Download - FA3 Assignment Bank Dhofar

Financial Accounting 3Financial Accounting 3 Bank Dhofar Bank Dhofar (S.A.O.G)(S.A.O.G)

Table of Contents

Particulars Page No.

Introduction 2

Company Background 3-4

Ratio Analysis 3-17

Analysis of Additional Techniques 18-24

Analysis of Cash Flow Statements 25-27

SWOT Analysis of Bank Dhofar 28

PEST Analysis 29

Users of Financial Statements 30-32

Limitations 32-33

Performance Report 34

Appendices 35-37

Bibliography 38

Taher AL Belushi (25257) Taher AL Belushi (25257) Assessment 1Assessment 111


Bank Dhofar (S.A.O.G)

Introduction:

The purpose of this study is to analyze and evaluate the financial data of Bank Dhofar (S.A.O.G) for the financial periods from 2002 to 2005. Furthermore, an overview of banking sector in Oman will be discussed or assessed in this study by PEST analysis.Also SWOT analysis of Bank Dhofar will be included in this study.

In addition, the performance of Bank Dhofar (S.A.O.G) will be critically evaluated by using relevant ratio analysis and additional techniques for example, Horizontal Analysis, Vertical Analysis and Z scores.

Moreover, a critical analysis of cash flow statements will be stated with examination of users of financial statements and limitations of ratio analysis.

Company Background:

Bank Dhofar started operations in 1990, by acquiring the Muscat branch of BNP-Paribas and was incorporated as an Omani commercial bank. Moreover, it took over the 11 branches of Bank of Credit & Commerce International (BCCI) in 1992.

Bank Dhofar is wholly owned and managed by Omanis. In 1998, it divested 40% of its share in a public offer and got listed in the Muscat Securities Market and was converted into a SAOG company – Bank Dhofar Al Omani Al Fransi SAOG. In 2001, it acquired 16 branches of Commercial Bank of Oman after the latter was merged with Bank Muscat. In 2003, the Bank acquired Majan International Bank SAOC (MIB), an Omani closed joint stock company.

Furthermore, on 30 September 2003 the bank held an Extra-ordinary General Meeting and decided to change the name of the Bank from Bank Dhofar Al Omani Al Fransi SAOG to Bank Dhofar SAOG.



Bank Dhofar currently operates through a network of 48 branches and 66 ATMs with staff strength of 598.

Shareholding: The authorized share capital of the bank consists of 50,000,000 shares of RO 1 each. At 31 December 2005, the issued and paid up share capital comprise 41,961,818 shares of RO 1 each.

The following shareholders of the Bank own 10% or more of the Bank’s shares:

Name of Shareholder Share holding %

2005 No. of Shares

Dhofar International Development and Investment Company SAOG 30.00% 12,588,545Civil Service Pension Fund 10.00% 4,196,181Source: Bank Dhofar Annual Report

Regarding to the above table, Dhofar International Development and Investment Company SAOG owns the largest individual shareholding with 30% stake in the Bank, while the Civil Service Pension Fund holds 10% stake and the remaining 60% is owned by others including general public.

Ratio Analysis:

Ratios provide very useful tools to assess the organization by making two basic types of comparisons:

i. The analyst can compare a present ratio with past (or expected) ratios for the organization to determine if there has been an improvement or deterioration or no change over time.

ii. The ratios of one organization may be compared with similar organizations.

Perhaps the most commonly used ratios in business are Financial Ratios. These are developed by use of the income statement and the balance sheet. In fact, ratio analysis will give clues but not answers.

In this study, the Financial Ratios will be applied to the Bank Dhofar’s Financial Statements for the periods from 2002 to 2005 as well as these ratios will be discussed and analyzed.



As we know, financial institutions such as banks, financial services companies and insurance companies have different ways of reporting financial information. This study will give the most relevant information to analyze the Bank Dhofar’s Financial Statements.

1. Profitability Ratios:

The profitability ratios measure profit in relation to revenue generally the higher percentage the better.

Gross Profit Ratio:

This tells how much profit the product or service is making without overhead considerations. As such, it indicates the efficiency of operations as well as how products are priced.

