advances and

Islamic financing to customers
2022 2021
RO 000's RO 000's
Against individually impaired
Property 170,448 143,238
Equities 5 1
Others 14,213 11,432
184,666 154,671
Against past due but not impaired
Property 793,269 717,877
Equities 112,894 29,270
Others 383,683 383,627
1,289,846 1,130,774
Against neither past due nor impaired
Property 5,750,039 5,849,614
Equities 363,282 318,403
Others 497,187 561,278
6,610,508 6,729,295
8,085,020 8,014,740

B. Repossessed collateral
The Group obtains assets by taking possession of collateral held as security. The carrying value of collateral held for sale as at
31 December 2022 is as follows:

2022 2021
RO 000's RO 000's
Nature of assets
Residential / commercial property 100 100

Repossessed properties are sold as soon as practicable, with the proceeds used to reduce the outstanding indebtedness.
Repossessed property is classified in the statement of financial position within other assets.

41.2.7 Exposures and ECL of financial assets

Inputs, assumptions and techniques used for estimating impairment
See accounting policy in Note 3.6.

Significant increase in credit risk

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition,
reasonable and supportable information that is relevant and available without undue cost or effort is considered. This includes
both quantitative and qualitative information and analysis, based on the historical experience and expert credit assessment
and including forward-looking information.
The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure by
comparing:

• the remaining lifetime probability of default (PD) as at the reporting date; with
• the remaining lifetime PD for this point in time that was estimated at the time of initial recognition of the exposure (adjusted
where relevant for changes in prepayment expectations).

Annual Report - 2022 187

 Credit risk grades
Each exposure is allocated to a rating scale for individual risk assessment based on a variety of data that is determined to be
predictive of the risk of default and applying experienced credit judgement. Further, a master scale is employed across all
different rating scales used by the Group. Its main purpose is to make risk assessment comparable across various segments
or products.
A master scale is a scale of credit risk grades, typically denominated by a combination of numbers, letters or both, which
represent the relative credit risk assigned to each class or grade. It typically composed of a quantitative and a qualitative
component that are indicative of risk of default.
Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk
deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the difference
between credit risk grades 2 and 3.
Each exposure is allocated to a credit risk grade at initial recognition based on available information about the borrower.
Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The
monitoring typically involves the periodic review of customers’ files, status of the industry, press articles, economic condition,
changes in external credit ratings, and other internal and external information.

Generating the term structure of PD

Credit risk grades are a primary input into the determination of the term structure of PD for exposures. Performance and
default information about its credit risk exposures is collected and analysed by jurisdiction or region and by type of product and
borrower as well as by credit risk grading. For some portfolios, information purchased from external credit reference agencies
is also used. Statistical models are employed to analyse the data collected and generate estimates of the remaining lifetime PD
of exposures and how these are expected to change as a result of the passage of time.
This analysis includes the identification and calibration of relationships between changes in default rates and changes in key
macro-economic factors as well as in-depth analysis of the impact of certain other factors (e.g. forbearance experience) on the
risk of default. For most exposures, key macro-economic indicators include GDP, oil prices, equity index, etc. For exposures to
specific industries and/or regions, the analysis may extend to relevant commodity and/or real estate prices.

Determining whether credit risk has increased significantly

Significant Increase in Credit Risk (SICR) Criteria
Under IFRS 9, Stage 2 consists of facilities that have undergone SICR since initial recognition (unless they are classified under
low credit risk at reporting date). For these exposures, Lifetime ECL is recognised.

Non-Retail Portfolio
Qualitative Criteria
• Individual Assessment of any Non Retail exposure belonging to list of Top 20 borrowers.
• Special Mention accounts, contracts having specific provision and not in Stage 3 & contracts having interest in suspense and
not in Stage 3.
• Qualitative criteria as prescribed by Central Bank of Oman vide circular BM1149 dated 13 April 2017 and other related
regulatory guidelines.

Quantitative Criteria
• Rating Degradation based: Rating downgrade that remains within investment grade requires a drop of at least 4 rating
grades. Rating degradation that transitions to sub investment grade from investment grade or degradation within sub
investment grade requires a drop of at least 1 rating grade. Highest risk rating grades require fewer than 4 notches to trigger
SICR.
• Days past due based: Any facility which has been more than 30 days delinquent & restructured accounts would be assigned
to Stage 2.

Retail Portfolio
Any facility which has been more than 30 days delinquent & restructured accounts would be assigned to Stage 2.

Modified financial assets

The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer
retention and other factors not related to a current or potential credit deterioration of the customer. An existing loan whose
terms have been modified may be derecognised and the renegotiated loan recognised as a new loan at fair value in accordance
with the accounting policy.

188 Annual Report - 2022

When the terms of a financial asset are modified and the modification does not result in derecognition, the determination of
whether the asset’s credit risk has increased significantly reflects comparison of:

• its remaining lifetime PD at the reporting date based on the modified terms; with
• the remaining lifetime PD estimated based on data at initial recognition and the original contractual terms.

Loans to customers in financial difficulties are renegotiated to maximise collection opportunities and minimise the risk of
default. Loan modification is granted on a selective basis, if the debtor is currently in default on its debt, or if there is a high risk
of default, there is evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the
debtor is expected to be able to meet the revised terms.
The revised terms usually include extending the maturity, changing the timing of interest payments and amending the terms
of loan covenants. The policy applies to retail and corporate portfolios. The Audit Committee regularly reviews reports on
modification activities.
For financial assets modified as part of policy, the estimate of PD reflects whether the modification has improved or restored
ability to collect interest and principal and the Group’s previous experience of similar modification action. As part of this
process, the borrower’s payment performance is evaluated against the modified contractual terms and considers various
behavioural indicators.
Generally, modification is a qualitative indicator of a significant increase in credit risk and an expectation of modification
may constitute evidence that an exposure is credit-impaired /in default. A customer needs to demonstrate consistently good
payment behaviour over a period of time before the exposure is no longer considered to be credit-impaired/ in default or the
PD is considered to have decreased such that the loss allowance reverts to being measured at an amount equal to 12 month
ECL.

Definition of default
A financial asset to be in default when:

• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as
realising security (if any is held); or
• the borrower is past due more than 89 days on any material credit obligation to the Group. Overdrafts are considered as
being past due once the customer has breached an advised limit or been advised of a limit smaller than the current amount
outstanding.

In assessing whether a borrower is in default, indicators like the following are considered:

• qualitative - e.g. breaches of covenant;

• quantitative - e.g. overdue status and non-payment on another obligation of the same issuer; and
• based on data developed internally and obtained from external sources.

Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect
changes in circumstances.
The definition of default largely aligns with that applied for regulatory capital purposes.

Incorporation of forward-looking information

Forward-looking information is incorporated into both its assessment of whether the credit risk of an instrument has increased
significantly since its initial recognition and its measurement of ECL. A ‘base case’ view of the future direction of relevant
economic variables as well as a representative range of other possible forecast scenarios is formulated. This process involves
developing additional economic scenarios and considering the relative probabilities of each outcome. External information
includes economic data and forecasts published by governmental bodies, monetary authorities in the countries where the
Group operates, supranational organisations, and selected private-sector and academic forecasters.
The base case represents a most-likely outcome and is aligned with information used by the Group for other purposes such as
strategic planning and budgeting. The other scenarios represent more optimistic and more pessimistic outcomes. Periodically,
the Group carries out stress testing of more extreme shocks to calibrate its determination of these other representative
scenarios.
The Group has identified and documented key drivers of credit risk and credit losses for each portfolio of financial instruments
and, using an analysis of historical data, has estimated relationships between macro-economic variables and credit risk and
credit losses. For computation of ECL, the Group considers three scenario viz. base case, upside case and downside case with
weightage of 40%, 30% and 30% respectively. The economic scenarios includes the following ranges of key indicators for
Oman, Saudi Arabia and Kuwait.

Annual Report - 2022 189

 As at 31 December 2022 Units of Measurement 2023 2024

Brent Crude Oil Price (USD per bbl) 83.19 70.20

Oman Gross Domestic Product (RO Bn) 43.25 44.39

Consumer Price Index Index 112.87 115.45

Exports of Goods and Services (USD Bn) 52.24 54.21

Oman Share Price Index Index 65.18 58.62

Saudi Arabia Gross Domestic Product (SAR Bn) 3,022.88 3,090.29

Saudi Arabia Share Price Index Index 10,950.37 11,297.31

Kuwait Share Price Index Index 95.77 93.01

As at 31 December 2021 Units of Measurement 2022 2023

Brent Crude Oil Price (USD per bbl) 65.88 63.90

Unemployment Rate (%) 3.10 3.20

Private Consumption Expenditure (RO Bn) 12.16 12.69

Overnight Interbank Lending Rate (%) 0.50 1.36

Oman Gross Domestic Product (RO Bn) 30.62 31.72

Exports of Goods and Services (USD Bn) 59.25 61.29

Oman Share Price Index Index 60.95 64.70

Saudi Arabia Gross Domestic Product (SAR Bn) 2,773.25 2,828.54

Saudi Arabia Share Price Index Index 11,201.02 11,626.57

Kuwait Share Price Index Index 101.81 109.59

During 2022, as part of the model recalibration exercise, the key indicators used for ECL computation were reviewed and
updated.
Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have
been developed based on analysing historical data over the past 10 years.

Measurement of ECL
The key inputs into the measurement of ECL are the term structure of the following variables:

• probability of default (PD);

• loss given default (LGD);
• exposure at default (EAD).

These parameters are generally derived from internally developed statistical models and other historical data. They are
adjusted to reflect forward-looking information as described above.
PD estimates are estimates at a certain date, which are calculated based on statistical rating models, and assessed using
rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on internally
compiled data comprising both quantitative and qualitative factors. If a counterparty or exposure migrates between rating
classes, then this will lead to a change in the estimate of the associated PD. PDs are estimated considering the contractual
maturities of exposures and estimated prepayment rates.
LGD is the magnitude of the likely loss if there is a default. LGD parameters are estimated based on the history of recovery
rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the claim,
counterparty industry and recovery costs of any collateral that is integral to the financial asset. LGD estimates are recalibrated
for different economic scenarios. They are calculated on a discounted cash flow basis using the effective interest rate as the
discounting factor.
EAD represents the expected exposure in the event of a default. EAD is derived from the current exposure to the counterparty
and potential changes to the current amount allowed under the contract including amortisation. The EAD of a financial asset
is its gross carrying amount. For lending commitments and financial guarantees, the EAD includes the amount drawn, as well
as potential future amounts that may be drawn under the contract, which are estimated based on historical observations and
forward-looking forecasts.

190 Annual Report - 2022

As described above, and subject to using a maximum of a 12-month PD for financial assets for which credit risk has not
significantly increased, ECL is measured considering the risk of default over the maximum contractual period (including any
borrower’s extension options) over which it is exposed to credit risk, even if, for risk management purposes, a longer period is
considered. The maximum contractual period extends to the date at which the Group has the right to require repayment of an
advance or terminate a loan commitment or guarantee.
However, for retail overdrafts and credit card facilities that include both a loan and an undrawn commitment component, ECL
is measured over a period based on behavioural pattern of the portfolio which may be longer than the maximum contractual
period if the Group’s contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group’s
exposure to credit losses to the contractual notice period. These facilities do not have a fixed term or repayment structure and
are managed on a collective basis. The Group can cancel them with immediate effect but this contractual right is not enforced
in the normal day-to-day management, but only when the Group becomes aware of an increase in credit risk at the facility
level. This longer period is estimated taking into account the credit risk management actions that the Group expects to take
and that serve to mitigate ECL. These include a reduction in limits, cancellation of the facility and/or turning the outstanding
balance into a loan with fixed repayment terms.
Where modelling of a parameter is carried out on a collective basis, the financial instruments are grouped on the basis of
shared risk characteristics that include:

• instrument type;
• credit risk grading;
• collateral type;
• Loan to value (LTV) ratio for retail mortgages;
• date of initial recognition;
• remaining term to maturity;
• industry; and
• geographic location of the borrower.

The groupings are subject to regular review to ensure that exposures within a particular group remain appropriately
homogeneous.

Methodology for Computation of Expected Credit Losses

IFRS 9 requires 12 month expected credit loss provision for all accounts in Stage 1 and lifetime expected credit losses for all
other accounts.

12 Month Expected Credit Loss

12 month credit loss refer to the portion of expected credit loss resulting from possible default events within 12 months after
reporting date.

Lifetime Expected Credit Loss

Lifetime losses result from all possible default events over the expected life of the financial instrument after the reporting date.
The lifetime refers to the loan tenure of the financial instrument.
Calculating expected credit losses is a multi-step process. The process followed for Non retail and Retail exposures is given
below:

Non-Retail Exposure:
The following is the broad methodology for calculation of ECL for non retail exposures:

• Inputs in ECL calculation include contractual terms, cash flows, EIR, Country and Industry risk factors, correlation to systemic
risks and Moody’s equivalent Through the cycle (TTC) ratings on origination and reporting dates
• TTC Moody’s Rating are converted to Point in time (PIT) Unconditional PD term structure using Moody's EDF9 model that
incorporates country and industry factors.
• Moody's RiskCalc model was adapted to Group’s non-retail portfolio to calculate Unconditional PIT LGD.
• Using Moody's GCorr model, 3 macroeconomic scenarios (Baseline, Upside and Downside) and the weight for each scenario
are specified. The weights assigned are 40%, 30% & 30% for Baseline, Upside and Downside respectively. The macro variables
used for Bank Muscat are Oil price, Oman Equity, KSA Equity, Kuwait Equity and KSA GDP.
• PIT Unconditional PD is converted into 12 month and lifetime Conditional PIT PD and PIT Unconditional LGD is converted into
PIT Conditional LGD using GCorr Macro model for each scenario mentioned above.

Annual Report - 2022 191

 • Using the scenario weights mentioned above, scenario-weighted average Conditional PIT PD is calculated.

Scenario-weighted average conditional PIT PD is then converted to an equivalent credit rating using Moody’s implied rating
process.

• Instrument-level contractual terms are used to generate cash flow which are discounted at the effective interest rates to get
exposure at default (EAD). Some instruments have irregular cash flows and hence custom cash flows are input directly in to
the tool.
• ECL Calculation

12 month ECL = 12 month PD X LGD X Discounted EAD

Lifetime ECL = Lifetime PD X LGD X Discounted EAD

• Final ECL

For all Stage 1 instruments, Final ECL is equal to 12 month ECL calculated as above
For all Stage 2 and Stage 3 instruments, Final ECL is equal to Lifetime ECL calculated as above

Retail Exposures:
The following is the broad methodology for calculation of ECL for retail exposures:

• Individual and loan characteristics are used to develop PD models for each retail portfolio.
• Historical portfolio write-off information is used to build LGD models for each retail portfolio.
• Detailed payment schedules are used for EAD computation. In case detailed payment schedules are not available, linear
amortization to the maturity date is used to compute the exposure at a particular forecast date.
• ECL Calculation

12 month ECL = 12 month PD X LGD X Discounted EAD

Lifetime ECL = Lifetime PD X LGD X Discounted EAD

• Final ECL

For all Stage 1 instruments, Final ECL is equal to 12 month ECL calculated as above.
For all Stage 2 and Stage 3 instruments, Final ECL is equal to Lifetime ECL calculated as above.
IFRS 9 requires 12 month ECL provision for all accounts in Stage 1 and lifetime expected credit losses for all other accounts.
The 12-months ECL is equal to the discounted sum over the next 12-months of monthly PD multiplied by LGD and EAD. Lifetime
ECL is calculated using the discounted sum of monthly PD over the full remaining life multiplied by LGD and EAD.
When estimating the ECLs, the Group considers three scenarios (a base case, upside case, and a downside case) and these
scenarios are based on the combination of PD and LGD. Both 12 month ECL and life time ECL amount would be the weighted
average of the ECL amounts calculated using the appropriate macroeconomic scenarios.
The 12-months and lifetime PD represent the expected point-in-time probability of a default over the next 12 months and
remaining lifetime of the financial instrument, respectively, based on conditions existing at the reporting date and future
economic conditions that affect credit risk.
ECL Calculation
12 month ECL = 12 month PD X LGD X Discounted EAD
Lifetime ECL = Lifetime PD X LGD X Discounted EAD

192 Annual Report - 2022

An analysis of movement in the gross exposure balances for the year ended 31 December 2022 is set out in the following tables
by class of financial assets:

2021 2022
Total Stage 3 Stage 2 Stage 1 Stage 1 Stage 2 Stage 3 Total
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Opening Balance as at 1 January
167,005 - - 167,005 Cash and balances with Central Banks 234,387 - - 234,387
577,282 - 1,587 575,695 Due from Banks 762,873 8,150 - 771,023
3,832,557 100,425 18,320 3,713,812 Retail Loans and Advances to customers 3,942,932 22,778 101,265 4,066,975
5,546,176 237,397 1,822,514 3,486,265 Corporate Loans and Advances to customers 3,411,998 1,926,144 255,191 5,593,333
61,990 - 7,885 54,105 Investment at FVOCI 58,010 4,077 - 62,087
1,688,876 - - 1,688,876 Investment at amortised cost 1,638,761 13,124 - 1,651,885
1,866,147 72,929 584,374 1,208,844 Financial guarantee contracts 1,205,266 590,097 37,798 1,833,161
143,736 50 72,827 70,859 Acceptances 61,369 50,007 287 111,663
2,265,585 - 495,840 1,769,745 Loan commitment/unutilised limits 1,390,443 597,311 - 1,987,754
16,149,354 410,801 3,003,347 12,735,206 Total 12,706,039 3,211,688 394,541 16,312,268
Net transfer between stages
- - - - Cash and balances with Central Banks - - - -
- - 6,858 (6,858) Due from Banks (19,887) 19,887 - -
- 18,062 8,185 (26,247) Retail Loans and Advances to customers (60,955) 45,344 15,611 -
- 38,134 308,125 (346,259) Corporate Loans and Advances to customers (302,777) 273,463 29,314 -
- - (2,059) 2,059 Investment at FVOCI (804) 804 - -
- - 12,929 (12,929) Investment at amortised cost 1,007 (1,007) - -
- 8,881 210,839 (219,720) Financial guarantee contracts (22,837) 20,984 1,853 -
- 236 50,007 (50,243) Acceptances (38,267) 38,267 - -
- 1,944 220,798 (222,742) Loan commitment/unutilised limits 148,263 (149,338) 1,075 -
- 67,257 815,682 (882,939) Total (296,257) 248,404 47,853 -
Re-measurement of outstanding
67,382 - - 67,382 Cash and balances with Central Banks (77,870) - - (77,870)
193,741 - (295) 194,036 Due from Banks (116,714) (7,949) - (124,663)
235,384 (16,256) (3,727) 255,367 Retail Loans and Advances to customers 136,174 (3,388) (13,068) 119,718
60,086 (7,411) (204,495) 271,992 Corporate Loans and Advances to customers 606,556 (394,731) (15,490) 196,335
97 - (1,749) 1,846 Investment at FVOCI 45,524 (3,909) - 41,615
(36,991) - 195 (37,186) Investment at amortised cost (314,318) 68 - (314,250)
(32,986) (44,012) (205,116) 216,142 Financial guarantee contracts (5,378) (190,315) (7,404) (203,097)
(32,073) 1 (72,827) 40,753 Acceptances 47,714 (49,994) (237) (2,517)
(277,831) (1,944) (119,327) (156,560) Loan commitment/unutilised limits 153,520 (140,313) (1,075) 12,132
176,809 (69,622) (607,341) 853,772 Total 475,208 (790,531) (37,274) (352,597)
Write off for the period
(966) (966) - - Retail Loans and Advances to customers - - (1,742) (1,742)
(12,929) (12,929) - - Corporate Loans and Advances to customers - - (61) (61)
(13,895) (13,895) - - Total - - (1,803) (1,803)
Closing Balance as at 31 December
234,387 - - 234,387 Cash and balances with Central Banks 156,517 - - 156,517
771,023 - 8,150 762,873 Due from Banks 626,272 20,088 - 646,360
4,066,975 101,265 22,778 3,942,932 Retail Loans and Advances to customers 4,018,151 64,734 102,066 4,184,951
5,593,333 255,191 1,926,144 3,411,998 Corporate Loans and Advances to customers 3,715,777 1,804,876 268,954 5,789,607
62,087 - 4,077 58,010 Investment at FVOCI 102,730 972 - 103,702
1,651,885 - 13,124 1,638,761 Investment at amortised cost 1,325,450 12,185 - 1,337,635
1,833,161 37,798 590,097 1,205,266 Financial guarantee contracts 1,177,051 420,766 32,247 1,630,064
111,663 287 50,007 61,369 Acceptances 70,816 38,280 50 109,146
1,987,754 - 597,311 1,390,443 Loan commitment/unutilised limits 1,692,226 307,660 - 1,999,886
16,312,268 394,541 3,211,688 12,706,039 Total 12,884,990 2,669,561 403,317 15,957,868

