Oman's Economy
The estimated Government fiscal position for the year 2002 was better than the budget for the year 2002. The budgeted deficit was expected to be RO 380 million whereas the estimated deficit is expected to be RO 100 million which is primarily due to an increase in the average oil prices at USD 23.58 per barrel as against a budgeted estimate of USD 18 per barrel in spite of a drop in oil production during 2002 as compared to 2001. Oman's budget for the year 2003 is growth oriented with an increase in the non-oil sector revenues and higher level of government expenditure.

The Muscat Securities Market (MSM) has registered a growth of 26% during the year 2002, which has been spurred by investors' interest, improvement in the performance of local companies and introduction of corporate governance norms for all listed companies by the Capital Market Authority. The Banking sector in general has performed better during the year 2002 as compared to the year 2001 with drop in the interest rates and improved liquidity conditions.

Bank Muscat's vision and strategy
Bank Muscat with its rich experience in mergers, acquisitions and with its strategies in place confidently looks into the future to gain a leadership position in the region. The capacity to anticipate and manage change has been the inherent strength of the Bank and the Bank is geared to cater to the expectations of its customers with a strong brand image, dedicated and capable staff and clear strategies. The Bank's strategies are designed to enhance shareholder value and provide superior and consistent returns to the stakeholders- customers, shareholders, employees and the societies where we operate. The Bank's long-term strategy is to  diversify its revenue base and geographical presence, improve delivery channels backed by technology, diversify into bancassurance, leasing and eventually become a financial hub for all types of financial services.

Expansion and Diversification
During the year the Bank has successfully completed its merger with Industrial Bank of Oman (SAOG), acquired and commenced operations of the Bahrain branch and integrated the operations acquired from Al Ahlia Securities. As a result of the acquisition of Al Ahlia Securities, the Bank now has a brokerage license in the Muscat Securities Market and is in a position to offer a range of asset management, brokerage services and corporate advisory services to its customers. During the current year the Bank successfully integrated the credit card merchant acquirer business, which it acquired from HSBC Oman. The large customer base of the Bank is now being provided with the benefit of these value added services.

In keeping with the Bank's stated strategy to diversify its revenue sources and risks the bank successfully acquired ABN AMRO's branch in Bahrain during the year and the branch is already contributing positively towards the Bank's bottom line. The operations in Bahrain have stabilized and we are in the process of upgrading the technology platform, which will enable the branch to enhance the quality of services to its customers. The Bank is looking at opportunities to convert the branch in India into a local entity and is awaiting detailed regulations from the regulatory authorities in India in this regard. The Bank is also exploring suitable entry opportunities for commencing full-fledged banking operations in the United Arab Emirates where at present the Bank has a representative office.

Results for the year
The Bank achieved a net profit of RO 22.9 million during the year ended December 31, 2002 as against a net profit of RO 7.8 million for the year ended December 31, 2001 recording an impressive growth of 194% inspite of the general economic slowdown prevailing in the regional and global economy. Net interest income has grown by 26% from RO 49.7 million in 2001 to RO 62.5 million in 2002. The non-interest income has also grown from RO 12.2 million in 2001 to RO 16.9 million in 2002, a growth of 39%. The operating profit at RO 42.1 million in 2002 has grown by 22% as compared to RO 34.5 million in 2001. The operating expenses have increased by 37% mainly due to the operating costs associated with Industrial Bank of Oman, Al Ahlia Securities Company SAOG and Bahrain branch operations, which were not part of the Bank's last year's operations. I am pleased to inform you that Bank Muscat commands a market share of over 34% in terms of total assets, 37% of total credit and over 34% of total customer deposits, of which the share of total savings deposits is over 30% as per the latest statistics available.

The Bank has made a loan loss provision of RO 20.7 million during the year ended December 31, 2002 as against a loan loss provision of RO 26.1 million made during the year ended December 31, 2001. The Bank has been able to effect loan loss recoveries of RO 4.8 million in 2002 as compared to RO 2.6 million in 2001.

Basic earnings per share for the year 2002 works out to 476 baiza for every one Rial share of the Bank as against 171 baiza for the year 2001 thereby recording an impressive growth of 178%. Diluted earnings per share for the year 2002 works out to 455 baiza for every one Rial share of the bank, which includes the dilutive potential equity shares to be issued on conversion of the convertible bonds in 2004.

The Board of Directors is pleased to recommend a 15 percent cash dividend and a 5 percent stock dividend for the year 2002, thus keeping up the practice of consistently providing good returns to the shareholders. An amount of RO 4 million has been transferred to the General Reserves from the current year's profits as a prudent measure to provide support for future growth.

The Bank's Loans and Advances portfolio grew by RO 128 million or 11.6% to RO 1,226 million at December 31, 2002 as compared to RO 1,098 million as of December 31, 2001. Customer deposits have grown by RO 169 million or 18.9% to RO 1,059 million as of December 31, 2002 as compared to RO 890 million as of December 31, 2001. Savings deposits have registered an impressive growth of 45.5% from RO 127.5 million as of December 31, 2001 to RO 185.5 million as of December 31, 2002.

Corporate Governance
I am pleased to inform you that the Bank is working towards fully adopting the code of Corporate Governance as issued by the Central Bank of Oman and the Capital Market Authority.

Board of Directors
The Board of Directors wishes to thank the international banking community for the confidence reposed in the Bank. We wish to thank our customers for their excellent support and patronage and our shareholders for their trust and confidence in the Bank.

On behalf of the Board of Directors, I wish to thank the Bank's Management team and their staff for their dedication, commitment and tremendous efforts in successfully performing beyond the goals set for the year.

The Board of Directors welcomes and supports the measures taken by the Central Bank of Oman with a view to improving the financial markets in Oman. The Bank's growth would not have been possible without the foresight and market-friendly policies adopted by His Majesty's Government. The Board of Directors thanks His Majesty Sultan Qaboos bin Said for his vision and for ably steering the country towards the path of growth and prosperity.

AbdulMalik bin Abdullah Al Khalili
 

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