It is calculated by dividing the organization’s Gross Profit by the total Revenue:

Gross Profit Ratio = Gross Profit × 100 Revenue

Amount in ‘000 Omani Rial 2002 2003 2004 2005Gross Profit 9,335 11,423 12,600 16,131 Revenue 24,640 27,675 30,019 34,738Gross Profit Ratio 37.89% 41.28% 41.97% 46.44%Ratio Calculation based on Bank Dhofar’s Annual Reports

From the above table, the Gross Profit Ratio increased in 2003 and reached at 41.28% compared with 37.89% for 2002. In 2005, Bank Dhofar significantly raised the gross profit ratio to 46.44% which was the higher gross profit ratio over the study period.

This is due to grew in the gross profit of the Bank by 22% from RO 9,335 K for the year 2002 to RO 11,423 K for 2003. This increase was a result of higher interest income coupled with increased fee income and profit from investments.

Again in 2005 the gross profit of the Bank grew by 28% from RO 12,600 K for the year 2004 to RO 16,131 K for 2005. One of the main reasons behind the 28% jump in gross profit in 2005 was the decrease in provisions for impaired loans from (RO 5,314 k) in 2004 to (RO 2,781 k) in 2005 by -48%.



Gross Profit Ratio

37.8

9%

41.2

8%

41.9

7%

46.4

4%

0

10,000

20,000

30,000

40,000

2002 2003 2004 2005

0%10%20%30%40%50%

Gross Profit Revenue Gross Profit Ratio

Net Profit Ratio (Return on Revenue):

This ratio indicates the relative efficiency of the firm after taking into account all expenses and income taxes. In other word, it is the relationship between the net profit after tax and total revenue. It is calculated as follows:

Net Profit Ratio = Profit after tax × 100 Revenue

Amount in ‘000 Omani Rial 2002 2003 2004 2005Profit after tax 8,295 10,156 11,078 14,199Revenue 24,640 27,675 30,019 34,738Net Profit Ratio 33.66% 36.70% 36.90% 40.87%Ratio Calculation based on Bank Dhofar’s Annual Reports

As stated above, the net profit of the Bank has been consistently on upward trend during the last 4 years. Bank Dhofar reported a net profit of RO 10,156 K for the year 2003 as compared to RO 8,295 K for the year 2002 and a net profit of RO 14,199 K for the year 2005 as compared to RO 11,078 K for the year 2004, which represented an increase in Net Profit Ratio from 33.66% in 2002 to 36.70% in 2003 and from 36.90% in 2004 to 40.87% in 2005.

This increase was mainly a result of the bank’s expansion in the retail business, which resulted in a sharp increase in commission earnings from a consistently growing loan book. Commission earnings grew from RO 1,039 K in 2002 to RO 2,198 K in 2005 resulted an increase by 112.0%.

Moreover, Bank Dhofar diversified its operating earnings through fees and commissions from trade financing, brokerage, credit card operations, investment banking and asset management services.



The increase in the Net Profit Ratio trend can be seen in the following graph:

Net Profit Ratio

33.6

6%

36.7

0%

36.9

0%

40.8

7%

0

10,000

20,000

30,000

40,000

2002 2003 2004 2005

0%10%20%30%40%50%

Profit after tax Revenue Net Profit Ratio

Rate of Return on Equity (ROE):

This ratio is calculated by dividing the net profit after tax (net earnings) by the net worth (shareholders’ Equity). This shows the earning power on shareholders’ book investment.

Return on Equity (ROE) = Profit after tax × 100 Shareholders’ Equity

Amount in ‘000 Omani Rial 2002 2003 2004 2005Profit after tax 8,295 10,156 11,078 14,199Shareholders’ Equity 47,408 63,127 67,771 79,405Return on Equity (ROE) 17.50% 18.38% 16.93% 19.30%Ratio Calculation based on Bank Dhofar’s Annual Reports

This ratio indicates how much company is making on the money that was invested in the firm. Furthermore, the calculation of this ratio indicates to investors how efficiently the company operates and how well the firm is being managed.

From the view point of Bank Dhofar, the bank generated a 17.50% return on the capital invested by the owners of the bank in 2002. This return increased to 18.38% in 2003 and slightly decreased to 16.93% in 2004. In 2005, the return on the capital invested jumped to 19.30%.



Generally, the rate of Return on Equity of the Bank Dhofar was desirable to provide a good percentage of dividends to owners and have funds for future growth of the Bank.

Return on Equity (ROE)

17.5

0% 18.3

8%

16.9

3%

19.3

0%

015,00030,00045,00060,00075,000

2002 2003 2004 2005

15%16%17%18%19%20%

P rofit after tax Shareholders’ Equity Return on Equity

Return on Assets (ROA):

This ratio is one of the most widely used in the analysis of profitability since it indicates how efficiently the assets are being used. Moreover, it measures the earning power of firm’s assets.