Annual Report - 2022 193

 An analysis of movement in the expected credit losses for the year ended 31 December 2022 is set out in the following tables
by class of financial assets:
2021 2022
Total Stage 3 Stage 2 Stage 1 Stage 1 Stage 2 Stage 3 Total
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Opening Balance as at 1 January
- - - - Cash and balances with Central Banks 11 - - 11
2,496 - 1,517 979 Due from Banks 2,230 3,642 - 5,872
102,055 88,683 3,287 10,085 Retail Loans and Advances to customers 10,818 1,100 93,741 105,659
294,023 176,080 108,490 9,453 Corporate Loans and Advances to customers 20,036 151,019 192,177 363,232
2,874 - 2,737 137 Investment at FVOCI 177 1,968 - 2,145
859 - - 859 Investment at amortised cost 1,793 709 - 2,502
63,607 48,501 13,176 1,930 Financial guarantee contracts 2,033 15,393 29,606 47,032
178 24 101 53 Acceptances 51 68 110 229
8,999 - 4,807 4,192 Loan commitment/unutilised limits 3,797 5,245 - 9,042
475,091 313,288 134,115 27,688 Total 40,946 179,144 315,634 535,724
Net transfer between stages
- - - - Cash and balances with Central Banks - - - -
- - 124 (124) Due from Banks (56) 56 - -
- 1,050 (1,178) 128 Retail Loans and Advances to customers (1,310) 926 384 -
- 574 (5,143) 4,569 Corporate Loans and Advances to customers (5,754) 5,634 120 -
- - (27) 27 Investment at FVOCI (27) 27 - -
- - 74 (74) Investment at amortised cost 4 (4) - -
- 79 1,206 (1,285) Financial guarantee contracts 1,586 (1,604) 18 -
- - 69 (69) Acceptances (100) 100 - -
- 32 876 (908) Loan commitment/unutilised limits 1,512 (1,529) 17 -
- 1,735 (3,999) 2,264 Total (4,145) 3,606 539 -
Impairment charged to income statement
11 - - 11 Cash and balances with Central Banks (4) - - (4)
3,376 - 2,001 1,375 Due from Banks (824) (168) - (992)
1,368 1,772 (1,009) 605 Retail Loans and Advances to customers (2,100) 1,276 (865) (1,689)
72,311 17,864 48,433 6,014 Corporate Loans and Advances to customers (3,888) 69,402 7,557 73,071
(729) - (742) 13 Investment at FVOCI 353 (1,221) - (868)
1,643 - 635 1,008 Investment at amortised cost 28 (64) - (36)
(16,575) (18,974) 1,011 1,388 Financial guarantee contracts (1,422) (2,635) (1,662) (5,719)
51 86 (102) 67 Acceptances 153 (68) (60) 25
43 (32) (438) 513 Loan commitment/unutilised limits (1,443) (1,560) (17) (3,020)
61,499 716 49,789 10,994 Total (9,147) 64,962 4,953 60,768
Interest reserve charged to interest income
3,202 3,202 - - Retail Loans and Advances to customers - - 2,524 2,524
9,827 10,588 (761) - Corporate Loans and Advances to customers - 2,194 14,476 16,670
13,029 13,790 (761) - Total - 2,194 17,000 19,194
Write off for the period
(966) (966) - - Retail Loans and Advances to customers - - (1,742) (1,742)
(12,929) (12,929) - - Corporate Loans and Advances to customers - - (61) (61)
(13,895) (13,895) - - Total - - (1,803) (1,803)
Closing Balance as at 31 December
11 - - 11 Cash and balances with Central Banks 7 - - 7
5,872 - 3,642 2,230 Due from Banks 1,350 3,530 - 4,880
105,659 93,741 1,100 10,818 Retail Loans and Advances to customers 7,408 3,302 94,042 104,752
363,232 192,177 151,019 20,036 Corporate Loans and Advances to customers 10,394 228,249 214,269 452,912
2,145 - 1,968 177 Investment at FVOCI 503 774 - 1,277
2,502 - 709 1,793 Investment at amortised cost 1,825 641 - 2,466
47,032 29,606 15,393 2,033 Financial guarantee contracts 2,197 11,154 27,962 41,313
229 110 68 51 Acceptances 104 100 50 254
9,042 - 5,245 3,797 Loan commitment/unutilised limits 3,866 2,156 - 6,022
535,724 315,634 179,144 40,946 Total 27,654 249,906 336,323 613,883

194 Annual Report - 2022

An analysis of credit quality of gross exposures as at 31 December 2022 is set out in the following tables by class of financial
assets:
2021 2022
Total Stage 3 Stage 2 Stage 1 Stage 1 Stage 2 Stage 3 Total
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Central Bank balances
93,862 - - 93,862 High Grade (Aaa to Baa3) 55,706 - - 55,706
140,525 - - 140,525 Standard Grade (Ba1 to Ba2) - - - -
- - - - Satisfactory Grade (Ba3 to Caa3) 100,811 - - 100,811
234,387 - - 234,387 Total 156,517 - - 156,517
Due from Banks
512,490 - 322 512,168 High Grade (Aaa to Baa3) 490,906 438 - 491,344
91,901 - - 91,901 Standard Grade (Ba1 to Ba2) 55,979 19,256 - 75,235
166,632 - 7,828 158,804 Satisfactory Grade (Ba3 to Caa3) 79,387 394 - 79,781
771,023 - 8,150 762,873 Total 626,272 20,088 - 646,360
Retail Loans and Advances
2,405,876 - 188 2,405,688 High Grade (Aaa to Baa3) 3,001,002 107 - 3,001,109
1,209,445 - 1,933 1,207,512 Standard Grade (Ba1 to Ba2) 886,050 2,187 - 888,237
350,389 - 20,657 329,732 Satisfactory Grade (Ba3 to Caa3) 131,099 62,440 - 193,539
101,265 101,265 - - Non Performing - - 102,066 102,066
4,066,975 101,265 22,778 3,942,932 Total 4,018,151 64,734 102,066 4,184,951
Corporate Loans and Advances
849,619 - 108,345 741,274 High Grade (Aaa to Baa3) 1,825,925 184,398 - 2,010,323
991,273 - 268,650 722,623 Standard Grade (Ba1 to Ba2) 863,604 207,620 - 1,071,224
3,497,250 - 1,549,149 1,948,101 Satisfactory Grade (Ba3 to Caa3) 1,026,248 1,412,858 - 2,439,106
255,191 255,191 - - Non Performing - - 268,954 268,954
5,593,333 255,191 1,926,144 3,411,998 Total 3,715,777 1,804,876 268,954 5,789,607
Investment at FVOCI
38,948 - - 38,948 High Grade (Aaa to Baa3) 53,832 - - 53,832
9,831 - (52) 9,883 Standard Grade (Ba1 to Ba2) 14,915 70 - 14,985
13,308 - 4,129 9,179 Satisfactory Grade (Ba3 to Caa3) 33,983 902 - 34,885
62,087 - 4,077 58,010 Total 102,730 972 - 103,702
Investment at amortised cost
249,837 - 14 249,823 High Grade (Aaa to Baa3) 52,581 - - 52,581
957,705 - 1,185 956,520 Standard Grade (Ba1 to Ba2) 2 - - 2
444,343 - 11,925 432,418 Satisfactory Grade (Ba3 to Caa3) 1,272,867 12,185 - 1,285,052
1,651,885 - 13,124 1,638,761 Total 1,325,450 12,185 - 1,337,635
Financial guarantee contracts
772,175 - 54,775 717,400 High Grade (Aaa to Baa3) 728,352 93,027 - 821,379
295,617 - 87,173 208,444 Standard Grade (Ba1 to Ba2) 176,807 89,510 - 266,317
727,571 - 448,149 279,422 Satisfactory Grade (Ba3 to Caa3) 271,892 238,229 - 510,121
37,798 37,798 - - Non Performing - - 32,247 32,247
1,833,161 37,798 590,097 1,205,266 Total 1,177,051 420,766 32,247 1,630,064
Acceptances
51,552 - 12,499 39,053 High Grade (Aaa to Baa3) 45,350 18,276 - 63,626
35,736 - 28,976 6,760 Standard Grade (Ba1 to Ba2) 16,655 11,526 - 28,181
24,088 - 8,532 15,556 Satisfactory Grade (Ba3 to Caa3) 8,811 8,478 - 17,289
287 287 - - Non Performing - - 50 50
111,663 287 50,007 61,369 Total 70,816 38,280 50 109,146
Loan commitment/unutilised limits
571,545 - 60,142 511,403 High Grade (Aaa to Baa3) 940,259 123,996 - 1,064,255
347,691 - 159,531 188,160 Standard Grade (Ba1 to Ba2) 501,358 91,233 - 592,591
1,068,518 - 377,638 690,880 Satisfactory Grade (Ba3 to Caa3) 250,609 92,431 - 343,040
1,987,754 - 597,311 1,390,443 Total 1,692,226 307,660 - 1,999,886
Gross exposure
5,545,904 - 236,285 5,309,619 High Grade (Aaa to Baa3) 7,193,913 420,242 - 7,614,155
4,079,724 - 547,396 3,532,328 Standard Grade (Ba1 to Ba2) 2,515,370 421,402 - 2,936,772
6,292,099 - 2,428,007 3,864,092 Satisfactory Grade (Ba3 to Caa3) 3,175,707 1,827,917 - 5,003,624
394,541 394,541 - - Non Performing - - 403,317 403,317
16,312,268 394,541 3,211,688 12,706,039 Total gross exposure 12,884,990 2,669,561 403,317 15,957,868

Annual Report - 2022 195

196
Comparison of provision held as per IFRS 9 and required as per CBO norms

2022 2021

Reserve Interest Reserve Interest

Assets classification as per Provision Provision Net Provision Net
Gross interest as recognised Gross interest as Provision as recognised
as per CBO as per Difference carrying as per CBO Difference carrying
amount per CBO as per amount per CBO per IFRS 9 as per
norms IFRS 9 amount norms amount
norms IFRS 9 norms IFRS 9

Annual Report - 2022

CBO Norms IFRS9 RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

(1) (2) (3) (4) (5) (6) (7 = 4 + 5 - 6) (8 = 3-6) (9) (3) (4) (5) (6) (7 = 4 + 5 - 6) (8 = 3-6) (9)

Stage 1 8,360,200 119,124 - 19,150 99,974 8,341,050 - 8,116,200 114,312 - 33,084 81,228 8,083,116 -

Standard Stage 2 1,411,901 14,499 - 142,647 (128,148) 1,269,254 - 1,487,761 14,904 - 92,252 (77,348) 1,395,509 -

Stage 3 - - - - - - - - - - - - - -

9,772,101 133,623 - 161,797 (28,174) 9,610,304 - 9,603,961 129,216 - 125,336 3,880 9,478,625 -

Stage 1 - - - - - - - - - - - - - -

Special mention Stage 2 477,791 10,239 41 92,799 (82,519) 384,992 - 469,436 8,560 - 63,794 (55,234) 405,642 -

Stage 3 - - - - - - - - - - - - - -

477,791 10,239 41 92,799 (82,519) 384,992 - 469,436 8,560 - 63,794 (55,234) 405,642 -

Stage 1 - - - - - - - - - - - - - -

Substandard Stage 2 - - - - - - - - - - - - - -

Stage 3 24,990 6,167 264 6,431 - 18,559 - 35,525 8,212 448 8,661 (1) 26,864 -

24,990 6,167 264 6,431 - 18,559 - 35,525 8,212 448 8,661 (1) 26,864 -

Stage 1 - - - - - - - - - - - - - -

Doubtful Stage 2 - - - - - - - - - - - - - -

Stage 3 23,721 9,802 596 10,398 - 13,323 - 34,025 11,951 1,055 13,260 (254) 20,765 -

23,721 9,802 596 10,398 - 13,323 - 34,025 11,951 1,055 13,260 (254) 20,765 -

Stage 1 - - - - - - - - - - - - - -

Loss Stage 2 - - - - - - - - - - - - - -

Stage 3 354,606 257,333 62,161 319,494 - 35,112 - 324,991 247,585 46,128 293,713 - 31,278 -

354,606 257,333 62,161 319,494 - 35,112 - 324,991 247,585 46,128 293,713 - 31,278 -

Other items not Stage 1 4,524,790 - - 8,504 (8,504) 4,516,286 - 4,589,839 - - 7,862 (7,862) 4,581,977 -
covered under
CBO circular BM Stage 2 779,869 - - 14,460 (14,460) 765,409 - 1,254,491 - - 23,098 (23,098) 1,231,393 -
977 and related
instructions Stage 3 - - - - - - - - - - - - - -

5,304,659 - - 22,964 (22,964) 5,281,695 - 5,844,330 - - 30,960 (30,960) 5,813,370 -

Stage 1 12,884,990 119,124 - 27,654 91,470 12,857,336 - 12,706,039 114,312 - 40,946 73,366 12,665,093 -

Total Stage 2 2,669,561 24,738 41 249,906 (225,127) 2,419,655 - 3,211,688 23,464 - 179,144 (155,680) 3,032,544 -

Stage 3 403,317 273,302 63,021 336,323 - 66,994 - 394,541 267,748 47,631 315,634 (255) 78,907 -

15,957,868 417,164 63,062 613,883 (133,657) 15,343,985 - 16,312,268 405,524 47,631 535,724 (82,569) 15,776,544 -
 Loans with renegotiated terms
Loans with renegotiated terms are defined as loans that have been restructured due to a deterioration in the borrower’s financial position, for which the Group has made concessions by
agreeing to terms and conditions that are more favourable for the borrower than the Group had provided initially and that it would not otherwise consider. A loan continues to be presented
as part of loans with renegotiated terms until maturity, early repayment or write-off.

2022 2021

Assets classification as per Reserve Interest Reserve Interest

Provision Provisions Net Provision Provisions Net
Gross interest as recognised Gross interest as recognised
as per CBO as per Difference carrying as per CBO as per Difference carrying
amount per CBO as per amount per CBO as per
Norms* IFRS 9 amount Norms* IFRS 9 amount
norms IFRS 9 norms IFRS 9

CBO Norms IFRS9 RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

(1) (2) (3) (4) (5) (6) (7 = 4 + 5 - 6) (8 = 3-6) (9) (3) (4) (5) (6) (7 = 4 + 5 - 6) (8 = 3-6) (9)

Stage 1 - - - - - - - - - - - - - -
Classified as
Stage 2 37,673 2,707 - 815 1,892 36,858 - 247,386 5,035 - 51,539 (46,504) 195,847 -
performing
Stage 3 - - - - - - - - - - - - - -

37,673 2,707 - 815 1,892 36,858 - 247,386 5,035 - 51,539 (46,504) 195,847 -

Stage 1 - - - - - - - - - - - - - -
Classified as
Stage 2 - - - - - - - - - - - - - -
non-performing
Stage 3 98,273 72,186 9,954 82,140 - 16,133 - 113,312 83,272 9,201 92,473 - 20,839 -

98,273 72,186 9,954 82,140 - 16,133 - 113,312 83,272 9,201 92,473 - 20,839 -

Stage 1 - - - - - - - - - - - - - -

Total Stage 2 37,673 2,707 - 815 1,892 36,858 - 247,386 5,035 - 51,539 (46,504) 195,847 -

Stage 3 98,273 72,186 9,954 82,140 - 16,133 - 113,312 83,272 9,201 92,473 - 20,839 -

135,946 74,893 9,954 82,955 1,892 52,991 - 360,698 88,307 9,201 144,012 (46,504) 216,686 -

* Provision required as per CBO norms includes reserve for restructured loans.

In addition to the above, loan outstanding of customers whose credit facilities were rescheduled as per the COVID19 guidelines of Central Bank of Oman amounted to RO 1,060.342 million
(Stage 1: RO 233.034 million, Stage 2: RO 814.686 million and Stage 3: RO 12.622 million) with an impairment allowance of RO 111.596 million (Stage 1: RO 0.919 million, Stage 2: RO 106.23
million, Stage 3: RO 4.447 million).
In 2021, loan outstanding of customers whose credit facilities were rescheduled as per the COVID19 guidelines of Central Bank of Oman amounted to RO 249.621 million (Stage 1: RO 106.763
million and Stage 2: RO 142.858 million) with an impairment allowance of RO 11.094 million (Stage 1: RO 0.372 million and Stage 2: RO 10.722 million).

Annual Report - 2022

197
 Impairment allowance
As per CBO As per
Difference
2022 Norms IFRS 9
RO 000's RO 000's RO 000's
Impairment loss charged to profit and loss account (net of recoveries) (1) 59,941 59,941 -
Provisions required as per CBO norms / held as per IFRS 9 (1)
480,226 613,883 (133,657)
Gross NPL ratio (2)
3.72% 3.72% 0.00%
Net NPL ratio (2)
0.65% 0.65% 0.00%
2021
Impairment loss charged to profit and loss account (net of recoveries) (1) 60,217 60,217 -
Provisions required as per CBO norms / held as per IFRS 9 (1)
453,155 535,724 (82,569)
Gross NPL ratio (2)
3.69% 3.69% -
Net NPL ratio (2)
0.75% 0.75% -

1 Impairment loss and provisions held above includes unallocated provision created by the Group
2
NPL ratios are calculated on the basis of funded non performing loans and funded exposures

41.2.8 Concentration of credit risk

Concentrations of credit risk arise when a number of counter parties are engaged in similar business activities or activities in
the same geographic region or have similar economic features that would cause their ability to meet contractual obligations
to be affected similarly by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative
sensitivity of the Group’s performance to developments affecting a particular industry or geographic location.
The Group seeks to manage its credit risk exposure through diversification of lending activities to avoid undue concentrations
of risks with individuals or Groups of customers in specific locations or businesses. It also obtains appropriate security
concentration by location for loans and advances and is measured based on the location of the Group holding the asset, which
has a high co-relation with the location of the borrower. Concentration by location for investment securities is measured based
on the location of the issuer of the security.
The table below analyses the concentration of gross exposures to customers by various sectors.

