Muscat, January 15, 2009: BankMuscat (SAOG), the nation’s leading financial services institution, announced the preliminary results for the year ended December 31, 2008. The results are subject to audit by the external auditors and approval of Board of Directors of the Bank and Central Bank of Oman (CBO).
The Bank is expected to post an operating profit of RO 152 million for the year ended December 31, 2008 as against an operating profit of RO 103 million reported for the year 2007, an increase of 48%. Income from core businesses maintained growth trend in fourth quarter 2008 as well, which is reflected in operating profit growth in 2008.
During the last quarter of 2008, the global market conditions substantially changed as a result of the global financial crisis. This has affected the market value of some of the strategic and non-strategic investment portfolio of the Bank. As a measure of prudence, the Bank is considering the following impairment losses which are exceptional in nature in the results for the year 2008:
1) The Bank holds a strategic shareholding of 35% in Saudi Pak Commercial Bank (SPCB), Pakistan and accounts this investment as “Investment in associate” under equity method. Subsequent to the investment in March 2008, the economic situation has deteriorated in Pakistan which has affected the value of this investment. The Bank appointed an independent audit firm to assess the value of this investment considering the current economic and business environment in Pakistan. Even though this investment is strategic in nature, as a measure of prudence, the Bank is considering an impairment loss of RO. 16 million based on the independent valuation performed in December 2008. This impairment loss is considered in accordance with International Financial Reporting Standards (IFRS). The carrying value of this investment after the impairment loss would be RO. 17.9 million.
2) As per the IFRS and in accordance with recent circular from CBO, the Bank is considering impairment loss of RO. 10.9 million on its “available for sale (AFS)” investment portfolio. Out of the total impairment loss of RO. 10.9 million, RO. 8.2 million relates to local portfolio. In normal circumstances, the mark-to-market impact on “AFS” investment portfolio goes through equity. However, due to the substantial decline in the market value, the unrealized loss is considered for impairment and reflected in Income Statement. While the Bank had unrealized gain of RO. 6.4 million as at September 30, 2008 due to substantial decline in both local and international stock markets during the last quarter of 2008, the Bank is considering an impairment loss on this portfolio in December 2008.
After considering the above impairment losses, the Bank is expected to post a net profit of over RO 90 million as against a net profit of RO 84.2 million reported in 2008, an increase of 7%.
The Bank holds a minority stake of 2.67% in HDFC Bank, India. As at December 31, 2008 the market value of the investment was RO. 88.6 million against the cost of investment of RO. 19.8 million resulting in unrealized gain of RO. 68.8 million. The unrealized gain of RO 68.8 million is not reflected in the Income Statement as it goes through equity of the Bank. When the investment is sold, the Bank would reflect the gain in the Income Statement.
It is expected that the Bank would retain higher level of profits as compared to the previous year in line with the recent guidance from CBO. Capital adequacy ratio is expected to be over 12.5% as at December 31, 2008 against the minimum required level of 10%.
The Bank would release the final results along with complete set of audited financial statements for the year ended December 31, 2008 after the necessary approval by the Board of Directors during the last week of January 2009. The results are subject to Central Bank of Oman’s approval and hence may undergo changes.