Net Profit Ratio = Profit after tax × 100 Total Average Assets

Amount in ‘000 Omani Rial 2002 2003 2004 2005Profit after tax 8,295 10,156 11,078 14,199Total Average Assets 344,003 474,085 551,293 618,225 Return on Assets (ROA) 2.41% 2.48% 2.16% 2.43%Ratio Calculation based on Bank Dhofar’s Annual Reports

The above table indicates the ability of Bank Dhofar to utilize the assets employed in the Bank to earn a good return.

More or less the Bank Dhofar maintained the same level of Return on Assets over the study period. In 2003, the Return on Assets was 2.48% it slightly increased from 2.41% in 2002. In 2004, the rate of Return on Assets decreased and reached at 2.16% and again in 2005 it increased and reached at 2.43%. This was a result of the increase in net income at higher pace than the increase in average total assets.



A consistently increase in the Bank’s Return on Assets indicates to the powerful of the Bank’s management to use the bank’s assets efficiently which in turn tells the investors the firm is doing well and catches a lot of investors.

Return on Assets (ROA)

8,295

10,156

11,078

14,199

344,003

474,085

551,293

618,225

2.41%

2.48%

2.16%

2.43%

2002

2003

2004

2005

Return on Assets

Total Assets

Profit after tax

2. Liquidity Ratios:

The Liquidity Ratios indicate the ease of turning assets into cash. Moreover, liquidity ratios provide information about a firm’s ability to meet its short-term financial obligations. However, the firm should ensure that there is no shortage in liquidity as well as there is no excess.

Current Ratio:

This ratio is obtained by dividing the Total Current Assets of the company by its Total Current Liabilities. This tells whether the company has enough current assets to meet the payments of its current payments.

Current Ratio =Total Current AssetsTotal Current Liabilities

Current assets normally includes cash, account receivable and inventories while current liabilities consist of account payable, short term loans, accrued income taxes, wages and other accrued expenses.



Current Ratio of 2:1 is considered an indicator of reasonable financial strength. A ratio of less than 1.0 indicates that the organization does not have sufficient current assets to meet current payment obligations.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Total Current Assets 323,524 442,563 517,815 585,839Total Current Liabilities 296,595 410,958 483,522 538,820Current Ratio RO 1.091:1 1.077:1 1.071:1 1.087:1Ratio Calculation based on Bank Dhofar’s Annual Reports

From the above table, an analysis of current ratio of Bank Dhofar will raise. In 2002, the bank had 1.091 RO worth of current assets for every 1 RO of Current Liabilities.

The ability of the bank to pay its liabilities over 12 month decreased to 1.077 & 1.071 in 2003 & 2004 respectively. Furthermore, in 2005 current ratio grew to 1.087 RO for every 1 RO indicating increasing trend on liquidity, however the Bank is still unable to meet its current liabilities sufficiently from its current assets.

In other word, the current ratio of the Bank Dhofar needs additional financial resources. To improve the current ratio of the Bank, it should decrease its current liabilities (account payable, short term loan etc) to meet current payment sufficiently.

Current Ratio

1.091

1.077

1.071

1.087

0100,000

200,000300,000

400,000500,000

600,000700,000

2002 2003 2004 2005

1.0601.065

1.0701.075

1.0801.085

1.0901.095

Total Current Assets Total Current Liabilities Current Ratio

3. Efficiency Ratios:

Efficiency Ratios measure how successful the organization is in using the assets to generate Revenue.

Assets Turnover Ratio:



Assets Turnover Ratio is the relationship between revenue and assets. The organization should manage its assets efficiently to maximize the revenue. Moreover, this ratio indicates the efficiency with which the organization uses all its assets to generate revenue.

It is calculated by dividing the organization’s revenue by the total assets.

Assets Turnover Ratio=Revenue

Average Total Assets From the following table, the assets turnover ratio decreased from 0.072 times in 2002 to 0.068 times in 2003. In 2004 & 2005 again the assets turnover ratio decreased and reached at 0.059 times. This was mainly because the average total assets increased by 70% over the study period which in turn decreased the assets turnover ratio.

One of the major reasons behind the 70% jump in average total assets over the study period was the merged between Bank Dhofar & Majan International Bank in 2003.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Revenue 24,640 27,675 30,019 34,738Average Total Assets 344,003 409,044 512,689 584,759 Assets turnover Ratio 0.072 times 0.068 times 0.059 times 0.059 timesRatio Calculation based on Bank Dhofar’s Annual Reports

Therefore, the lower Assets turnover Ratio, the less efficient the Bank is generating revenue from total assets employed.