Loans and advances

Investment debt Contingent liabilities
Due from banks and Islamic financing
securities and commitments
receivables
2022 2021 2022 2021 2022 2021 2022 2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Agriculture/allied
activity - - 174,148 103,284 - - 7,907 8,999
Construction - - 476,713 416,372 - - 389,690 367,430
Export trade - - 54,413 34,481 - - 304,736 498,564
Financial
institutions 646,360 771,023 415,057 483,869 33,900 38,077 79,443 95,988
Government - - 46,067 146,795 1,258,624 1,551,891 3,239 26,194
Import trade - - 477,248 350,738 - - 187,138 198,572
Manufacturing - - 817,709 996,260 - - 90,689 113,544
Mining and
quarrying - - 346,597 257,390 2,917 6,846 90,676 77,711
Real estate - - 285,940 264,793 - - 214 214
Services - - 778,224 621,360 98,986 70,499 219,650 209,384
Transport - - 860,644 899,359 - - 69,784 70,673
Utilities - - 786,437 770,695 43,385 44,377 15,127 15,745
Wholesale / Retail
trade - - 210,023 214,847 - - 83,148 54,357
Others - - 65,869 41,867 3,525 2,282 88,623 95,786
Personal /
Housing Loans - - 4,179,469 4,058,198 - - - -
646,360 771,023 9,974,558 9,660,308 1,441,337 1,713,972 1,630,064 1,833,161

198 Annual Report - 2022

The Group monitors concentrations of credit risk by sector and by geographic location. The table below analyses the the
concentrations of gross exposures by various sectors:

Loans and advances

Investment debt Contingent liabilities
Due from banks and Islamic financing
securities and commitments
receivables
2022 2021 2022 2021 2022 2021 2022 2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Concentration by
sector
Corporate - - 5,333,965 4,971,446 148,813 124,004 1,547,382 1,710,979
Sovereign - - 46,067 146,795 1,258,624 1,551,891 3,239 26,194
Financial
institutions 646,360 771,023 415,057 483,869 33,900 38,077 79,443 95,988
Retail - - 4,179,469 4,058,198 - - - -
646,360 771,023 9,974,558 9,660,308 1,441,337 1,713,972 1,630,064 1,833,161

The table below analyses the concentration of gross exposures by various locations:

Loans and advances

Investment debt Contingent liabilities
Due from banks and Islamic financing
securities and commitments
receivables
2022 2021 2022 2021 2022 2021 2022 2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Concentration by
location
Sultanate of Oman 48,664 82,835 9,579,588 9,379,767 1,381,376 1,459,225 1,106,701 1,177,004
Other GCC
Countries 319,311 465,321 332,717 219,900 19,386 31,242 173,063 154,152
Europe 99,758 59,124 2,408 233 - - 184,093 271,121
United States of
America 58,790 39,637 - - 876 - 16,952 35,030
Others 119,837 124,106 59,845 60,408 39,699 223,505 149,255 195,854
646,360 771,023 9,974,558 9,660,308 1,441,337 1,713,972 1,630,064 1,833,161

41.2.9 Settlement risk

The Group’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of
loss due to the difference in time zones of banks operating in different geographies. The Bank has set in place appropriate
settlement limits and monitors the same on a continuous basis. Further, the Bank has an arrangement to settle all major
foreign exchange transactions through Continuous Linked Settlements (CLS). The CLS is a Central Counterparty (CCP) which
helps the bank to mitigate settlement risks.

41.3 Liquidity risk

Liquidity risk is the potential inability of the Group to meet its maturing obligations to counterparty.

41.3.1 Management of liquidity risk

Liquidity risk or funding risk arises when the Bank is unable to generate sufficient cash resources in a timely and cost-effective
manner to meet obligations as they fall due and/or to fund assets growth. Such liquidity risk may arise even when the institution
is solvent. Liquidity stress may be caused by counterparties withdrawing credit lines or of not rolling over existing funding or
as a result of general disruption in the markets or run on Group deposits etc.
The Bank’s treasury manages the liquidity on day-to-day basis under the guidance and supervision of the Asset Liability
Committee (ALCO) of the Group manages the liquidity position of the Group. In order to ensure that the Group meets its
financial obligations as and when they fall due and to avoid any undue concentration, sources and maturities of assets and
liabilities cash flow positions are closely monitored. Liquidity risk management ensures that the Group has the ability, under
varying levels of stress to efficiently and economically meet liquidity needs

Annual Report - 2022 199

 The Group consciously diversifies its funding base to include deposits raised from inter-bank, retail customer deposits, bonds
and medium term funds raised through Euro medium term notes and subordinated liabilities. These together with the strength
of the Group’s equity and asset quality ensure that funds are available at competitive rates at all times.
The sources and maturities of assets and liabilities are closely monitored to avoid any undue concentration and ensure a robust
management of liquidity risks. The Group undertakes structural profiling based on the actual behavioral patterns of customers
to study the structural liquidity position and initiate measures to fund these gaps.
The Group undertakes liquidity management through establishing time-band based “gap limits” and “maximum cumulative
outflow” limits, development of stress testing and contingency plans to ensure “crisis survivability”, various liquidity ratios/
thresholds such as LCR, NSFR etc.
The Group’s statement on maturity of asset and liability is outlined in note 41.3.2 to the consolidated financial statements.

41.3.2 Exposure to liquidity risk

The key measures used by the Group for managing liquidity risk are the ratios of liquid assets to total deposits and liquid assets
to total assets. For this purpose the liquid assets include cash and balances with Central Banks, government securities, treasury
bills and due from banks. The table below provides the ratios of liquid assets to deposits from customers and liquid assets to
total assets at the reporting date and during the reporting period.

Liquid assets to Liquid assets to

total assets ratio total deposits ratio
2022 2021 2022 2021
As at 31 December 18.66% 21.96% 25.09% 29.51%
Average for the period 19.94% 20.81% 26.70% 28.12%
Maximum for the period 22.43% 22.08% 30.30% 29.80%
Minimum for the period 16.40% 18.41% 21.94% 24.84%

The following table sets out the Liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) of the Bank:

As at 31 December 2022 2021

LCR 219% 268%
NSFR 118% 122%

200 Annual Report - 2022

The table below analyses the Group’s on and off balance sheet assets and liabilities into relevant maturity Groupings based on
the remaining period at the reporting date using the contractual maturity date. Derivative financial liabilities are included in the
analysis if their contractual maturities are essential for an understanding of the timing of the cash flows. The amounts disclosed
in the table are the contractual undiscounted cash flows.
The Group’s maturity position of on and off balance sheet assets and liabilities is as follows:

On demand
2 to 3 4 to 12 More than 5
or within 1 1 to 5 years Total
As at 31 December 2022 months months years
month
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Cash and balances with
Central Banks 624,678 25,924 59,185 102,651 70,622 883,060

Due from banks 188,875 106,702 135,515 194,079 16,309 641,480

Loans and advances 1,122,177 671,592 888,764 1,973,368 4,760,993 9,416,894

Investments 410,140 21,492 93,457 770,997 284,693 1,580,779

Property and equipment

and other assets 99,339 55,215 37,688 1,663 59,864 253,769

Total on balance sheet

assets 2,445,209 880,925 1,214,609 3,042,758 5,192,481 12,775,982

Irrevocable credit
commitments / invocation
of guarantees 42,350 - - 377,414 - 419,764

Derivatives 373,383 443,685 490,795 362,456 - 1,670,319

Total off balance sheet

assets 415,733 443,685 490,795 739,870 - 2,090,083

Total assets 2,860,942 1,324,610 1,705,404 3,782,628 5,192,481 14,866,065

Future interest cash

inflows 35,812 67,937 363,979 1,365,198 1,100,863 2,933,789

Deposits from banks 318,628 204,266 41,494 439,718 - 1,004,106

Customers' deposits 728,462 950,763 1,746,222 3,197,880 2,023,494 8,646,821

Euro medium term notes /

sukuk - 195,188 - 241,064 - 436,252

Other liabilities and taxation 151,405 121,475 177,743 1,817 4,239 456,679

Total equity - - - - 2,232,124 2,232,124

Total liabilities and equity 1,198,495 1,471,692 1,965,459 3,880,479 4,259,857 12,775,982

Irrevocable credit
commitments / invocation
of guarantees 138,085 97,854 139,134 44,691 - 419,764

Derivatives 373,271 444,139 491,177 361,515 - 1,670,102

Total off balance sheet

liabilities 511,356 541,993 630,311 406,206 - 2,089,866

Total liabilities 1,709,851 2,013,685 2,595,770 4,286,685 4,259,857 14,865,848

Future interest cash

outflows 730 7,460 5,031 282,454 58,051 353,726

Gap (total assets - total

liabilities) 1,151,091 (689,075) (890,366) (504,057) 932,624 217

Cumulative gap 1,151,091 462,016 (428,350) (932,407) 217

Annual Report - 2022 201

 On demand
Two to three Four months One to five More than
or within one Total
months to 12 months years five years
As at 31 December 2021 month

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Cash and balances with

Central Banks 778,974 30,462 63,501 121,270 53,017 1,047,224

Due from banks 145,146 199,813 280,930 115,512 23,750 765,151

Loans and advances 1,147,329 697,030 696,204 2,249,380 4,401,474 9,191,417

Investments 494,527 149,373 94,849 696,482 384,531 1,819,762

Property and equipment

and other assets 83,676 54,770 38,207 3,582 68,749 248,984

Total on balance sheet

assets 2,649,652 1,131,448 1,173,691 3,186,226 4,931,521 13,072,538

Irrevocable credit
commitments / invocation
of guarantees - - - 234,432 - 234,432

Derivatives 545,648 538,559 466,144 69,992 - 1,620,343

Total off balance sheet

assets 545,648 538,559 466,144 304,424 - 1,854,775

Total assets 3,195,300 1,670,007 1,639,835 3,490,650 4,931,521 14,927,313

Future interest cash inflows 38,870 92,226 352,484 1,283,982 971,192 2,738,754

Deposits from banks 409,991 175,175 168,564 464,735 - 1,218,465

Customers' deposits 775,639 901,538 1,919,265 3,625,476 1,552,688 8,774,606

Euro medium term notes/

sukuk - - 45,002 435,977 - 480,979

Other liabilities and taxation 146,607 113,203 180,156 3,414 4,264 447,644

Total equity - - - - 2,150,844 2,150,844

Total liabilities and equity 1,332,237 1,189,916 2,312,987 4,529,602 3,707,796 13,072,538

Irrevocable credit
commitments / invocation
of guarantees 55,688 39,442 117,070 22,232 - 234,432

Derivatives 543,741 536,406 464,204 69,437 - 1,613,788

Total off balance sheet

Liabilities 599,429 575,848 581,274 91,669 - 1,848,220

Total liabilities 1,931,666 1,765,764 2,894,261 4,621,271 3,707,796 14,920,758

Future interest cash

outflows 11,416 24,739 84,765 203,220 51,449 375,589

Gap (total assets - total

liabilities) 1,263,634 (95,757) (1,254,426) (1,130,621) 1,223,725 6,555

Cumulative gap 1,263,634 1,167,877 (86,549) (1,217,170) 6,555

Contingent liabilities are bucketed on the basis of probable funding obligations based on past experiences.
Interest cash flows shown in the above tables represent inflows and outflows up to the contractual maturity of financial assets
and liabilities. Mismatch in interest cash flows arise as contractual maturity of financial assets is longer than contractual maturity
of financial liabilities. Historically, financial liabilities are rolled over on contractual maturity which is not considered in the future
interest cash flow calculations. Furthermore, the interest cash flows do not factor in the stable nature of unambiguous maturity
financial liabilities such as demand and savings accounts.

202 Annual Report - 2022

41.4 Market risk
Market risk is the potential loss due to changes in market determined variables. It manifests through the following variables
Foreign exchange risk, investment price risk, interest rate risk and commodity price risk

41.4.1 Management of market risks

The Group sets limits for each product and risk type in order to ensure that the Group’s market risk is managed well within
the overall regulatory requirements set by the Central Bank of Oman and internal regulations contained in the Risk Policy. The
Group does not enter into trading positions in commodities and derivatives. Limits and all internal / external guidelines are
strictly adhered to, deviations, if any, are immediately escalated and action taken wherever necessary.

41.4.2 Foreign exchange risk

Foreign exchange risk is the potential adverse impact on earnings and market value of currency holdings due to changes
in foreign exchange rates. Foreign exchange risk management in the Group is ensured through regular measurement and
monitoring of open foreign exchange positions against approved regulatory and internal limits. Majority of the foreign
exchange transactions carried out by the division are on behalf of corporate customers and are on a back-to-back basis. The
treasury ensures that positions with customers are covered in the interbank market.
The Group conservatively restricts its open currency position at below 35 percent of its net worth as against the regulatory limit
of 40 percent of net worth.
As at the reporting date, the Group had the following net exposures denominated in foreign currencies:

2022 2021

RO 000's RO 000's

UAE Dirham 16,440 2,408

US Dollar 31,201 308,650

Saudi Riyal 13,236 12,673

Qatari Riyal 771 680

Pakistani Rupee 1,797 2,536

Indian Rupee 7,009 4,966

Kuwait Dinar 20,091 19,805

Bahraini Dinar 46,899 45,676

Others 1,130 1,978

138,574 399,372

Positions are monitored on a daily basis to ensure positions are maintained within the limits approved by the Central Bank
of Oman. The net exposure in foreign currencies includes foreign currency exposure on investment in overseas branches,
subsidiary and significant investment in certain entities of equivalent to RO 78 million (2021: RO 73 million) which are exempted
from regulatory limit on foreign exchange exposure. The Group’s significant portion of foreign exchange exposure is in USD
and other GCC currencies which have (other than Kuwaiti Dinar) fixed parity with Omani Rial unless the peg is changed.

Exposure and sensitivity analysis:

The table below indicates the sensitivity analysis of foreign exchange exposure of the Group to changes in the non-parity
foreign currency prices as at 31 December with all other variables held constant.

2022 2021

% of change Change in Change in

Non-parity foreign currency net assets profit and % of change in profit and
in the
equity (+/-) the currency equity (+/-)
currency price
price (+/-)
(+/-) RO 000's RO 000's

Indian Rupee 10% 701 10% 497

Pakistani Rupee 10% 180 10% 254

Kuwaiti Dinar 10% 2,009 10% 1,981

Others 10% 113 10% 198

Annual Report - 2022 203

 41.4.3 Investment price risk
Investment price risk is the risk of decline in the market value of the Group’s portfolio as a result of diminishment in the market
value of individual investments. The Group’s investments are governed by the Investment Policy and Risk Policy approved by
the Board of Directors and are subject to rigorous due diligence. Investment limits such as position limits, exposure limits, stop
loss limits, sectorial limits are defined in various policies enabling proper risk management of the Group’s investments. The
Group’s Investment Committee monitors the investments on a regular basis. The rating and cost vis-a-vis the market price of
the instruments are monitored on daily basis and necessary actions taken to reduce exposure, if needed. Traded portfolio is
revalued on daily basis and the rest at regular intervals to ensure that unrealised losses, if any, on account of reduction in the
market value of the investments below their cost remain within the acceptable parameters defined in the Group’s Investment
Policy.

Exposure and sensitivity analysis

The Group analyses price sensitivity of the equity portfolio as follows:

• For the local quoted equity portfolio, based on the beta factor of the portfolio performance to the MSX30 Index performance.
• For the international quoted equity portfolio, based on the individual security market price movement.

The Group's market risk is affected mainly by changes to the actual market price of financial assets. Actual performance of the
Group's local equity portfolio has a correlation to the performance of MSX30 Index.
The beta of the banks quoted local equity portfolio against the MSX30 Index for 2022 was 1.24 (2021: 0.70). Thus, a +/- 5%
change in the value of MSX30 index may result in +/- 6.22% (2021: +/-3.49%) change in the value of bank’s quoted local equity
portfolio, amounting to RO 1.551 million (2021: RO 0.930 million) and corresponding increase or decrease in the unrealised gain
recognized in the investment income / statement of other comprehensive income based on the classification of the portfolio.
International quoted equity portfolio of the bank comprises of shares listed in GCC stock markets, Indian Stock markets and
other international markets. A +/-5% change in the market price of the respective securities, have resulted in change in value
of the portfolio of +/- RO 5.47 million in FY 2022 (2021: +/-RO 3.78 million) with corresponding increase or decrease in the
unrealised gain recognized in the investment income / statement of other comprehensive income based on the classification
of the portfolio.

204 Annual Report - 2022

41.4.4 Interest rate risk management
Interest rate risk is the risk of adverse impact on the Group’s financial position due to change in market interest rates. While
the impact on the trading book is by way of change in the value of the portfolio, the banking book leads to impact on the net
Interest Income (NII) and/or Economic Value of Equity (EVE). The short term impact of interest rate risk is measured by studying
the impact on the NII of the Group while the long term impact is measured through the study of the impact on the Economic
Value of Equity. The responsibility for interest rate risk management rests with the Parent Company’s Treasury under the
supervision of the Asset Liability Management Committee (ALCO). The Group’s interest rate sensitivity position of assets and
liabilities, based on the contractual repricing or maturity dates, whichever dates are earlier, is as follows:

Non-
Effective Within 1 Months 2 Months 4 Year 1 Over 5 interest
annual month to 3 to 12 to 5 years sensitive Total
As at 31 interest
December 2022 rate % RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Cash and balances
with Central Banks 0-0.5 144,092 6,244 6,191 - - 726,533 883,060
Due from banks 2.04 267,918 286,851 83,610 - - 3,101 641,480
Loans and
advances 5.08 1,274,246 989,319 1,451,557 2,411,118 3,290,654 - 9,416,894
Investments 4.27 292,576 21,492 94,346 769,936 287,032 115,397 1,580,779
Property and
equipment and
other assets None - - - - - 253,769 253,769
Total on balance
sheet assets 1,978,832 1,303,906 1,635,704 3,181,054 3,577,686 1,098,800 12,775,982
Derivatives 432,957 529,102 492,320 568,756 106,245 - 2,129,380
Total assets 2,411,789 1,833,008 2,128,024 3,749,810 3,683,931 1,098,800 14,905,362
Deposits from
banks 3.03 464,057 381,366 147,376 - - 11,307 1,004,106
Customers'
deposits 1.89 341,956 576,766 4,758,963 1,515,068 114,234 1,339,834 8,646,821
Euro medium term
notes / Sukuk 5.06 - 195,188 - 241,064 - - 436,252
Other liabilities
and taxation None - - - - - 456,679 456,679
Perpetual Tier I
capital 4.57 - - - 505,320 - - 505,320
Shareholders'
funds None - - - - - 1,726,804 1,726,804
Total on balance
sheet liabilities
and equity 806,013 1,153,320 4,906,339 2,261,452 114,234 3,534,624 12,775,982
Derivatives 432,846 529,556 500,754 559,762 106,245 - 2,129,163
Total liabilities 1,238,859 1,682,876 5,407,093 2,821,214 220,479 3,534,624 14,905,145
Total interest rate
sensitivity gap 1,172,930 150,132 (3,279,069) 928,596 3,463,452 (2,435,824) 217
Cumulative
interest rate
sensitivity gap 1,172,930 1,323,062 (1,956,007) (1,027,411) 2,436,041 217

Annual Report - 2022 205

 Effective Non-
Within 1 Months 2 Months 4 Year 1 Over 5
As at 31 annual interest Total
month to 3 to 12 to 5 years
December 2021 interest sensitive
rate % RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Cash and balances
with central banks 0-0.5 225,516 4,444 4,434 - - 812,830 1,047,224
Due from banks 0.85 142,656 199,813 304,680 115,512 - 2,490 765,151
Loans and
advances 4.83 1,327,673 1,244,437 1,163,539 2,789,805 2,665,963 - 9,191,417
Investments 3.93 421,708 147,548 97,393 696,800 352,939 103,374 1,819,762
Property and
equipment and
other assets None - - - - - 248,984 248,984
Total on balance
sheet assets 2,117,553 1,596,242 1,570,046 3,602,117 3,018,902 1,167,678 13,072,538
Derivatives 717,102 660,056 589,540 271,927 139,598 - 2,378,223
Total assets 2,834,655 2,256,298 2,159,586 3,874,044 3,158,500 1,167,678 15,450,761
Deposits from
banks 1.70 486,263 454,300 168,564 67,375 - 41,963 1,218,465
Customers'
deposits 1.74 306,275 483,569 4,461,255 2,032,485 120,614 1,370,408 8,774,606
Euro medium term
notes / sukuk 4.96 - - 45,002 435,977 - - 480,979
Other liabilities
and taxation None - - - - - 447,644 447,644
Perpetual Tier I
capital 5.50 - - 130,000 - - - 130,000
Shareholders'
funds None - - - - - 2,020,844 2,020,844
Total on balance
sheet liabilities
and equity 792,538 937,869 4,804,821 2,535,837 120,614 3,880,859 13,072,538
Derivatives 715,194 657,903 587,670 271,303 139,598 - 2,371,668
Total liabilities 1,507,732 1,595,772 5,392,491 2,807,140 260,212 3,880,859 15,444,206
Total interest rate
sensitivity gap 1,326,923 660,526 (3,232,905) 1,066,904 2,898,288 (2,713,181) 6,555
Cumulative
interest rate
sensitivity gap 1,326,923 1,987,449 (1,245,456) (178,552) 2,719,736 6,555

• The repricing profile is based on the remaining period to the next interest repricing date.
• An asset (or positive) gap position exists when assets reprice more quickly or in greater proportion than liabilities during
a given period and tends to benefit net interest income in a rising interest rate environment. A liability (or negative) gap
position exists when liabilities reprice more quickly or in greater proportion than assets during a given period and tends to
benefit net interest income in a declining interest rate environment.

