1 ACTIVITIES
Bank Muscat (SAOG) (the bank) is a general joint stock company incorporated in the Sultanate of Oman and is engaged in commercial and investment banking activities through a network of ninety branches within the Sultanate of Oman and overseas branches in Kingdom of Bahrain and in Bangalore, India. The bank has a representative office in Dubai, United Arab Emirates. The registered address of the head office of the bank is PO Box 134, Ruwi, Postal Code 112, Sultanate of Oman. The bank operates in Oman under a banking licence issued by the Central Bank of Oman and is covered by its deposit insurance scheme.

The bank operates in four countries and employed 1,639 employees as of 31 December 2002 (2001 : 1,514).

2 SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of the financial statements are as follows:

Basis of preparation:
The financial statements have been prepared in accordance with Standards issued, or adopted by the International Accounting Standards Board and interpretations issued by its International Financial Reporting Interpretations Committee and applicable requirements of the Oman Commercial Companies Law and the Capital Market Authority.

Accounting convention
The financial statements are prepared under the historical cost convention, modified to include the revaluation of freehold land and buildings and the measurement at fair value of derivative financial instruments and trading and available for sale investment securities.

The accounting policies are consistent with those used in the previous year.

The accounting records are maintained in Rials Omani.

Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, balances with banks, treasury bills and money market placements and deposits maturing within three months of the balance sheet date.

Placements with banks
These are stated at cost, less any amounts written off and provision for impairment.

Loans and advances
Loans and advances are stated net of interest suspended and provisions for impairment.

Trading portfolio
These are initially recognised at cost and subsequently remeasured at fair value. Any gain or loss arising from a change in fair value being included in the income statement in the period in which it arises.

All investments are initially recognised at cost, being the fair value of the consideration given including acquisition charges associated with the investment.

Premiums and discounts on non trading investments are amortised using the effective interest rates method and taken to income.

Held to maturity
Investments which have fixed or determinable payments which are intended to be held to maturity, are carried at amortised cost, less provision for impairment in value.

Available for sale
After initial recognition, investments which are classified 'available for sale' are remeasured at fair value. Unrealised gains and losses on remeasurement to fair value are included in the statement of income in the period in which they arise.

Originated by the bank
Investments in debt securities which are funded directly to the user are stated at cost less provision for impairment.