Re-pricing gap is the difference between interest rate sensitive assets and liabilities spread over distinct maturity bands based
on residual maturity or re-pricing dates. The Parent Company uses currency-wise and consolidated re-pricing gaps to quantify
interest rate risk exposure over distinct maturities and analyse the magnitude of portfolio changes necessary to alter the existing
risk profile. The distribution of assets and liabilities over these time bands is done based on the actual repricing schedules. The
schedules are used as a guideline to assess interest rate risk sensitivity and to focus the efforts towards reducing the mismatch
in the repricing pattern of assets and liabilities.
The Parent Company uses simulation reports as an effective tool for understanding risk exposure under variety of interest
rate scenarios. These reports help ALCO to understand the direction of interest rate risk in the Parent Company and decide on
the appropriate strategy and hedging mechanism for managing it. The Parent Company’s current on- and off-balance sheet

206 Annual Report - 2022

exposures are evaluated under static environment to quantify potential effect of external interest rate shocks on the earnings
and economic value of equity at risk, using assumptions about future course of interest rates and changes in Parent Company’s
business profile.
Economic Value of Equity (EVE) is the present value of all asset cash flows subtracted by the present value of all liability cash
flows. By calculating the EVE the Group is able to show the effect of different interest rate changes on its total capital. This is
a key tool that allows Group to prepare against constantly changing interest rates. The impact of interest rate changes on EVE
is monitored by recognising the changes in the value of assets and liabilities for a given change in the market interest rate.
The interest rate risk management is facilitated by limits of 5% NII impact and 20% impact on EVE for a 200 basis points shock.
An analysis of the Group’s sensitivity to an increase or decrease in market interest rates is as follows:

2022 2021

As at 31 December RO 000's RO 000's RO 000's RO 000's

+200 bps -200 bps +200 bps -200 bps

Impact on Net Interest income 4,678 (14,048) 21,809 (2,626)

Impact on Economic Value (224,063) 685,684 (238,934) 409,114

41.4.5 IBOR reform

Following the decision by global regulators to phase out IBORs and replace them with alternative reference rates, the Bank has
established a project to manage the transition for any of its contracts that could be affected. The project is sponsored by the
Group CFO and is being led by senior representatives from functions across the Bank including the client facing teams, Legal,
Finance, Operations and Technology. The project provides monthly progress updates to the Managing Board and bi-annually
to the Audit Committee. The Bank successfully completed the transition of a significant portion of its IBOR exposure to RFRs
in 2021 and 2022. In particular, prior to the cessation of all LIBORs other than five USD LIBOR tenors after 31 December 2021,
the Bank completed the transition of all affected exposures. The Bank is now confident that it has the operational capability
to process the remaining transitions to RFRs for those interest rate benchmarks, including exposures to USD LIBOR 3 month
and 12 month, that will cease to be available after 30 June 2023. For other benchmark interest rates such as EURIBOR that have
been reformed, financial instruments referencing those rates will not need to transition provided the reformed rates continue
to meet regulators’ stringent requirements to qualify as RFRs.
IBOR reform exposes the Group to various risks, which the project is managing and monitoring closely. These risks include but
are not limited to the following:

• Conduct risk arising from discussions with clients and market counterparties due to the amendments required to existing
contracts necessary to effect IBOR reform
• Financial risk to the Group and its clients that markets are disrupted due to IBOR reform resulting in financial losses
• Pricing risk from potential lack of market information if IBOR liquidity reduces and RFRs are illiquid/unobservable
• Operational risk arising from changes to the Group’s IT systems and processes, also the risk of payments being disrupted if
an IBOR ceases to be available
• Accounting risk if the Group’s hedging relationships fail and from unrepresentative income statement volatility as financial
instruments transition to RFRs

Annual Report - 2022 207

 The table below shows the Group’s exposure at the year end to significant IBORs subject to reform that have yet to transition
to RFRs. These exposures will remain outstanding even after LIBOR is expected to cease and will therefore transition in future.

As of 31 December 2022 Non-derivative

Non-derivative Derivatives
financial
(RO ‘000s) financial assets Nominal amount
liabilities

USD 1M LIBOR 262,243 - 171,489

USD 3M LIBOR 347,120 644,592 184,551

USD 6M LIBOR 471,597 - 101,556

1,080,960 644,592 457,596

Maturites after 30 June 2023

USD 1M LIBOR 262,243 - 171,489

USD 3M LIBOR 333,853 529,092 178,146

USD 6M LIBOR 466,298 - 101,556

1,062,394 529,092 451,191

As of 31 December 2021

USD 1M LIBOR 293,058 - 396,145

USD 3M LIBOR 1,075,354 424,310 225,699

USD 6M LIBOR 604,469 250,250 136,036

1,972,881 674,560 757,880

Maturites after 30 June 2023

USD 1M LIBOR 120,029 - 214,244

USD 3M LIBOR 528,904 214,485 212,135

USD 6M LIBOR 480,680 - 133,221

1,129,613 214,485 559,600

41.5 Commodity Price Risk

As part of its treasury operations, the Group offers commodities hedging facility to its clients. Customers of the Group who are
exposed to commodities like Copper, Aluminium, Oil and also Jewellers with exposure to gold prices cover their commodity
exposures through the Group. The Group covers all its commodity exposures back-to-back in the interbank market. The Group
operates in the commodities market purely as a provider of hedging facilities and does not either trade in commodities or
bullion or maintain positions in commodities. Customers of the Group are sanctioned a transaction volume limit based on
their turn-over/ orders as well as a Variation Margin limit is applied to mitigate any mark-to-mark related credit exposures for
the Group. The transaction volume limit is to restrict the total outstanding contracts value to the business requirement of the
customer and the variation margin limit is to protect the Group from excessive credit risk due to adverse price movement in
the underlying commodity prices. Margin calls for additional collateral or cash deposits is demanded from customers on the
breach of the Variation Margin limit. The treasury middle-office monitors customers’ positions and MTMs on daily basis.

41.6 Operational risks

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external
events. Operational risk includes legal risk but excludes strategic and reputational risk. Operational risk loss results from
deficiencies in information systems, internal controls or uncontrollable external events. The risk is associated with human error,
systems failure, inadequate procedures or controls and external causes.

208 Annual Report - 2022

The Bank’s Operational Risk Management Department “ORMD” is responsible for managing the operational risk profile of
the Bank. It devises the risk management framework, policies and tools to govern and manage inherent operational risks in
the Group’s activities and operations by implementing regulatory/ Basel guidelines and the best practices in the industry.
Operational risk is controlled through strong internal controls and audits, well-defined segregation of duties and reporting
lines, detailed operational manuals and standards.
ORMD monitors the movements in the operational risk profile of the Group. Deviations are analyzed and root cause with
recommendations are raised and discussed with appropriate management actions, periodically and on ad-hoc basis. For this
purpose, the Group keeps a centralized repository of all operational risks events encountered by the Group’s departments
and branches. Opportunities of automating Group’s activities, to enhance operations efficiency and reduce human errors, are
always looked for and explored. Adoption of risk management culture is a key successful element for managing risks, therefore,
ORMD conducts regular trainings to stakeholders in order to disseminate risk awareness. To minimize the impact of operational
risks events, the Group ensures a fully functional IT Disaster recovery system, comprehensive insurance arrangements, up-to-
date documentation and effective implementation of Business Continuity Plan.
Business units, as first layer of defence, have the primary responsibility of identifying, assessing, managing, and reporting
the operational risks that are inherent in their respective products, activities, processes and systems. Business are required
to conduct the Risk Control Self-assessment (RCSA) annually or whenever a new product is launched, system / process is
changed, or material external risk emerges, alongside with the embedding of effective and efficient internal controls into all of
their operations and activities, with consistent application of the approved operating policies and procedures.
Operational risk management function, as a second layer of defence, have the primary responsibility to pursue the achievement
of the aforementioned operational risk management objectives through facilitating the necessary tools, challenging business
units, monitoring the operational risk profile, and reporting drifts to Management for action.
While the Internal Audit function, as a third layer of defence, is the primary responsible for the independent validation of the
overall effectiveness and efficiency of the operational risk management framework and its implementation.
The Management Risk Committee is the primary oversight body for managing operational risk. The committee is represented by
various business and control functions and is responsible for ensuring that the Bank has adequate and sound risk management
framework, policies, processes that govern the identification, evaluation and management of operational risks, in line with the
BASEL requirements, best practices, and regulatory directives & guidelines.

Business Continuity Management (BCM)

BCM is the planning, implementation and management to ensure that the Group can continue to operate at least at a pre-
determined level following a significant unplanned event or major operational disruption. The Group ensures that its systems
and procedures are resilient in potential situations of failure. The Group has put in place Business Continuity Plans (BCP) for
each critical department as well as every branch to ensure that its business runs effectively in the event of most unforeseen
disasters as required by the CBO Business Continuity Guidelines, the Basel Committee Joint Forum High-level principles for
business continuity and international business continuity standards. The Protective Services Committee is entrusted with the
responsibility of formulating, adopting, implementing, testing and maintaining a robust BCP for the Group. It continuously
reviews and agrees to the business continuity strategy. It also ensures that planning and maintenance responsibilities are
assigned, understood and implemented across the business. The Group’s recovery centre has the capability to meet any
unforeseen disaster and ensure continual operational capability in the event of a major operational disruption. To ensure
proper functioning of Business Recovery Centre (BRC), all departments of the Group are required to complete bi-annual testing
to ensure that it will operate successfully in emergencies.

41.7 Capital management

41.7.1 Regulatory capital
The Parent Company’s regulator, Central Bank of Oman (CBO), sets and monitors capital requirements for the Parent Company
as a whole. In implementing Basel III’s capital requirement, the CBO requires the Parent Company to maintain a minimum of
13.25% ratio of total capital to total risk-weighted assets. The Group’s regulatory capital as per Basel III regulations is grouped
into Tier 1 and Tier 2 capital:

• Tier I capital, includes Common equity Tier 1 Capital (CET1) comprising of ordinary share capital, share premium, distributable
and non-distributable reserves and retained earnings (net of proposed dividend) after deducting carrying value of
investment in associates, carrying value of strategic investments and other prudential valuation adjustments in line with
Basel III guidelines. ; Further Tier 1 capital includes Additional Tier 1 Capital (AT1) in form of Basel III compliant perpetual
bonds.

Annual Report - 2022 209

 • Tier II capital includes qualifying subordinated liabilities, General loan loss impairment / ECL provision (Stage 1 and 2) and the
element of the fair value reserve relating to unrealised gains on equity instruments classified as FVOCI;

Various limits are applied to elements of the capital base. The qualifying Tier II cannot exceed Tier I capital, amount of collective
impairment allowances that may be included as part of Tier II capital is limited to 1.25 percent of the total credit risk-weighted
assets. Further incremental Stage 2 ECL as on December 31, 2022 over Stage 2 ECL as on December 31, 2019, qualifies as Tier II
capital with gradual phase out by 2024.
Capital adequacy indicates the ability of the Group in meeting any contingency without compromising the interest of the
depositors and to provide credit across the business cycles. Sufficient capital in relation to the risk profile of the Group’s
assets helps promote financial stability and confidence of the stakeholders and creditors. The Group aims to maximise the
shareholders’ value through an optimal capital structure that protects the stakeholders’ interests under most extreme stress
situations, provides sufficient room for growth while meeting the regulatory requirements and at the same time gives a
reasonable return to the shareholders. The Group has a forward looking capital policy which considers the current risk, planned
growth and an assessment of the emerging risk for the forecasted period.
While risk coverage is the prime factor influencing capital retention, the Group is conscious of the fact that as a business entity,
its capital needs to be serviced and a comfortable rate of return needs to be provided to the shareholders. Excessive capital
will dilute the return on capital and this in turn can exert pressure for profitability, propelling business asset growth resulting in
the Group assuming higher levels of risk. Hence, with regards to the retention of capital, the Group’s policy is governed by the
need for adequately providing for associated risks and the needs for servicing the capital retained. During the year, as part of
capital optimisation plan the shareholders of the bank approved one-off dividend in the form of bonus shares and perpetual
bonds to the existing shareholders Refer to note 20 for details.
The Group utilises Additional Tier 1 (AT1) and raises share capital as and when the need arises. The Group’s strong and diverse
shareholder profile gives the Group the necessary confidence in its ability to raise capital when it is needed.
The Group desires to move to more advanced approaches for measuring credit risk, market risk and operational risk and
has put in place a ‘building block’ approach. A road map has been laid down for each core area of risk viz. credit, market,
operational. Progress has been made in line with the road map and is being monitored on a continuous basis and reported.

Basel III regulatory reporting

The Central Bank of Oman has issued final guidelines on the implementation of the new capital norms along with the phase-
in arrangements and reporting norms. The group remains strongly capitalised and is ahead of the transitional phase-in
arrangements.

210 Annual Report - 2022

41.7.2 Capital adequacy
The following table sets out the capital adequacy position of the Group:

2022 2021

RO 000's RO 000's
Common Equity Tier 1 (CET1) capital:
Instruments and reserves

Share capital* 750,640 357,448

Share premium* 156,215 531,535

Legal reserve 139,229 119,149

General reserve 410,258 410,258

Retained earnings (after proposed cash dividend)* 155,100 487,613

Total 1,611,442 1,906,003

Less: Regulatory adjustments

Cumulative loss on fair value (14,739) (10,362)

Deferred tax assets (6,399) (5,608)

Foreign currency translation reserve (3,881) (2,498)

Significant investments in the common stock of banking, financial and

(52,316) (50,206)
insurance entities

Total regulatory adjustments to CET1 (77,335) (68,674)

Total Common Equity Tier 1 capital (CET1) 1,534,107 1,837,329

Additional Tier 1 capital (AT1)* 505,320 130,000

Total Tier 1 capital (T1 = CET1 + AT1) 2,039,427 1,967,329

Tier 2 capital: instruments and provisions

Cumulative change in fair value (45%) 992 937

General Loan loss impairment 114,664 121,327

Tier 2 capital before regulatory adjustments 115,656 122,264

Less: Regulatory adjustments

Significant investments in the common stock of banking, financial and

- -
insurance entities

Total regulatory adjustments to Tier 2 capital - -

Tier 2 capital (T2) 115,656 122,264

Total Regulatory Capital (TC = T1 + T2) 2,155,083 2,089,593

Total risk weighted assets 10,139,344 9,809,209

Credit risk weighted assets 9,121,717 8,749,691

Market risk weighted assets 121,814 184,024

Operational risk weighted assets 895,813 875,494

Capital ratios (expressed as a % of total risk weighted assets)

Common Equity Tier 1 15.13% 18.73%

Tier 1 20.11% 20.06%

Total capital 21.25% 21.30%

* Refer note 41.7.1

Annual Report - 2022 211

 The bank has applied in its capital adequacy calculations the “Prudential filter” under interim adjustment arrangement for
Stage-1 and Stage-2 ECL. The impact of above filter on the bank's regulatory capital is 86 bps (2021: 45 bps).
The total regulatory capital adequacy ratio of 21.25% (2021: 21.30%) is after considering the proposed dividend of 15% Cash
(2021: 30% Cash and 5% Stock). The total capital adequacy ratio pre consideration of dividend would be 22.37% (2021: 22.39%).

41.7.3 Internal Capital Adequacy Assessment Process (ICAAP):

Apart from the regulatory capital which is based on the guidelines issued by Central Bank of Oman, the Group has in place
Internal Capital Adequacy Assessment Process (ICAAP) which provides an assessment of the Group’s actual capital adequacy
based on advanced Economic Capital measure. ICAAP incorporates the impact of residual risk including business risk,
concentration risk, correlation risk, Interest Rate Risk on Banking Book (IRRBB) along with the core risks. The purpose of the
Group’s ICAAP is not only to provide a detailed assessment of its current capital adequacy, but also to estimate future capital
adequacy ratios in line with approved business plans in order to evaluate their validity from a risk perspective. The overall
framework has introduced a structured methodology for a comprehensive forward-looking assessment of capital based on
the Group’s risk profile. It will scrutinize the current business model of the Group and may lead to corresponding adjustments
if the inherent risk goes beyond the Group’s risk appetite. The business plan will be updated at least annually on a rolling basis
for forward-looking period of 5 years. On an annual basis, ICAAP is approved by the Board of Directors and then submitted to
Central Bank annually. On a quarterly basis, reporting is done to the Board of Directors on the adequacy of capital. The Group
believes that its current and foreseen capital supply is suitable to support its business strategy.
The forward looking assessment of capital adequacy has helped the Group to plan ahead for capital management.

41.7.4 Capital allocation

The allocation of capital between specific business units and activities is, to large extent, driven by optimisation of the return
on capital allocated. Although maximisation of the return on risk-adjusted capital is the principal basis used in determining how
capital is allocated within the Group to particular business units or activities, it is not the sole basis used for decision making.
Other factors such as synergies between the units or activities, the availability of management and other resources, and the fit
of the activity with the Group’s longer term strategic objectives are taken in to account while allocating capital.

42. Fair value information

Based on the valuation methodology outlined below, the fair values of all on and off-balance sheet financial instruments at
reporting dates are considered by the Board and Management not to be materially different to their book values:

Total
Designated Designated Amortised
carrying Fair Value
As at 31 December 2022 Notes as FVTPL as FVOCI cost Level
value
RO 000's RO 000's RO 000's RO 000's RO 000's
Cash and balances with
Central Bank 5 - - 883,060 883,060 883,060 3
Due from banks 6 - 99,236 542,244 641,480 641,069 2,3
Loans and advances
and Islamic financing
receivables 7 - - 9,416,894 9,416,894 9,321,913 3
Investment securities 9 15,844 220,971 1,335,169 1,571,984 1,556,352 1,2,3
Positive fair value of
derivatives 37 25,736 - - 25,736 25,736 2

41,580 320,207 12,177,367 12,539,154 12,428,130

Deposits from banks 14 - - 1,004,106 1,004,106 985,431 3
Customers’ deposits and
Islamic customer deposits 15 - - 8,646,821 8,646,821 8,435,495 3
Sukuk 16 - - 45,876 45,876 46,104 1
Euro medium term notes 17 - - 390,376 390,376 376,257 1
Negative fair value of
derivatives 37 26,863 - - 26,863 26,863 2
26,863 - 10,087,179 10,114,042 9,870,150

212 Annual Report - 2022

 Total
Designated Designated Amortised
carrying Fair Value
As at 31 December 2021 Notes as FVTPL as FVOCI cost Level
value

RO 000's RO 000's RO 000's RO 000's RO 000's

Cash and balances with

central banks 5 - - 1,047,224 1,047,224 1,047,224 3

Due from banks 6 - 43,772 721,379 765,151 769,060 2,3

Loans and advances

and Islamic financing
receivables 7 - - 9,191,417 9,191,417 9,334,468 3

Investment securities 9 17,597 144,516 1,649,383 1,811,496 1,845,857 1,2,3

Positive fair value of

derivatives 37 21,813 - - 21,813 21,813 2

39,410 188,288 12,609,403 12,837,101 13,018,422

Deposits from banks 14 - - 1,218,465 1,218,465 1,221,177 3

Customers' deposits and

Islamic customer deposits 15 - - 8,774,606 8,774,606 8,822,223 3

Sukuk 16 - - 90,600 90,600 90,600 1

Euro medium term notes 17 - - 390,379 390,379 429,698 1

Negative fair value of

derivatives 37 15,896 - - 15,896 15,896 2

15,896 - 10,474,050 10,489,946 10,579,594

Effective 1 January 2010, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the
statement of financial position at fair value; this requires disclosure of fair value measurements by level of the following fair
value measurement hierarchy:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that
is, as prices) or indirectly (that is, derived from prices).
Level 3 - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)
The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December:

2022 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Assets
Derivatives - 25,736 - 25,736 - 21,813 - 21,813
FVOCI Due from banks - 99,236 - 99,236 - 43,772 - 43,772
FVTPL Equity 3,526 - 12,318 15,844 3,019 - 14,578 17,597
FVOCI Equity 116,954 - 1,592 118,546 83,195 - 1,379 84,574
FVOCI Debt 102,425 - - 102,425 57,942 - 2,000 59,942
222,905 124,972 13,910 361,787 144,156 65,585 17,957 227,698
Liabilities
Derivatives - 26,863 - 26,863 - 15,896 - 15,896

There are no transfers between levels of fair value measurement hierarchy during the years 2022 and 2021.
A table showing the impact of change in estimates by 5% on the Group’s assets and liabilities that are measured at fair value at
31 December, on the other comprehensive income is as follows:

Annual Report - 2022 213

 2022 2021
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Assets
Derivatives - 1,287 - 1,287 - 1,091 - 1,091
FVOCI Due from banks - 4,962 - 4,962 - 2,189 - 2,189
FVTPL Equity 176 - 616 792 151 - 729 880
FVOCI Equity 5,848 - 80 5,928 4,160 - 69 4,229
FVOCI Debt 5,121 - - 5,121 2,897 - 100 2,997
11,145 6,249 696 18,090 7,208 3,280 898 11,386
Liabilities
Derivatives - 1,343 - 1,343 - 795 - 795

2022 2021
FVOCI FVOCI FVTPL FVOCI FVOCI FVTPL
Equity Debt Equity Total Equity Debt Equity Total

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

At 1 January 1,379 2,000 14,578 17,957 2,257 2,940 10,499 15,696
Realised gain on sale - - 8,571 8,571 - - 239 239
Gain/(loss) from
change in fair value 228 962 (59) 1,131 (870) (1,691) 1,342 (1,219)
Additions - - 2,632 2,632 - - 3,182 3,182
Disposals and
redemption - (4,931) (13,405) (18,336) - (31) (378) (409)
Derecognition of
subsidiary - - - - - - (304) (304)
Movement in accrued
interest - (2) - (2) - (51) - (51)
Impairment on
investments - 1,968 - 1,968 - 828 - 828
Amortization - 3 - 3 - 5 - 5
Exchange differences (15) - 1 (14) (8) - (2) (10)
At 31 December 1,592 - 12,318 13,910 1,379 2,000 14,578 17,957

As of 31 December 2022, 18% (2021: 43%) of level 3 equity securities were valued on the basis of fair valuation carried out in
accordance with appropriate valuation techniques based on income approach (discounting of cash flows), market approach
(using prices or other relevant information generated by market transactions of identical or similar entities), cost approach or a
combination thereof. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not
available, using the best information available in the circumstances. These might include banks own data and would consider
all information about market participant assumptions that is reasonably available. As of 31 December 2022, 82% (2021: 57%) of
the level 3 equity securities were valued on the basis of latest available capital accounts statements of the investee companies
received from independent fund managers as at 30 September 2022 or at a later date and adjusted for subsequent cash flows
till 31 December 2022 or based on net asset values received from independent fund managers as at 30 September 2022 or at
a later date.
The debt investments were valued on fair value basis. Valuation is based on Risk adjusted discount rate (yield) considering
a reasonable range of estimates. A significant decrease in the credit quality would result in a lower fair value with significant
increase in the spread above the risk-free rate and vice-versa. The Group holds adequate provisioning on the above investments
as of the reporting date.

42.1 Estimation of fair values

The following summarises major methods and assumptions used in estimating the fair values of assets and liabilities:

214 Annual Report - 2022

42.1.1 Loans and advances
Fair value is calculated based on discounted expected future principal and interest cash flows. Loan repayments are assumed
to occur at contractual repayment dates, where applicable. For loans that do not have fixed repayment dates or that are
subject to prepayment risk, repayments are estimated based on experience in previous periods when interest rates were at
levels similar to current levels, adjusted for any differences in interest rate outlook. Expected future cash flows are estimated
considering credit risk and any indication of impairment. Expected future cash flows for homogeneous categories of loans are
estimated on a portfolio basis and discounted at current rates offered for similar loans to new borrowers with similar credit
profiles. The estimated fair values of loans reflect changes in credit status since the loans were made and changes in interest
rates in the case of fixed rate loans.

42.1.2 Investments carried at cost and derivatives

Fair value is based on quoted market prices at the reporting date without any deduction for transaction costs. If a quoted
market price is not available, fair value is estimated based on discounted cash flow and other valuation techniques.
Where discounted cash flow techniques are used, estimated future cash flows are based on management’s best estimates and
the discount rate is a market related rate for a similar instrument at the reporting date.

42.1.3 Fair value through OCI and fair value through profit or loss investments
Fair values for quoted investments are based on quoted bid prices as at the reporting date. Unquoted equity investments
are carried at fair values, measured in accordance with appropriate valuation techniques based on income , market, cost
approaches or a combination thereof or on the basis of latest available capital accounts statements or net asset values of the
investee companies received from independent fund managers and adjusted for subsequent cash flows up to the reporting
date.

42.1.4 Bank and customer deposits

For demand deposits and deposits with no defined maturities, fair value is taken to be the amount payable on demand at the
reporting date. The estimated fair value of fixed-maturity deposits, including certificates of deposit, is based on discounted
cash flows using rates currently offered for deposits of similar remaining maturities. The value of long-term relationships with
depositors is not taken into account in estimating fair values.

42.1.5 Off-balance sheet financial instruments

No fair value adjustment is made with respect to credit-related off-balance sheet financial instruments, which include
commitments to extend credit, standby letters of credit and guarantees, as the related future income streams materially
reflect contractual fees and commissions actually charged at the reporting date for agreements of similar credit standing and
maturity. Foreign exchange contracts are valued based on market prices. The market value adjustments in respect of foreign
exchange contracts are included in the book values of other assets and other liabilities.

43. Macroeconomic uncertainties

Impact of Coronavirus (Covid-19)
The World Health Organization officially declared COVID-19 as a global pandemic in the beginning of year 2020 that caused
significant disruptions to businesses and economic activities globally and across industries & sectors. During the year ended
2022, the business environment witnessed a recovery post relaxation in COVID-19 restrictions and revival of hydrocarbon
sector.
To contain the impact of the pandemic and protect the stability of country’s economy, the Central Bank of Oman (CBO) instituted
a host of measures such as deferral of loan instalments for the affected borrowers, deferment and waiver of interest/profit for
affected Omani nationals employed in private sector, waiver of point of sale (POS) charges, lowering of regulatory capital ratios
and increasing the lending ratio, restructuring of Credit Facilities for Affected Borrowers, etc. For further details, please refer
CBO circular no. BSD/CB/2020/001, BDD/CBS/CB/FLCs/2021/3296, BSD/CB&FLCs/2021/004 and RD/SDD/2022/357.
With effect from January 01, 2022, the loan deferral program announced by CBO ceased for all customers excluding laid-off
Omani citizens. CBO instructed banks to implement the restructuring for borrowers affected by the pandemic by October 31,
2022 and mandated Banks to hold a minimum ECL cover ranging between 1% to 6.5% for corporate borrowers and 0.5% to 5.5%
for SME and retail borrowers availing restructuring. These requirements have been duly considered in ECL calculations. The
deferment scheme for the laid off Omani citizens has been extended until December 31, 2023.

Annual Report - 2022 215

 The bank has applied the latest customer ratings, PD term structures and forward looking macro-economic variables as
applicable at 31 December 2022 in its ECL computation for the year ended 31 December 2022. Bank does not hold any post
model adjustments / overlays in this regard. The Bank also holds collective ECL provisions on a conservative basis to mitigate
any unforeseen impacts in the overall portfolio that it continues to reassess and appropriately adjust such collective provisions
on a regular basis. Further, the Bank has determined that the impact of day one modification loss was not material.

Geopolitical uncertainty
The war in Ukraine triggered a number of IFRS accounting considerations affecting the financial statements. Many countries
have imposed, and continue to impose, new sanctions on specified Russian entities and individuals. Sanctions have also
been imposed on Belarus. The situation, together with potential fluctuations in commodity prices, foreign exchange rates,
restrictions to imports and exports, availability of local materials and services and access to local resources, will directly impact
entities that have significant operations or exposures in, or to, Russia, Belarus or Ukraine.
Though the Group’s direct exposure to countries directly involved in the recent international disputes is non-existent, the Group’s
operations are partially concentrated in economies that are relatively dependent on the price of crude oil and accordingly, the
Group has considered any potential impact of current economic uncertainties in the inputs for the forward-looking macro-
economic factors, when determining the severity and likelihood of economic scenarios for ECL determination.

Climate related risks

The Bank and its customers may face significant climate-related risks in the future. These risks include the threat of financial
loss and adverse non-financial impacts that encompass the political, economic and environmental responses to climate
change. The key sources of climate risks have been identified as physical and transition risks. Physical risks arise as the result
of acute weather events such as hurricanes, floods and wildfires, and longer-term shifts in climate patterns, such as sustained
higher temperatures, heat waves, droughts and rising sea levels and risks. Transition risks may arise from the adjustments to a
net-zero economy, e.g., changes to laws and regulations, litigation due to failure to mitigate or adapt, and shifts in supply and
demand for certain commodities, products and services due to changes in consumer behaviour and investor demand. These
risks are receiving increasing regulatory, political and societal scrutiny, both within the country and internationally.
While certain physical risks may be predictable, there are significant uncertainties as to the extent and timing of their
manifestation. For transition risks, uncertainties remain as to the impacts of the impending regulatory and policy shifts, changes
in consumer demands and supply chains. The Bank is making progress on embedding climate risk in its risk framework.

44. Comparative figures

No material corresponding figures for 2021 included for comparative purposes were reclassified.

216 Annual Report - 2022

Annual Report - 2022 217
218 Annual Report - 2022
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220 Annual Report - 2022
Annual Report - 2022 221
 Meethaq Financial Statements
Bank Muscat SAOG - Meethaq
Statement of financial position
As at 31 December 2022
2022 2021
Notes
RO 000's RO 000's
ASSETS

Cash 4,129 4,124

Balances with Central Bank of Oman 69,362 105,225

Due from banks 4 1,435 1,965

Murabaha and other receivables 5 84,579 59,280

Musharaka 6 1,037,200 1,003,659

Ijarah Muntahia Bittamleek 7 166,753 137,071

Wakala Bil Istithmar 8 160,892 161,008

Investments 9 178,366 157,597

Property and equipment 10 2,095 3,114

Other assets 11 1,011 921

Total assets 1,705,822 1,633,964

Liabilities, equity of investment accountholders and owner's equity

Liabilities

Due to banks 55,832 81,274

Current accounts 138,660 144,855

Sukuk 12 45,876 90,600

Other liabilities 13 19,209 18,093

Total liabilities 259,577 334,822

Equity of investment accountholders 14 1,236,387 1,101,803

Owner's equity

Allocated share capital 15 120,000 120,000

Retained earnings 92,583 79,458

Impairment reserve/Reserve for restructured finance 157 157

Investment fair value reserve (2,882) (2,276)

Total owner's equity 209,858 197,339

Total liabilities, equity of investment accountholders and owner's equity 1,705,822 1,633,964

Contingent liabilities and commitments 16 31,237 89,274

These financial statements were authorized for issue on 28 February 2023 in accordance with a resolution of the Board of
Directors.

Chairman Director Chief Executive Officer

The notes 1 to 29 form an integral part of these financial statements.

222 Annual Report - 2022

Bank Muscat SAOG - Meethaq
Statement of comprehensive income
For the year ended 31 December 2022
2022 2021
Notes
RO 000's RO 000's
Income

Income from Islamic finance and investments 17 86,144 77,563

Return on equity of investment accountholders before Meethaq's share as a

(43,894) (40,616)
Mudarib

Meethaq's share as a Mudarib 5,857 5,669

Return on equity of investment accountholders (38,037) (34,947)

Meethaq's share of income as a Mudarib and Rab almal 48,107 42,616

Profit paid on Sukuk (3,339) (4,895)

Net profit on due to banks (4,953) (3,416)

39,815 34,305

Other income 18 3,630 3,000

Net operating income 43,445 37,305

Operating expenses

Staff expenses (7,078) (6,435)

Occupancy costs (1,259) (949)

Depreciation 10 (1,264) (1,229)

Administrative expenses (4,662) (4,314)

(14,263) (12,927)

Net income before provisions and taxation 29,182 24,378

Impairment for credit losses 19 (15,235) (12,592)

Impairment for investments 9 60 (642)

Recoveries from provisions for impairment 19 1,428 2,778

Net income before taxation 15,435 13,922

Taxation (2,310) (2,095)

Net income for the year 13,125 11,827

Other comprehensive income/(loss) for the year

Item which shall not be reclassified to income statement

Changes in fair value on securities measured through Equity (606) (535)

Other Comprehensive loss for the year (606) (535)

Total comprehensive income for the year 12,519 11,292

The notes 1 to 29 form an integral part of these financial statements.

Annual Report - 2022 223

 Bank Muscat SAOG - Meethaq
Statement of cash flows
For the year ended 31 December 2022
2022 2021
Notes
RO 000's RO 000's
Operating activities
Net income before taxation 15,435 13,922
Adjustment for:
Depreciation 10 1,264 1,229
Reversal for Impairment for investments 9 (60) 642
Impairment for credit losses 19 15,235 12,592
Recoveries from impairment for credit losses 19 (1,428) (2,778)
Gain on sale of investments (49) (100)
Dividends received (463) (356)
Profit equalization reserve 14 (977) -
Investment risk reserve 14 (137) -
Operating profit before changes in operating assets and liabilities 28,820 25,151
Net changes in operating assets and liabilities:
Murabaha and other receivables (25,483) (4,015)
Musharaka (47,440) (28,018)
Ijarah Muntahia Bittamleek (30,396) (40,868)
Wakala Bil Istithmar 659 (46,772)
Other assets (98) 812
Current accounts (6,195) (7,270)
Due to banks (42,767) 13,899
Other liabilities (1,736) 81
Net cash used in operating activities (124,636) (87,000)
Investing activities
Dividends received 463 356
Purchase of investments (21,176) (6,716)
Proceeds from sale of investments 365 2,320
Purchase of property and equipment 10 297 (1,732)
Net cash used in investing activities (20,051) (5,772)
Financing activities
Equity of investment accountholders 135,698 173,080
Sukuk Matured during the Year (44,724) -
Net cash generated from financing activity 90,974 173,080
Net change in cash and cash equivalents (53,713) 80,308
Cash and cash equivalents at the beginning of the year 111,314 31,006
Cash and cash equivalents at the end of the year 57,601 111,314
Cash and cash equivalents comprise of:
Cash 4,129 4,124
Balances with Central Bank of Oman 69,362 105,225
Due from banks 1,435 1,965
Due to banks under Wakala (17,325) -
57,601 111,314

The notes 1 to 29 form an integral part of these financial statements

224 Annual Report - 2022

Bank Muscat SAOG – Meethaq
Statement of changes in owner's equity
For the year ended 31 December 2022

Reserve for Investment

Allocated Retained restructured fair value Total owner's
share capital earnings finance reserve equity

RO 000's RO 000's RO 000's RO 000's RO 000's

Balance at 1 January 2022 120,000 79,458 157 (2,276) 197,339

Net income for the year - 13,125 - - 13,125

Cumulative changes in fair value - - - (606) (606)

Balance at 31 December 2022 120,000 92,583 157 (2,882) 209,858

Balance at 1 January 2021 120,000 67,680 157 (1,741) 186,096

Net income for the year - 11,827 - - 11,827

Transfered from Reserve for

restructured finance - - - -

Cumulative changes in fair value - - (584) (584)

Realized gain/(loss) on equity type

investments - (49) - 49 -

Balance at 31 December 2021 120,000 79,458 157 (2,276) 197,339

Statement of sources and uses of charity fund

For the year ended 31 December 2022
2022 2021
Note RO 000's RO 000's

Sources of charity fund

Charity funds at beginning of the year 38 44

Proceeds of committed charity 28 50

Dividend purification 4 5

Total sources of funds during the year 70 99

Uses of charity fund

Distributed to charity organizations (62) (61)

Total uses of funds during the year (62) (61)

Undistributed charity fund at end of the year 13 8 38

The notes 1 to 29 form an integral part of these financial statements

Annual Report - 2022 225

 Bank Muscat SAOG – Meethaq
Notes to the Financial Statements
For the year ended 31 December 2022

1 Legal status and principal activities

BANK MUSCAT SAOG (the "Bank" or the "Head office") established "Meethaq Islamic banking window" (“Meethaq”) in the
Sultanate of Oman to carry out banking and other financial activities in accordance with Islamic Shari’a rules and principles.
Meethaq operates under an Islamic banking licence granted by the Central Bank of Oman ("the CBO") on 13 January 2013.
Meethaq’s Shari’a Supervisory Board (SSB), which comprises of leading Shari'a scholars from the field of Islamic finance, is
entrusted to ensure Meethaq's adherence to Shari’a rules and principles in its transactions and activities. SSB reports to the
Board of Directors of the Bank. A report of the SSB on the Shari’a compliance of the operations carried out by Meethaq during
the year is included in the annual report of the Bank.
Meethaq offers a full range of Islamic banking services and products. The principal activities of Meethaq include: accepting
Shari'a compliant customer deposits; providing Shari'a compliant financing based on various Shari'a compliant modes;
undertaking investment activities; providing commercial banking services and other investment activities permitted under
the CBO's Regulated Islamic Banking Services as defined in the licensing framework. As of 31 December 2022, Meethaq has 24
operating branches in the Sultanate of Oman (2021: 24 operating branches) and its registered address is P.O. Box 134, Ruwi, P
C 112, Sultanate of Oman. Meethaq employed 244 employees as of 31 December 2022 (2021: 247 employees).
The window is not a separate legal entity, the separate financial statements of Meethaq has been prepared to comply with
the requirements of Articles 1.5.1.2 to 1.5.1.4 of Title 2 'General Obligations and Governance' of Islamic Banking Regulatory
Framework (IBRF) issued by Central Bank of Oman.

2 Basis of preparation
2.1 Statement of compliance
In accordance with the requirements of Section 1.2 of Title 3 of the IBRF issued by CBO, the financial statements are prepared in
accordance with Financial Accounting Standards (FAS), as modified by CBO, issued by the Accounting and Auditing Organisation
for Islamic Financial Institutions (AAOIFI), the Shari’a Rules and Principles as determined by the Shari’a Supervisory Board of the
Meethaq and other applicable requirements of CBO. In accordance with the requirements of AAOIFI, for matters which are not
covered by AAOIFI and other directives, the Islamic Window uses the relevant International Financial Reporting Standards (IFRS)
issued by International Accounting Standards Board (IASB).

2.2 Basis of measurement

The financial statements are prepared under the historical cost basis convention modified to include the application of fair
value measurement that are required or allowed by relevant accounting standards.

2.3 Functional and presentation currency

The financial statements are presented in Rial Omani (RO) which is Meethaq's functional currency. All financial information
presented in Rial Omani has been rounded to the nearest thousands, unless otherwise stated.

2.4 New Standards, implementations and amendments in existing standards

The Window has adopted all of the new and revised standards and interpretations issued that are relevant to its operations and
effective for periods beginning on or after 1 January 2022.

New Standards issued not yet effective

FAS 37- Financial Reporting by Waqf Institutions: AAOIFI issued FAS 37 “Financial Reporting by Waqf Institutions” in 2020.
The objective of the standard is to establish principles of financial reporting by Waqf institutions, which are established and
operated in line with Shari’ah principles and rules. This standard shall be effective for the financial periods beginning on or after
1 January 2022 with early adoption permitted. There is no impact of this standard on Meethaq Financial statements
FAS 38- Wa’ad, Khiyar and Tahawwut: AAOIFI issued FAS 38 “Wa’ad, Khiyar and Tahawwut” in 2020. The objective of this
standard is to prescribe the accounting and reporting principles for recognition, measurement and disclosures in relation to
Shari’ah compliant Wa’ad (promise), Khiyar (option) and Tahawwut (hedging) arrangements for Islamic financial institutions (the
institutions). This standard shall be effective for the financial periods beginning on or after 1 January 2022 with early adoption
permitted. The Window's management is currently assessing the impact of the above standard on the financial statements of
the Meethaq.

226 Annual Report - 2022

This standard applies to accounting and financial reporting for all transactions involving Wa’ad, Khiyar or Tahawwut arrangements
carried out under Shari’ah principles and rules. The standrad categorises Wa’ad and Khiyar into the following types:

a) Ancillary Wa’ad or Khiyar–where the Wa’ad or Khiyar is associated with a Shari’ah compliant arrangement, and is related to
the structure of the transaction, e.g. a promise by the purchase orderer (potential buyer) attached to a Murabaha transaction,
or a promise to purchase after the end of the Ijarah term in an Ijarah Muntahia Bittamleek transaction, or the option of seeing
(i.e. inspecting) in a sale transaction; and
b) Product Wa’ad or Khiyar–where the Wa’ad or Khiyar is used as a stand-alone Shari’ah compliant arrangement in itself e.g.
foreign exchange forward promise or an option of cancellation of sale with Arboun.

For ancillary Wa’ad or Khiyar, at the end of each financial reporting period, the Window assesses whether any of the ancillary
Wa’ad or Khiyar, in either capacity of a promisor or promisee, has turned into an onerous contract or commitment. Onerous
contract or commitment is accounted for in line with the requirements of FAS 30 “Impairment, Credit Losses and Onerous
Commitments".
For product Wa’ad or Khiyar, the Window is required to account for any obligation or rights arising from such arrangement
and subsequently, at each reporting period, the carrying amount of the recognized constructive obligation or rights shall be
reviewed and necessary adjustments shall be made. Any gains or losses shall be taken to the statement of income unless these
pertain to a Tahawwut (hedging) arrangement.
The adoption of the above accounting standard did not have a material impact on the financial statements.

New standards, amendments and interpretations issued but not yet effective
FAS 39 Financial Reporting for Zakah
AAOIFI issued FAS 39 “Financial Reporting for Zakah” in 2021. The objective of the standard is to establish principles of financial
reporting of Zakah, attributable to different stakeholders of an Islamic financial instituition. This standard shall be effective
for the financial periods beginning on or after 1 January 2023 with early adoption permitted. The Board of Directors does not
expect the above accounting standard to have an impact on the financial statements of the Window.
FAS 40 Financial Reporting for Islamic Finance Windows
AAOIFI issued FAS 40 “Financial Reporting for Islamic Finance Windows” in 2021. The objective of this standard is to establish
financial reporting requirements for Islamic financial services offered by conventional financial instituitions (in form of Islamic
finance window). This standard shall be effective for the financial periods beginning on or after 1 January 2024 with early
adoption permitted. The Window's management is currently assessing the impact of the above standard on the financial
statements of the Meethaq.
FAS 1 (Revised) General Presentation and Disclosures in the Financial Statements
The revised FAS 1 “General Presentation and Disclosures in the Financial Statements” describes and improves the overall
presentation and disclosure requirements prescribed in line with the global best practices and supersedes the earlier
FAS 1. The Islamic financial institutions are required to publish periodic financial statements to satisfy the common information
needs of the users, as described in the conceptual framework. This standard sets out the overall requirements for presentation
of financial statements and a recommended structure of financial statements that facilitate faithful presentation in line with
Shari’ah principles and rules and comparability with the institution’s financial statements of previous periods, and the financial
statements of other institutions. This standard shall be effective on the financial statements of the institutions beginning on or
after 1 January 2023. Early adoption of the standard is permitted. The Board of Directors does not expect the above accounting
standard to have an impact on the financial statements of the Window

3 Accounting policies
3.1 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below:

3.1.1 Cash and cash equivalents

Cash and cash equivalents consist of cash in hand, balances with Central bank of Oman, due from/to bank. Cash and cash
equivalents are carried at amortised cost in the statement of financial position.

3.1.2 Due from banks

Due from banks comprise of receivables under Wakala contracts and Nostro balances. Wakala contracts are recognised at
fair value of consideration paid less amounts settled, if any. Profits on Wakala balances are received as per the respective
agreement. Nostro balances are current accounts of Meethaq with other financial institutions.

Annual Report - 2022 227

 3.1.3 Murabaha receivables
Murabaha receivables are stated net of deferred profits, amounts written off and provision for impairment, if any.
Murabaha receivables are sales on deferred payment terms. Meethaq arranges a murabaha transaction by buying an asset
(which represents the object of the murabaha) and then sells this asset to murabeh (beneficiary) after computing a margin of
profit over cost. The sale price (cost plus the profit margin) is repaid in installments by the murabeh over the agreed period.
Promise made in the murabaha to the purchase orderer is binding upon the customer.

3.1.4 Musharaka
Musharaka contract represents a partnership between Meethaq and a customer whereby each party contributes to the capital
in equal or varying proportions to develop a new asset or share in an existing one, and whereby each of the party becomes
an owner of the capital on a permanent or declining basis and shall have a share of profits or losses. These are stated at the
fair value of consideration given less any amounts written off and provision for impairment, if any. In Diminishing Musharaka
based transactions, Meethaq enters into a Musharaka based on Shirkat-ul-milk for financing an agreed share of fixed asset (e.g.
house, land, plant or machinery) with its customers and enters into periodic profit payment agreement on Ijara basis for the
utilisation of Meethaq’s Musharaka share by the customer. Over the tenor, one partner’s investment in the partnership declines
on account of the other partner’s increase in the partnership investment through repayment of the former partner’s share.

3.1.5 Ijarah Muntahia Bittamleek

Ijarah assets (Ijarah Muntahia Bittamleek) are stated at cost less accumulated depreciation and any impairment in value. Under
the terms of lease, the legal title of the assets passes at the end of the lease term, provided that all the lease installments are
settled. Depreciation is calculated on systematic basis to reduce the cost of leased assets over the period of lease. The Meethaq
assesses at each reporting date whether there is objective evidence that these assets are impaired. Impairment losses are
measured as the difference between the carrying amount of the asset (including lease rental receivables) and the estimated
recoverable amount. Impairment losses, if any, are recognised in the income statement.

3.1.6 Wakala Bil Istithmar

An agreement between two parties whereby one party is a fund owner (the “Muwakkil”) who provides a certain amount of
money (the “Wakala capital”) to an agent (the “Wakeel”), who invests the Wakala capital in a Shari’a compliant manner and
according to the feasibility study/investment plan submitted to the Muwakkil by the Wakeel. In financing contracts, Meethaq is
Muwakkil and the corresponding party is agent of the bank.

3.1.7 Istisna’a
Istisna’a is a sales contract in which the Meethaq acts as ‘al-sani’ (a seller) with an ‘al-mustasni’ (a purchaser) and undertakes
to acquire a product based on the specification received from the purchaser, for an agreed upon price.

3.1.8 Sukuk
Sukuk are the asset backed, Shari’a a compliant trust certificates. Musharaka Sukuk are certificates of equal value representing
ownership of asset. Sukuk are recognized at amount of proceeds minus issuance cost collected from the investors. Profits are
recognized periodically till maturity subject to terms and conditions of issuing documents.

3.1.9 Investments
Investments comprise of equity type instruments carried at fair value through equity or statement of income and debt type
instruments carried at fair value through equity or at amortised cost.
All investments, are initially recognised at cost, being the fair value of the consideration given including acquisition charges
associated with the investment, except in the case of investment carried at fair value through statement of income, if any.

Equity/ debt type instruments at fair value through equity

Subsequent to acquisition, investments designated at fair value through equity are re-measured at fair value with unrealised
gains or losses recognised proportionately in owner's equity and equity of investment account holders until the investment is
derecognised or determined to be impaired at which time the cumulative gain or loss previously recorded in owner's equity
or equity of investment account holders is recognised in the statement of income. Where a reliable measure of fair value for
equity instruments is not available, these are measured at cost. Impairment losses on instruments carried at fair value through
equity are not reversed through the statement of income.

228 Annual Report - 2022

Equity/debt type instruments at fair value through statement of income
Subsequent to acquisition, investments designated at fair value through statement of income are re-measured at fair value
with unrealised gains or losses recognised in the statement of income. All other gains or losses arising from these investments
are also recognised in the statement of income.

Debt-type instruments at amortised cost

Investments which have fixed or determinable payments and where Meethaq has both the intent and ability to hold to maturity
are classified as debt type instrument carried at amortised cost. Such investments are carried at amortised cost, less provision
for impairment in value. Amortised cost is calculated by taking into account any premium or discount on acquisition. Any gain
or loss on such type of instruments is recognised in the statement of income, when the instruments are de-recognised or
impaired.

3.1.10 Derivative financial instruments

Meethaq holds derivative financial instruments (Waa’d based) to hedge its foreign currency exposures. However, it does
not apply hedge accounting. Hence, foreign exchange trading positions, including spot and forward contracts, are revalued
at prevailing market rates at reporting date and the resultant gains and losses for the financial year are recognised in the
statement of income.

3.1.11 Property and equipment

Property and equipment are stated at cost less accumulated depreciation. The cost of additions and major improvements
are capitalised. Maintenance and repairs are charged to the statement of income as incurred. Gains or losses on disposal are
reflected in other operating income. Depreciation is calculated using the straight-line method to allocate their cost or revalued
amounts to their residual values over their estimated useful lives, as follows:
Years
Furniture, fixtures and equipment 5 - 10
Hardware and software 5 - 10

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An
asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than
its estimated recoverable amount.

3.1.12 Due to banks under Wakala

Due to banks and financial institutions comprise of payables under Wakala contracts. These are recognised at fair value of
consideration received less amounts settled, if any. Profits on these accounts are paid as per the respective agreement. Under
these contracts, the bank acts as agent and corresponding bank is Muwakkil.

3.1.13 Current accounts

Current accounts are funds received under Qard whereby the principal amount is guaranteed to be repaid by Meethaq. These
funds are neither entitled to any profit nor bear any losses. Current accounts are stated at fair value of consideration received
less amounts settled, if any.

3.1.14 Equity of investment account holders

Equity of investment account holders comprises of deposits obtained on the basis of Mudaraba which are invested in Islamic
assets. There is no restriction on Meethaq for the use of the equity of investment account holders. Equity of investment account
holders is measured at the fair value of the consideration received less amounts settled.

3.1.15 Investment risk reserve

Investment risk reserves are amounts appropriated out of the income of equity of investment account holders, after allocating
the mudarib share, in order to cater against future losses for equity of investment account holders.

3.1.16 Profit equalisation reserve

Meethaq appropriates a certain amount in excess of the profit to be distributed to equity of investment account holders before
taking into consideration the Mudarib share of income. This is used to maintain a certain level of return on investment for equity
of investment account holders.

Annual Report - 2022 229

 3.1.17 Revenue recognition
Murabaha receivables
Profit on murabaha receivables is recognised when the income is both contractually determinable and quantifiable at the
commencement of the transaction. Such income is recognised by proportionately allocating the attributable profits over the
deferred period whereby each financial period carries its portion of profits irrespective of when the cash is received, net of
suspended profit.

Musharaka
Income on Musharaka is recognised when the right to receive payment is established or when distribution is made, net of
suspended profit.

Ijarah Muntahia Bittamleek

Income from Ijarah Muntahia Bittamleek assets is recognised on a time-apportioned basis over the lease term, net of
depreciation. Income related to non-performing Ijarah Muntahia Bittamleek assets is excluded from statement of income.

Wakala Bil Istithmar

Wakala profit is usually reliably estimated and is internally accounted for on time-apportioned basis over the Wakala tenure
based on the Wakala capital outstanding. The Wakeel would bear the loss in case of its default, negligence or violation of any
of the terms and conditions of the Wakala agreement, otherwise the loss would be borne by the Muwakkil.

Istisna’a
Istisna’a revenue is the total price agreed between the seller and purchaser including the Meethaq’s profit margin. The profit is
recognised based on percentage of completion method by taking in account the difference between total revenue (cash price
to purchaser) and Meethaq’s estimated cost.

Profit suspension
Profit receivable which is doubtful of recovery is excluded from the profit recognised until it is received in cash.

Meethaq's share of income from equity of investment account holders (as Rabalmal and Mudarib)
Income is allocated proportionately between equity of investment account holders and shareholders on the basis of their
respective investment in the pool before allocation of the mudarib fees. Meethaq’s share as a mudarib for managing the equity
of investment account holders is accrued based on the terms and conditions of the related mudaraba agreements.

Fees and commission income

Fees and commission income is recognised when earned. Commission on letters of credit and letters of guarantee are
recognized as income over the period of the transaction. Fees for structuring and arrangement of financing transactions for
and on behalf of other parties are recognized when the Islamic Window has fulfilled all its obligations in connection with the
related transaction or is amortised over the period of respective financing transaction.

Investment income
Income from investments at amortised cost is recognised on a time-proportionate basis based on underlying rate of return.
Dividend income is recognised when the Meethaq’s right to receive the payment is established.

3.1.18 Return on equity of investment account holders

Return on equity of investment accountholders is calculated based on the income generated from jointly financed assets after
deducting the expenses related to investment pool (pool expenses). Pool expenses include all direct expenses incurred by
Meethaq, including specific provisions. Meethaq's "mudarib share of income" is deducted from the investors' share of income
before distributing such income.

3.1.19 Taxation
Taxation is calculated and paid by the Head office on an overall basis. Taxation expense in the financial statements represents
allocation of such taxation to the Meethaq. Deferred tax assets and liabilities are recognised only at head office level.

3.1.20 Provisions
Provisions are recognised when Meethaq has a present obligation (legal or constructive) arising from a past event and it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of obligation.

230 Annual Report - 2022

3.1.21 De-recognition of financial assets and liabilities
A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized
when:

i. The right to receive cash flows from the asset has expired;
ii. Meethaq retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a 'pass through' arrangement; or
iii. Meethaq has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks
and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expires.

3.1.22 Identification and measurement of impairment assets

Loss allowances are recognised for ECL on the following financial instruments that are not measured at FVTPL:
No impairment loss is recognised on equity investments. Loss allowances are measured at an amount equal to lifetime ECL,
except for the financial instruments on which credit risk has not increased significantly since their initial recognition for which
they are measured as 12-month ECL
Detailed policy is given in note 3.6 of financial statements of bank muscat.

3.1.23 Earnings prohibited by Shari'a

Meethaq is committed to avoid recognising any income generated from non-Islamic sources. Accordingly, all non-Islamic
income, if any, is credited to a charity fund where Meethaq uses these funds for social welfare activities.

3.1.24 Foreign currencies

Transactions in foreign currencies are translated into Rial Omani at exchange rates ruling at the value dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are translated into Rial Omani at exchange rates ruling
at the reporting date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised
in the statement of income.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates
at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using
the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items
measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the item.

3.1.25 Employees' end of service benefits

Contributions to a defined contribution retirement plan, for Omani employees, in accordance with the Oman Social Insurance
Scheme, are recognised as expense in the statement of income when accrued. Meethaq’s obligation in respect of non-Omani
terminal benefits, which is an unfunded defined benefit retirement plan, is the amount of future benefit that such employees
have earned in return for their service in current and prior periods. This amount is accrued and recognised as an expense in
the statement of income.

3.1.26 Joint and self-financed

Assets that are jointly owned by Meethaq and the equity of investment account holders are classified under the caption "jointly
financed" in the financial statements. Assets that are financed solely by Meethaq, if any, are classified under "self-financed".

3.1.27 Zakah
Meethaq is not required to pay Zakah on behalf of shareholders and investment account holders. It is the responsibility of
shareholders and investment account holders to pay Zakah.

3.1.28 Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the statement of financial position when
there is a legal or religious enforceable right to set off the recognised amounts and Meethaq intends to either settle on a net
basis, or to realise the asset and settle the liability simultaneously.

Annual Report - 2022 231

 3.1.29 Commingling of funds
The funds of Islamic Window are not commingled with the funds of Conventional Operations of the Bank.

3.1.30 Fair value

Fair value is determined for each financial asset individually in accordance with the valuation policies set out below:

• For quoted investments that are traded in organised financial markets, fair value is determined by reference to the quoted
market bid prices prevailing on the statement of financial position date.
• For unquoted investments, fair value is determined by reference to recent significant buy or sell transaction with third
parties that are either completed or are in progress. Where no recent significant transactions have been completed or are in
progress, fair value is determined by reference to the current market value of similar investments. For others, the fair value
is based on the net present value of estimated future cash flows, or other relevant valuation methods.
• For investments that have fixed or determinable cash flows, fair value is based on the net present value of estimated
future cash flows determined by the Islamic Window using current profit rates. For investments with similar terms and risk
characteristics.
• Investments which cannot be remeasured to fair value using any of the above techniques are carried at cost, less impairment
loss, if any.

3.1.31 Right-of use assets and Ijarah liability

a) Right-of-use asset
The Window recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is
available for use). Right-of-use asset is measured at cost, less any accumulated amortisation and impairment losses, and
adjustment for any effect of Ijarah modification or reassessment. The cost of right-of-use assets represents the fair value of
total consideration paid/ payable and includes initial direct costs and any dismantling or decommissioning costs. The Window
amortises the right-of-use asset from the commencement date to the end of the useful economic life of the right-of use assets
which coincides with the end of the Ijarah term using a systematic basis that is reflective of the pattern of utilization of benefits
from the right-of-use asset. Right-of-use asset is also subject to impairment in line with FAS 30 requirements. The carrying
value of right-of-use asset is recognised under "Property and equipment " in the statement of financial position.

b) Ijarah liability
At the commencement date of the lease (i.e., the date the underlying asset is available for use), the Window recognises Ijarah
liability measured at the fair value of total rentals payable for Ijarah term. After the commencement date, the amount of Ijarah
liability is increased to reflect return on the Ijarah liability – by way of amortisation of deferred Ijarah cost and reduced to reflect
the Ijarah rentals made. In addition, the carrying amount of Ijarah liability is remeasured if there is a modification, a change in
the Ijarah term or change in the in-substance fixed lease payments. The carrying value of Ijarah liability is recognised under
"Other liabilities" in the statement of financial position.

3.2 Significant accounting judgments and estimates

The preparation of Meethaq's financial statements requires management to make judgments, estimates and assumptions that
affect the amounts reported in the financial statements. The most significant use of judgments and estimates is as follows:

a. Identification and measurement of impairment of financial assets

The measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVOCI is an area
that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour
(e.g. the likelihood of customers defaulting and the resulting losses).
A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:.

• Determining criteria for significant increase in credit risk;

• Choosing appropriate models and assumptions for the measurement of ECL;
• Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the
associated ECL; and
• Establishing groups of similar financial assets for the purposes of measuring ECL.

The following table shows a comparison of the Meethaq’s allowances for credit losses on non-impaired financial assets (Stages
1 and 2) under FAS 30 as at 31 December 2022 based on the probability weightings of three scenarios with allowances for credit

232 Annual Report - 2022

losses resulting from simulations of each scenario weighted at 100%:

ECL ECL Impact on ECL Impact on ECL

Sensitivity of impairment estimates RO 000's RO 000's RO 000's RO 000's

2022 2021 2022 2021

ECL on non-impaired financing 53,323 38,004 - -

Simulations

Upside case - 100% weighted 50,197 33,729 (3,126) (4,273)

Base case - 100% weighted 51,771 37,251 (1,552) (751)

Downside scenario - 100% weighted 58,519 43,246 5,196 5,274

b. Liquidity
Meethaq manages its liquidity through consideration of the maturity profile of its assets, liabilities and investment accounts
which is set out in the liquidity risk disclosures. Thsis requires judgment when determining the maturity of assets, liabilities and
investment accounts with no specific maturities.

c. Classification of investments
Management decides on acquisition of:

• An equity type financial asset, whether it should be carried at fair value through equity or through statement of income, and
• For a debt type financial asset, whether it should be carried at amortised cost or at fair value through equity.

4 Due from banks

2022 2021
RO 000's RO 000's
Due from banks under Wakala - -
Nostro current accounts 1,436 1,968
Total 1,436 1,968
Less: Imapairment loss allownce (1) (3)
1,435 1,965

5 Murabaha and other receivables (Jointly Financed)

2022 2021

RO 000's RO 000's
Murabaha receivables 79,222 56,350
Deferred profit (note 5.1) (6,886) (5,628)
Less: Impairment loss allowance (1,314) (1,186)
Net murabaha receivables 71,022 49,536
Receivables under Ujrah 2,850 2,173
Istisna receivables 10,826 7,627
Qard e Hassn - 7
Less: Impairment loss allowance (119) (63)
84,579 59,280

Murabaha receivables include RO 16.9 Million (2021: RO 7.7 Million) for unsecured Murabaha receivables.

Annual Report - 2022 233

 5.1 Movement in deferred profit
2022 2021

RO 000's RO 000's
Deferred profit opening balance (5,628) (5,380)
Murabaha sales during the year (91,505) (62,089)
Murabaha cost of sales 87,192 59,117
Deferred profit transferred to earned profit 3,055 2,724
Deferred profit closing balance (6,886) (5,628)

6 Musharaka (Jointly Financed)

2022 2021

RO 000's RO 000's
Musharaka 1,077,235 1,029,421
Less: Impairment loss allowance (40,035) (25,762)
1,037,200 1,003,659

7 Ijarah Muntahia Bittamleek (Jointly Financed)

2022 2021

RO 000's RO 000's
Cost, net of accumulated depreciation 182,827 152,466
Less: Impairment loss allowance (16,074) (15,395)
166,753 137,071

8 Wakala Bil Istithmar (Jointly Financed)

2022 2021

RO 000's RO 000's

Wakala Bil Istithmar 161,879 162,538

Less: Impairment loss allowance (987) (1,530)

160,892 161,008

9 Investments
2022 2021

RO 000's RO 000's

Equity type investments at fair value through equity

Shares - Jointly financed 10,292 9,771

Equity type investments at fair value through statement of income

Shares - Jointly financed 1,181 894

Debt type investment at fair value through equity

Sukuk - Jointly financed 2,233 1,421

Debt type investments at amortised cost

Sukuk - Jointly financed 165,322 146,233

179,028 158,319

Impairment for investments (662) (722)

Investments (net) 178,366 157,597

234 Annual Report - 2022

The movement in investment securities is summarized as follows:

2022
Equity type Debt type
Total
investment investment
RO 000's RO 000's RO 000's
At 1 January 2022 10,665 146,932 157,597

Additions 1,665 19,511 21,176

Disposal and redemption (365) - (365)

Gain/(loss) from change in fair value (559) (65) (624)

Impairment losses 60 60

Amortization of discount / premium - (89) (89)

Realized loss 67 - 67

profit receivable - 544 544

At 31 December 2022 (RO 000's) 11,473 166,893 178,366

2021
Equity type Debt type
Total
investment investment
RO 000's RO 000's RO 000's
At 1 January 2021 6,785 147,633 154,418

Additions 6,716 - 6,716

Disposal and redemption (2,320) - (2,320)

Gain/(loss) from change in fair value (467) 22 (445)

Impairment losses - (642) (642)

Amortization of discount / premium - (81) (81)

Realised loss (49) - (49)

Profit receivable - - -

At 31 December 2021 (RO 000's) 10,665 146,932 157,597

The movement in impairment of investment securities is summarised as follows:

2022 2021

RO 000's RO 000's

At 1 January 722 80

Provided during the year - 642

Reversal during the year (60) -

At 31 December 662 722

Equity type investments at fair value through equity is carried at fair value and includes a mark to market loss of RO 2.89 Million
(2021: Loss of 2.28 million).

10 Property and equipment

Property & Right-of-use assets
Total
At 31 December 2022 equipment (note 10.1) (note 10.2)

RO 000's RO 000's RO 000's

Gross book value 9,136 1,730 10,866

Accumulated Depreciation 8,006 765 8,771

Net book value 1,130 965 2,095

Depreciation charge for the year 684 580 1,264

Annual Report - 2022 235

 Property &
Right-of-use assets
equipment Total
At 31 December 2021 (note 10.2)
(note 10.1)

RO 000's RO 000's RO 000's

Gross book value 9,466 1,630 11,096

Accumulated Depreciation 7,355 627 7,982

Net book value 2,111 1,003 3,114

Depreciation charge for the year 727 502 1,229

10.1 Property & equipment

2022

Furniture and Hardware and

Equipment Total
Fixtures software

RO 000's RO 000's RO 000's RO 000's

Cost:

At 1 January 2022 3,252 949 5,265 9,466

Additions 21 77 41 139

Disposals - - (469) (469)

At 31 December 2022 3,273 1,026 4,837 9,136

Accumulated depreciation:

At 1 January 2022 2,837 834 3,684 7,355

Provided during the year 164 61 459 684

Disposals - - (33) (33)

At 31 December 2022 3,001 895 4,110 8,006

Net book values:

At 31 December 2022 272 131 727 1,130

2021

Furniture and Hardware and

Equipment Total
Fixtures software

RO 000's RO 000's RO 000's RO 000's

Cost:

At 1 January 2021 3,087 876 4,436 8,399

Additions 165 73 829 1,067

At 31 December 2021 3,252 949 5,265 9,466

Accumulated depreciation:

At 1 January 2021 2,598 776 3,254 6,628

Provided during the year 239 58 430 727

At 31 December 2021 2,837 834 3,684 7,355

Net book values:

At 31 December 2021 415 115 1,581 2,111

236 Annual Report - 2022

10.2 Right-of-use assets
2022 2021
Land and building
RO 000's RO 000's

Cost:

At 1 January 1,630 1,740

Additions during the year 542 664

Lease closure (442) (774)

At 31 December 1,730 1,630

Accumlated Depreciation:

At 1 January 627 900

Depreciation for the year 580 502

Depreciation on lease closure (442) (775)

At 31 December 765 627

Net book values At 31 December 965 1,003

10.3 Lease liabilities

Movement in lease liabilities and net Ijara liabilities relating to right-of-use assets (land and building) along with maturity profile
of these liabilities are as follows::

2022 2021

RO 000's RO 000's

Lease liabilities at 1 January 1,033 879

Additions during the year 542 663

Profit payments during the year 53 37

Lease payments during the year (626) (546)

Lease liabilities At 31 December 1,002 1,033

Net Ijara Liabilities along with maturity profile of these liabilities are as follows:

Due in more
than 12
Due within 12 Due in more
months but Total
months than 5 years
less than 5
years

RO'000 RO'000 RO'000 RO'000

Gross Ijara Liabilities 586 261 217 1064

Finance charges (37) (16) (9) (62)

Net Ijara Liabilities 549 245 208 1,002

11 Other assets
2022 2021

RO 000's RO 000's

Prepayments 866 876

Others 145 45

1,011 921

Annual Report - 2022 237

 12 Sukuk
Meethaq -Islamic Banking Window of Bank Muscat S.A.O.G (Meethaq) started its Sukuk Al Musharaka Certificates programme
in June 2017. An SPV was formed for this purpose (Meethaq Sukuk Company LLC) which is the issuer and trustee of Sukuk
program.
As part of the program, the first series of certificates was issued in June 2017 amounting to RO 44.6 Million (face value RO
1.000 per certificate) and has a tenor of five years through a sharia’a compliant financing arrangement. The second series of
certificates was issued in May 2019 amounting to RO 45.6 Million (face value RO 1.000 per certificate) and has a tenor of five
years. The profit on Sukuk is payable bi-annually and it is listed in Muscat Securties Market.

Expected Annual 2022 2021

Listed Sukuk - Muscat Securities Market Maturity
Profit Rate RO 000's RO 000's
Sukuk Issued by Meethaq (First issuance) 5.00% June-2022 - 44,608
Sukuk Issued by Meethaq (Second issuance) 5.50% May-2024 45,597 45,597
Profit payable 279 395
45,876 90,600

13 Other liabilities
2022 2021

RO 000's RO 000's
Provision for taxation 8,070 5,760
Unearned income and Fees 2,509 2,291
Others 8,630 10,042
19,209 18,093

Others include charity payable of RO 8 K (2021 - RO 38K) which has been accumulated during the year. Others also include RO
1,002 K (2022 - RO 1,033 K) on account of net Ijara liabilities relating to land and building (note 10.3).
Meethaq is not a separate taxable entity. The tax is calculated and paid on an overall basis by the head office. Based on the
effective tax rate, Head office has allocated a taxation provision to Meethaq. During the year, no amount has been paid to head
office towards payment of prior years tax dues (2021 - NIL).

14 Equity of investment account holders

Equity of investment account holders ('IAH') is commingled with Meethaq’s funds and utilised in the business of Meethaq
according to the weights of each type of fund. These weights are declared by Meethaq at the beginning of each month.
Mudarib expenses are charged to the pool which include all direct expenses incurred by Meethaq, including impairment
provisions. Meethaq's effective share in profits as Mudarib for the period was 13.34% (2021: 13.96%). The rate of return on each
type of investment account is disclosed by Meethaq on a monthly basis. As of 31 December, the analysis of equity of investment
account holders is as follows:

2022 2021

RO 000's RO 000's
Deposits from banks- under Wakalah 136,354 73,150
Deposits from customers:
Saving accounts 296,728 297,008
Fixed term accounts 680,986 608,767
Call accounts 80,074 78,137
Other deposits 40,406 41,788
Total 1,098,194 1,025,700
Profit equalization reserve (note 14.1) 1,586 2,563
Investment risk reserve (note 14.2) 253 390
1,236,387 1,101,803

238 Annual Report - 2022

14.1 Movement in profit equalization reserve
2022 2021

RO 000's RO 000's

Balance as at 1 January 2,563 2,563

Apportioned during the year 316 -

Amount utilised during the year (1,293) -

Balance at 31 December 1,586 2,563

14.2 Movement in investment risk reserve

2022 2021

RO 000's RO 000's

Balance as at 1 January 390 390

Apportioned during the year 70 -

Amount utilised during the year (207) -

Balance at 31 December 253 390

15 Allocated share capital

The assigned capital to Meethaq as of 31 December 2022 is RO 120 million (2021: RO 120 million ).

16 Contingencies and commitments

2022 2021

RO 000's RO 000's

Guarantees 16,891 24,137

Letters of credit 14,346 65,137

31,237 89,274

17 Income from Islamic finance and investments

2022 2021

RO 000's RO 000's

Murabaha receivables 3,055 2,724

Musharaka 56,026 52,592

Ijarah Muntahia Bittamleek 9,701 7,259

Wakala Bil Istithmar 7,855 6,194

Istisna 470 275

Investments 9,037 8,519

86,144 77,563

Annual Report - 2022 239

 18 Other income
2022 2021

RO 000's RO 000's
Fee and commission 1,982 1,388
Foreign exchange gain - net 427 427
Handling commission 1,014 995
Service fee and other 207 190
3,630 3,000

19 Provision for impairment

Movement in provision for impairment for Islamic financing is analyzed below:

2022 2021

RO 000's RO 000's
At 1 January 43,936 33,949
Impairment for credit losses 15,647 12,606
Recoveries from impairment for credit losses (1,428) (2,778)
Written off during the year - (37)
Transfer from / (to) memorandum portfolio 374 196
At 31 December 58,529 43,936

Details of credit impairment charged in income statement is set out below:

2022 2021

RO 000's RO 000's
Impairment for Islamic financing 15,647 12,606
Impairment /(reversal) for un-funded exposure (411) (13)
Impairment for balances with Central bank 1 -
Impairment for due from banks (2) (1)
15,235 12,592

20 Segmental information and geographical distribution of assets and liabilities

The activities of Meethaq are performed on an integrated basis. Therefore, any segmentation of operating income, expenses,
assets and liabilities is not relevant. Further, Meethaq operates solely in the Sultanate of Oman, therefore, most of assets and
liabilities are in Sultanate of Oman expect the following:

2021 2022

Sultanate Sultanate Other

of Oman Other GCC Others Total of Oman GCC Others Total

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

10 356 1,599 1,965 Due from Banks 205 255 975 1,435
149,997 7,600 - 157,597 Investments 169,556 8,810 - 178,366
150,007 7,956 1,599 159,562 Total 169,761 9,065 975 179,801
- 81,274 - 81,274 Due to Banks 17,325 38,507 - 55,832

1,028,653 73,150 - 1,101,803 Equity of investment account holders (IAH) 1,075,008 161,379 - 1,236,387

1,028,653 154,424 - 1,183,077 Total 1,092,333 199,886 - 1,292,219

240 Annual Report - 2022

21 Related party transactions
Related parties comprise of the Head office, directors and key management personnel of Meethaq and the Head office, close
members of their families, entities owned or controlled, jointly controlled or significantly influenced by them, companies
affiliated by virtue of shareholding in common with that of the Bank, members of Shari'a Supervisory Board (SSB) and external
auditors.
The significant balances with related parties at 31 December were as follows::

2022 2021

RO 000's RO 000's
Statement of financial position
Due to banks - Head office 19,383 3,093
Other liabilities - Head office 8,073 5,760
27,456 8,853

The transactions with the related parties included in the statement of income for the year ended 31 December 2022 and 2021
are as follows:

2022 2021

RO 000's RO 000's

Statement of income

Profit on due to banks - Head office 1,925 1,412

Remuneration and expense reimbursements of Sharia Supervisory Board (SSB) 75 90

2,000 1,502

22 Derivative financial instruments

Positive Negative
Notional amounts by term to maturity
fair fair Notional
amount total within 3
Value Value 4-12 months > 12 months
months
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
31 December 2022
Forward purchase contracts 14 - 52,566 41,016 11,550 -
Forward sales contracts - 8 52,563 41,013 11,550 -
Total (RO 000's) 14 8 105,129 82,029 23,100 -

31 December 2021
Forward purchase contracts - - 4,620 4,620 - -
Forward sales contracts - - 4,620 4,620 - -
Total (RO 000's) - - 9,240 9,240 - -

23 Risk management
Meethaq's risk management is centralised at the level of Head office. It is a process whereby the Head office identifies key
risks, applies consistent, understandable risk measures, and chooses which risks to reduce and which to hold and by what
means and establishes procedures to monitor and report the resulting risk position for necessary action. The objective of
risk management is to ensure that Meethaq operates within the risk appetite levels set by the Bank's Board of Directors while
pursuing its objective of maximising the risk adjusted returns. The overall risk management philosophy of the Bank is disclosed
in the consolidated financial statements of the Bank. Specific disclosures pertaining to the following risks, for which Meethaq
is exposed, are given below:

Annual Report - 2022 241

 a. Liquidity risk
Liquidity risk is the risk that Meethaq will be unable to meet its payment obligations when they fall due under normal and
stress circumstances. Meethaq Asset Liability sub-committee (MALCO) of the Bank manages the liquidity position of Meethaq.
In order to ensure that Meethaq meets its financial obligations as and when they fall due, cash flow positions are closely
monitored. If required, Meethaq, being a window operation of the Bank, obtains funding from the Head office.
The table below summarizes the maturity profile of Meethaq’s assets, liabilities and investment accounts as of 31 December
2022 based on expected periods to cash conversion from the statement of financial position date:

On demand
4 to 12 More than 5
or within 3 1 to 5 years Total
31 December 2022 months years
months
RO 000's RO 000's RO 000's RO 000's RO 000's
Assets
Cash and balances with Central Bank
of Oman 38,701 8,782 15,432 10,576 73,491
Due from banks 1,435 - - - 1,435
Murabaha and other receivables 26,851 25,009 28,473 4,246 84,579
Musharaka 13,610 68,325 252,118 703,147 1,037,200
Ijarah Muntahia Bittamleek 1,490 19,387 45,205 100,671 166,753
Wakala Bil Istithmar 84,886 27,628 20,375 28,003 160,892
Investments 10,994 7,469 142,339 17,564 178,366
Property and equipment - - - 2,095 2,095
Other assets 1,011 - - - 1,011
Total assets 178,978 156,600 503,942 866,302 1,705,822
Liabilities, equity of investment
account holders and owner's
equity
Due to banks 17,325 - 38,507 - 55,832
Current accounts 55,684 48,403 - 34,574 138,660
Sukuk - 279 45,597 - 45,876
Other liabilities 9,901 9,308 - - 19,209
Total liabilities 82,910 57,990 84,104 34,574 259,577
Equity of investment accountholders 189,583 265,152 488,920 292,732 1,236,387
Total owner's equity - - - 209,858 209,858
Total liabilities, equity of
investment account holders and
owner's equity 272,493 323,142 573,024 537,163 1,705,822
Net gap (93,515) (166,542) (69,082) 329,139 -
Cumulative net gap (93,515) (260,057) (329,139) - -

242 Annual Report - 2022

 On demand
More than 5
or within 3 4 to 12 months 1 to 5 years Total
31 December 2021 years
months
RO 000's RO 000's RO 000's RO 000's RO 000's
Assets
Cash and balances with Central Bank
75,796 9,328 16,114 8,111 109,349
of Oman
Due from banks 1,965 - - - 1,965
Murabaha and other receivables 12,644 19,234 24,470 2,932 59,280
Musharaka 75,349 53,965 231,474 642,871 1,003,659
Ijarah Muntahia Bittamleek 5,370 12,074 76,245 43,382 137,071
Wakala Bil Istithmar 12,618 70,879 61,441 16,070 161,008
Investments 12,739 - 144,473 385 157,597
Property and equipment - - - 3,114 3,114
Other assets 921 - - - 921
Total assets 197,402 165,480 554,217 716,865 1,633,964

On demand
More than 5
or within 3 4 to 12 months 1 to 5 years Total
years
months
RO 000's RO 000's RO 000's RO 000's RO 000's
Liabilities, equity of investment
account holders and owner's equity
Due to banks - 38,924 42,350 - 81,274
Current accounts 57,942 50,699 - 36,214 144,855
Sukuk - 45,003 45,597 - 90,600
Other liabilities 14,048 4,047 - - 18,093
Total liabilities 71,990 138,671 87,947 36,214 334,822
Equity of investment accountholders 113,613 283,993 500,861 203,336 1,101,803
Total owner's equity - - - 197,339 197,339
Total liabilities, equity of investment
185,603 422,664 588,808 436,889 1,633,964
account holders and owner's equity
Net gap 11,799 (257,183) (34,591) 279,975 -
Cumulative net gap 11,799 (245,384) (279,975) - -

b. Market risk
Market risk arises from fluctuations in profit rates, equity prices and foreign exchange rates.

Profit rate risk

Profit rate risk is the risk that Meethaq will incur a financial loss as a result of mismatch in the profit rate on Meethaq's assets
and liabilities.
The profit distribution to Investment Accounts is based on profit sharing agreements. Therefore, Meethaq is not subject to
any significant profit rate risk. However, the profit sharing agreements will result in Displaced Commercial Risk (DCR) when
Meethaq's results do not allow Meethaq to distribute profits in line with the market rates. To cater against DCR, Meethaq
creates profit equalisation reserve as disclosed in note 14.

Annual Report - 2022 243

 Effective profit rates on profit bearing assets, liabilities and equity of investment account holders as of 31 December 2022 and
2021 are as follows:

2022 2021

Assets:

Financing 5.31% 5.15%

Due from bank 0.24% 0.14%

Investments 5.48% 5.48%

Liabilities:

Due to banks under Wakala 4.31% 2.93%

Meethaq Sukuk 5.47% 5.43%

Equity of Investment Account Holders 3.07% 3.03%

Foreign exchange risk

Foreign exchange risk arise from the movement of the rate of exchange over a period of time. Positions are monitored on
a regular basis to ensure that they are maintained within established approved limits. The following table summarises the
exposure by currency as of 31 December:

2022 2021

Assets Liabilities Net Assets Liabilities Net

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

US Dollars 205,803 229,358 (23,555) 199,075 168,873 30,202

Euro 339 326 13 48 29 19

Great Britain Pound 18 - 18 53 - 53

UAE Dirham 127 90 37 125 114 11

Others 221 - 221 613 - 613

Foreign currency risk sensitivity analysis

A 5 % change in foreign exchange rates, with all other variables held constant, will have an impact of RO 1.1 Million on Meethaq’s
statement of income (2021 - RO 0.97 Million).

Equity price risk

Equity price risk is the risk that the fair values of equities decrease as the result of changes in the levels of equity indices and
the value of individual stocks. A 10% change in equity indices will have an impact of RO 1.03 Million on the equity of Meethaq
(2021 - RO 0.98 million).

c. Credit risk
Credit risk is the risk that one party to a financial contract will fail to discharge an obligation and cause the other party to incur
a financial loss. Meethaq credit risk is managed by monitoring credit exposures, continually assessing the creditworthiness of
counterparties, and by entering into collateral agreements in the form of mortgages, pledge of assets and personal guarantees.
Detailed collateral management policy of the bank is given in note 41.2.1 of the financial statements of Bank.
Meethaq classifies its financial assets into Stage 1, Stage 2 and Stage 3, as described below:

• Stage 1: Financial instruments which are not credit impaired and for which the credit risk has not increased significantly since
initial recognition are classified as Stage1. When a Credit Facility is first recognised, the Meethaq recognizes a loss allowance
based on 12 months ECL.
• Stage 2: Financial instruments having Significant Increase in Credit Risk (“SICR”) since origination will be classified under
Stage 2 (if not impaired). When a Credit Facility has shown a significant increase in credit risk since origination, Meethaq
records a loss allowance for the life time (LT) ECL; and

244 Annual Report - 2022

• Stage 3: All Credit Facilities that are credit impaired either at origination or at reporting date (for e.g. in default stage) i.e.
having objective evidence of default / credit impaired, shall be classified under Stage 3. Credit Facilities, considered as credit-
impaired, are those facilities where any payment of principal or profit is overdue by more than 90 days. Besides quantitative
and qualitative criteria are also applied for assigning stage 3. In such cases, Meethaq records a loss allowance for the LT ECL.

The following table sets out information about the credit quality of financial assets measured at amortised cost, FVOCI debt
type investments. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts.
For financing commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or
guaranteed, respectively.
The gross exposure of the financial assets along with reconciliations from the opening to the closing balance by class of
financial instruments are as follows:

2021 2022

Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Opening balance as at 1 January

8,129 159 - 8,288 Due from Banks 1,795 173 - 1,968

527,946 1,415 4,545 533,906 Retail financing 539,483 1,861 2,366 543,710

319,082 421,027 11,301 751,410 Corporate Financing 367,542 482,906 10,797 861,245

147,713 - - 147,713 Investments 135,729 11,925 - 147,654

68,949 4,754 - 73,703 Letters of credit/Guarantees 82,830 6,432 12 89,274

22,940 43,988 - 66,928 Financing commitments/Unutilized limits 57,244 24,932 - 82,176

1,094,759 471,343 15,846 1,581,948 Total 1,184,623 528,229 13,175 1,726,027

Net transfer between stages

(126) 126 - - Due from Banks 2 (2) - -

254 563 (817) - Retail financing (1,376) 802 574 -

(70,408) 69,785 623 - Corporate Financing (57,486) 58,586 (1,100) -

(11,925) 11,925 - - Investments - - - -

(6,444) 6,432 12 - Letters of credit/Guarantees - - - -

(8,542) 8,542 - - Financing commitments/Unutilized limits (11,460) 11,460 - -

(97,191) 97,373 (182) - Total (70,320) 70,846 (526) -

Re-measurement of outstanding

(6,208) (112) - (6,320) Due from Banks (627) 95 - (532)

11,283 (117) (1,362) 9,804 Retail financing 22,931 (222) (552) 22,157

118,868 (7,907) (1,127) 109,834 Corporate Financing 29,964 51,285 (408) 80,841

(59) - - (59) Investments 19,238 - - 19,238

20,325 (4,754) - 15,571 Letters of credit/Guarantees (52,209) (5,834) 6 (58,037)

42,846 (27,598) - 15,248 Financing commitments/Unutilized limits (33,537) (30,859) - (64,396)

187,055 (40,488) (2,489) 144,078 Total (14,240) 14,465 (954) (729)

Closing Balance as at 31 December

1,795 173 - 1,968 Due from Banks 1,170 266 - 1,436

539,483 1,861 2,366 543,710 Retail financing 561,038 2,441 2,388 565,867

367,542 482,906 10,797 861,245 Corporate Financing 340,020 592,777 9,289 942,086

135,729 11,925 - 147,654 Investments 154,967 11,925 - 166,892

82,830 6,432 12 89,274 Letters of credit/Guarantees 30,621 598 18 31,237

57,244 24,932 - 82,176 Financing commitments/Unutilized limits 12,247 5,533 - 17,780

1,184,623 528,229 13,175 1,726,027 Total 1,100,063 613,540 11,695 1,725,298

Annual Report - 2022 245

 Loss Allowance
The following tables shows reconciliations from the opening to the closing balance of the loss allowance for Total Islamic
Financing

2021 2022

Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total

RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's

Opening Balance as at 1 January

4 - - 4 Due from Banks 2 1 - 3

1,123 52 3,644 4,819 Retail financing 808 44 2,237 3,089

979 24,148 4,003 29,130 Corporate Financing 1,778 35,374 3,695 40,847

80 - - 80 Investments 17 705 - 722

60 49 - 109 Letters of credit/Guarantees 67 5 2 74

78 388 - 466 Financing commitments/Unutilized limits 308 180 - 488

2,324 24,637 7,647 34,608 Total 2,980 36,309 5,934 45,223

Net transfer between stages

(1) 1 - - Due from Banks - - - -

19 (20) 1 - Retail financing 3 (6) 4 1

802 (810) 8 - Corporate Financing 371 (373) 2 -

(72) 72 - - Investments - - - -

(3) 3 - - Letters of credit/Guarantees - - - -

(19) 19 - - Financing commitments/Unutilized limits (33) 33 - -

726 (735) 9 - Total (341) (346) 6 1

Impairment charged to income

statement

(1) - - (1) Due from Banks - (2) - (2)

(334) 12 (1,408) (1,730) Retail financing 128 18 (37) 109

(3) 11,901 (340) 11,558 Corporate Financing (950) 15,698 (639) 14,109

9 633 - 642 Investments 1 (61) - (60)

10 (47) 2 (35) Letters of credit/Guarantees (26) (1) 2 (25)

249 (227) - 22 Financing commitments/Unutilized limits (194) (192) 1 (385)

(70) 12,272 (1,746) 10,456 Total (1,041) (15,460) (673) 13,746

profit reserve charged to income

statement/write offs

- - - - Due from Banks - - - -

- - Retail financing - - (148) (148)

- - 159 159 Corporate Financing - 429 93 522

- - - Investments - - - -

- - - - Letters of credit/Guarantees - - - -

- - - - Financing commitments/Unutilized limits - - - -

- - 159 159 Total - 429 (55) 374

2 1 - 3 Due from Banks 1 - - 1

808 44 2,237 3,089 Retail financing 939 56 2,056 3,051

1,778 35,374 3,695 40,847 Corporate Financing 1,199 51,128 3,151 55,478

17 705 - 722 Investments 18 644 - 662

67 5 2 74 Letters of credit/Guarantees 41 4 4 49

308 180 - 488 Financing commitments/Unutilized limits 81 21 1 103

2,980 36,309 5,934 45,223 Total 2,279 51,853 5,212 59,344

246 Annual Report - 2022

Comparison of provision held on Islamic Financing as per FAS 30 and required as per CBO norms are as follows:

31 December 2022
Difference
between
Provision
Asset CBO Profit Reserve
Asset Gross required Provision Net
classification provision recognised profit as
classification as carrying as per held as carrying
as per required as per per CBO
per CBO Norms amount CBO per FAS 30 amount
FAS 30 and FAS 30 norms
Norms
Provision
held
1 2 3 4 5 (6)=(4)-(5) (7)=(3)-(5) 8 9
Stage 1 901,059 14,621 2,134 (12,487) 898,925 - -
Standard Stage 2 424,354 5,977 25,572 19,595 398,782 - -
Stage 3 - - - - - - -
Sub Total 1,325,413 20,598 27,706 7,108 1,297,707 - -
Stage 1 -

Special Mention Stage 2 170,864 1,722 25,617 23,895 145,247 - -

Stage 3 -

Sub Total 170,864 1,722 25,617 23,895 145,247 - -

Stage 1 - - - - - - -
Substandard Stage 2 - - - - - - -
Stage 3 5,656 1,451 1,451 - 4,205 47 47
Sub Total 5,656 1,451 1,451 - 4,205 47 47

Stage 1 - - - - - - -
Doubtful Stage 2 - - - - - - -
Stage 3 466 177 177 - 289 22 22
Sub Total 466 177 177 - 289 22 22
Stage 1 - - - - - - -
Loss Stage 2 - - - - - - -
Stage 3 5,554 3,578 3,578 - 1,976 824 824

Sub Total 5,554 3,578 3,578 - 1,976 824 824

Other items not Stage 1 199,005 - 141 141 198,864 - -

covered under
CBO circular BM Stage 2 18,322 - 669 669 17,653 - -
977 and related
instructions Stage 3 18 5 5 13 -

Sub Total 217,345 - 815 815 216,530 - -

Stage 1 1,100,064 14,621 2,275 (12,346) 1,097,789 - -
Total Stage 2 613,540 7,699 51,858 44,156 561,682 - -
Stage 3 11,694 5,206 5,211 5 6,483 893 893
1,725,298 27,526 59,344 31,818 1,665,954 893 893

Annual Report - 2022 247

 As at 31 December 2021
Difference
between
Provision CBO Profit Reserve
Asset Asset Gross Provision Net
required provision recognised profit as
classification as classification carrying held as per carrying
as per CBO required as per per CBO
per CBO Norms as per FAS 30 amount FAS 30 amount
Norms and FAS 30 norms
Provision
held
1 2 3 4 5 (6)=(4)-(5) (7)=(3)-(5) 8 9
Stage 1 907,024 19,333 2,585 (16,748) 904,439 - -

Standard Stage 2 341,528 4,866 16,225 11,359 325,303 - -

Stage 3 - - - - - - -
Sub Total 1,248,552 24,199 18,810 (5,389) 1,229,742 - -
Stage 1 - -

Special Mention Stage 2 143,239 1,436 19,192 17,756 124,047 - -

Stage 3 - -
Sub Total 143,239 1,436 19,192 17,756 124,047 - -
Stage 1 - - - - - - -

Substandard Stage 2 - - - - - - -

Stage 3 5,675 1,492 1,492 - 4,183 99 99

Sub Total 5,675 1,492 1,492 - 4,183 99 99
Stage 1 - - - - - - -

doubtful Stage 2 - - - - - - -

Stage 3 1,433 432 432 - 1,001 10 10

Sub Total 1,433 432 432 - 1,001 10 10

Stage 1 - - - - - - -

Loss Stage 2 - - - - - - -

Stage 3 6,056 4,010 4,010 - 2,046 840 840

Sub Total 6,056 4,010 4,010 - 2,046 840 840
Other items not Stage 1 277,598 - 394 394 277,204 - -
covered under
CBO circular BM Stage 2 43,462 - 891 891 42,571 - -
977 and related
instructions Stage 3 12 2 2 10 -

Sub Total 321,072 - 1,287 1,287 319,785 - -

Stage 1 1,184,622 19,333 2,979 (16,354) 1,181,643 - -

Total Stage 2 528,229 6,302 36,308 30,006 491,921 - -

Stage 3 13,176 5,934 5,936 2 7,240 949 949

1,726,027 31,569 45,223 13,654 1,680,804 949 949

248 Annual Report - 2022

Comparison of provision held as per FAS 30 and required as per CBO norms - as at 31 December 2022:

As per CBO norms AS per FAS 30 Difference

2022 2021 2022 2021 2022 2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Impairment loss
charged to profit
and loss account 13,747 10,456 13,747 10,456 - -
Provisions required
as per CBO norms/
held as per FAS 30 27,526 31,569 59,340 45,223 31,814 13,654
Gross NPL ratio 0.78% 0.96% 0.78% 0.96% - -
Net NPL ratio 0.43% 0.53% 0.43% 0.65% - -
Stage 1: 64 % of gross exposure in scope for FAS 30 is in Stage 1 and has not experienced a significant increase in credit risk
since origination (2021 - 68%).
Stage 2: 36% of gross exposure is in Stage 2 and has seen an increase in credit risk since origination. These assets are the key
driver of increase in impairment allowances under FAS 30 (2021- 31%).
Stage 3: 1% of gross exposure is in Stage 3 which is credit impaired including defaulted assets and some forbearance assets
(2021- 1%).

Concentration of Credit Risk

The table below analyses the concentration of financial assets by various sectors

Financing
Due from banks Islamic Financing Debt type securities commitments &
Guarantees issued
2022 2021 2022 2021 2022 2021 2022 2021
RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's RO 000's
Gross amount/
Commitments
&Guarantees 1,436 1,968 1,507,953 1,404,954 167,555 147,654 49,017 171,450

Concentration
by sector

Corporate:

Services - - 169,379 154,371 - - 10,903 17,084

Mining and
quarrying - - 51,868 75,451 - - - -

Manufacture - - 155,309 173,092 - - 3,393 41,018

Wholesale and
retail trade - - 33,516 21,018 - - 1,141 11,795

Import trade - - 264 369 - - 7,019 6,855

Utilities - - - - - - 2,113 5

Transport &
Communication - - 163,938 179,066 - - - -

Construction &
related activities - - 212,017 170,539 - - 11,783 50,851

Agriculture and
allied activities 155,795 87,168 9,542 14,300

Others - - - - 13,489 12,533 - 664

Sovereign:

Government - - - - 154,066 135,121 2,725 20,444

Financial
institutions 1,436 1,968 - - - - 398 8,434

Annual Report - 2022 249

 Retail:

Personal and
housing finance - - 565,867 543,880 - - - -

Gross amount 1,436 1,968 1,507,953 1,404,955 167,555 147,654 49,017 171,450

Expected credit
losses(ECL) (1) (3) (58,529) (43,936) (662) (722) (152) (562)

Net carrying
amount 1,435 1,965 1,449,424 1,361,019 166,893 146,932 48,865 170,888

d. Operational risk
Operational risk is the deficiencies in information systems/internal controls or uncontrollable external events that will result in
loss. The risk is associated with human error, systems failure and inadequate procedures or control and external causes. As per
the Basel Committee on grouping Supervision (BCBS), operational risk is the risk of monetary losses resulting from inadequate
or failed internal processes, people and systems or from external events. Operational risk includes legal risk but excludes
strategic and reputational risk.
As the management of all other risks, operational risk for Meethaq is managed centrally at the Head office level. The detailed
operational risk management approach is disclosed in the consolidated financial statements of Bank.

24 Capital management
Central Bank of Oman (CBO), sets and monitors capital requirements for the Bank as whole as well as individually for Meethaq
being a window operation. A minimum of 11% ratio of total capital to total risk-weighted assets ratio is required to be maintained
by Meethaq. The regulatory capital of Meethaq is analysed into the following tiers:

• Tier I capital, which includes share capital allocated from the Head office;
• Tier II capital whcih includes stage 1 and 60% of stage 2 provision as calculated under IFRS 9 subject to ceiling of 1.25% of
credit risk weighted assets and also not exceedding the amount of Tier II capital as of 31 Dec 2017

The following table sets out the capital adequacy position of Meethaq:

2022 2021

RO 000's RO 000's

Tier I Capital 209,576 196,772

Tier II Capital 23,934 22,671

Total regulatory capital 233,510 219,443

Risk weighted assets (RWA)

Credit risk 1,124,371 1,014,988

Market risk 12,748 26,529

Operational Risk 69,046 60,491

Total RWA 1,206,165 1,102,008

Capital ratios

Total capital as a % of total RWA 19.36% 19.91%

Total tier I capital as a % of total RWA 17.38% 17.86%

250 Annual Report - 2022

25 Fair value of assets and liabilities
Following is an overview of carrying value of financial assets and liabilities held by Meethaq as of reporting date which, in the
opinion of the management, are not materially different from the fair value:

31 December 2022
Carrying
Fair value
amount
RO 000's RO 000's
Assets:

Due from banks 1,435 1,435

Murabaha and other receivables 84,579 85,898

Musharaka 1,037,200 1,052,956

Ijarah Muntahia Bittamleek 166,753 169,286

Wakala Bil Istithmar 160,892 163,336

Investments 178,366 179,028

Other assets 1,011 1,011

Total 1,630,236 1,652,951

Liabilities:

Due to banks 55,832 55,832

Current accounts 138,660 138,660

Other liabilities 16,700 16,700

Sukuk 45,876 45,876

Equity of Investment Account Holders 1,236,387 1,236,387

Total 1,493,455 1,493,455

31 December 2021
Carrying
Fair value
amount
RO 000's RO 000's
Assets:

Due from banks 1,965 1,965

Murabaha and other receivables 59,280 60,205

Musharaka 1,003,659 1,019,316

Ijarah Muntahia Bittamleek 137,071 139,209

Wakala Bil Istithmar 161,008 163,520

Investments 157,597 158,319

Other assets 921 921

Total 1,521,501 1,543,455

Liabilities:

Due to banks 81,274 81,274

Current accounts 144,855 144,855

Other liabilities 18,093 18,092

Sukuk 90,600 90,600

Equity of Investment Account Holders 1,101,803 1,101,803

Total 1,436,625 1,436,624

Annual Report - 2022 251

 Fair value hierarchy
Fair values of quoted securities/sukuks are derived from quoted market prices in active markets, if available. For unquoted
securities/sukuks, fair value is estimated using appropriate valuation techniques. Such techniques may include using recent
arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same;
discounted cash flow analysis or other valuation models.
Meethaq uses the following hierarchy for determining and disclosing the fair value of financial instruments:
Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable
market data.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy at 31
December 2022:

31 December 2022
Stage 1 Stage 3 Total

RO 000's RO 000's RO 000's

Investments carried at fair value through equity

Quoted securities 12,525 - 12,525

Unquoted securities - - -

Investments carried at fair value through P&L

Quoted securities 620 - 620

Unquoted securities - 561 561

13,145 561 13,706

31 December 2021
Stage 1 Stage 3 Total

RO 000's RO 000's RO 000's

Investments carried at fair value through equity

Quoted securities 11,568 - 11,568

Unquoted securities - - -

Investments carried at fair value through P&L

Quoted securities - - -

Unquoted securities - 518 518

11,568 518 12,086

During the year ended 31 December 2022 and 2021 there were no transfers between Level 1 and Level 3 fair value measurements,
and no transfers into or out of Level 2 fair value measurement.
Level 3 equity securities are valued on the basis of fair valuation provided by investment managers.

26 Fiduciary activities
These activities consist of investment management activities conducted under Wakalah agreements (Non-Discretionary) with
the customers. The aggregate amounts of funds managed are as follows:

2022 2021

RO 000's RO 000's

Funds under management 36,515 31,985

252 Annual Report - 2022

27 Impact of Coronavirus (Covid-19)
The World Health Organization officially declared COVID-19 as a global pandemic on 11 March 2020. From the latter half of
Q1-2020, the economic environment and business landscape of the bank have witnessed rapid changes as a result of the
unprecedented outbreak of Coronavirus pandemic coupled with the significant depression in the global crude oil prices.
Tightening of market conditions, lockdowns, restrictions on trade and movement of people have caused significant disruptions
to businesses and economic activities globally and across industries & sectors. Further details of impact of COVID-19 on banks
are given in note 43 of consolidated financial statement of bank muscat.
The following table contains an analysis of the deferred amount of principal outstanding and accrued profit pertinent to Islamic
financing receivables of the customers, who have been provided with such benefits, and the related ECL:

31 December 2022
Stage 1 Stage 2 Stage 3 Total

RO 000's RO 000's RO 000's RO 000's

Financing and related receivables 855 - - 855

Off–balance sheet exposures - - - -

Total Exposure 855 - - 855

Total Impairment 2 - - 2

Of Which:

Deferred amount 35 - - 35

Allowances for impairment (ECL) 1 - - 1

Carrying amount 34 - - 34

31 December 2021
Stage 1 Stage 2 Stage 3 Total

RO 000's RO 000's RO 000's RO 000's

Financing and related receivables 85,974 219,862 1,309 307,145

Off–balance sheet exposures 3,155 16,948 11 20,114

Total Exposure 89,129 236,810 1,320 327,259

Total Impairment 243 22,249 384 22,876

Of Which:

Deferred amount 10,856 22,886 470 34,212

Allowances for impairment (ECL) 38 2,960 151 3,149

Carrying amount 10,818 19,926 319 31,063

28 Impact on the Capital Adequacy

Besides, the bank has also applied in its capital adequacy calculations the “Prudential filter” under interim adjustment
arrangement for Stage-1 and Stage-2 ECL. The impact of above filter on the bank's regulatory capital is 1.8%.

29 Comparative figures
Certain corresponding figures for 2022 have been reclassified in order to conform with the presentation for the current year.
Such reclassifications are not considered material and do not affect previously reported net income or owners’ equity.

Annual Report - 2022 253

 Notepad

254 Annual Report - 2022

Notepad

Annual Report - 2022 255

Block No. 311, Airport Heights – Seeb, P.O Box 134, Ruwi, PC 112 – Muscat, Sultanate of Oman

Contact Center: +968 24 795555 | Website: bankmuscat.com