Assets turnover Ratio

0.072 0.0680.059 0.059

0100,000200,000300,000400,000500,000600,000

2002 2003 2004 2005

0.000

0.020

0.040

0.060

0.080

Revenue Average Total Assets Assets turnover Ratio

Working Capital Turnover Ratio:

Working Capital Turnover Ratio provides useful information as to how effectively the company is using its working capital to generate revenue.

It is calculated by dividing revenue by working capital:



Working Capital Turnover Ratio=Revenue

Working Capital

Where as Working Capital is (Current Assets – Current Liabilities).

Amount in ‘000 Omani Rial 2002 2003 2004 2005Revenue 24,640 27,675 30,019 34,738Working Capital 26,929 29,267 32,949 40,656 Working Capital turnover Ratio 0.915 times 0.946 times 0.911 times 0.854 timesRatio Calculation based on Bank Dhofar’s Annual Reports

As a result of the above table, the working capital ratio for the Bank Dhofar in 2003 was 0.946 times showed an increase from 2002 by 3%. In 2004 & 2005 the ratio was 0.911 times & 0.854 times respectively.This means, the Bank using its working capital effectively to generate revenue.

Working Capital turnover Ratio

0.9150.946

0.911

0.854

0

10,000

20,000

30,000

40,000

50,000

2002 2003 2004 2005

0.800

0.850

0.900

0.950

1.000

Revenue Working Capital Working Capital turnover Ratio

4. Solvency Ratios:

Solvency Ratios measures to assess a company’s ability to meet its long term obligations.

Interest Coverage Ratio:

The Interest Coverage Ratio is a measurement of the number of times a company could make its interest payments with its earnings before interest and tax.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Profit before Interest & Tax 15,751 17,696 19,355 26,473Interest Expense 6,416 6,273 6,755 10,342 Interest Coverage Ratio 2.455 times 2.821 times 2.865 times 2.560 timesRatio Calculation based on Bank Dhofar’s Annual Reports



From the Bank Dhofar point of view in 2002, the interest coverage ratio was at 2.455 times of the PBIT covers the interest expense. However, the interest coverage ratio is more than 1.5 indicates the ability of the bank to generate necessary cash to pay its interest obligations.

For the period from 2003 to 2004 the ratio more or less successfully has been increased to arrive at 2.821 & 2.865 times of PBIT covers the interest expense. In 2005, the interest coverage ratio has been slightly decreased to reach at 2.560 times of the PBIT cover the interest expense.

In other word, the Bank is generating good return to meet its interest payments, therefore it had a positive effect on interest covered ratio.

Interest Coverage Ratio

2.455

2.8212.865

2.560

-

5,000

10,000

15,000

20,000

25,000

30,000

2002 2003 2004 2005

2.200

2.300

2.400

2.500

2.600

2.700

2.800

2.900

Interest Expense Profit before Interest & Tax Interest Coverage Ratio

Debt Ratio:

This ratio measures the financial strength that reflects the proportion of capital which has been funded by debt.

This ratio calculated as follows:

Debt Ratio=Long term debt

Total AssetsA debt to asset ratio of no more than 50 percent has been considered prudent. A higher ratio indicates a possible over use of leverage and it may indicate potential problems meeting the debt payments.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Long term debt - 7,362 7,362 7,362Total Assets 344,003 474,085 551,293 618,225 Debt Ratio 0.00% 1.55% 1.34% 1.19%



Ratio Calculation based on Bank Dhofar’s Annual Reports

The chart below shows a decrease trend during the period from 2003 to 2005. In 2003, the extent of borrowing was 1.55% whereas it slowly jumped down to 1.34% & 1.19% in 2004 & 2005 respectively. Bank Dhofar had a low debt ratio which in turn shows the financial strength of the bank. Moreover, it shows the lower a bank’s reliance on debt to finance its assets.

The more debt ratio the more fixed interest payments and repayment of the loan and legal action can be taken if any amount due are not paid on the appointed time.

From the point of debt ratio, the bank has the greater proportion of equity funds which reflects the greater degree of financial strength. Financial leverage will be the advantage of the ordinary shareholders as long as the rate of earnings on capital employed is greater than the rate payable on borrowed funds.

Debt Ratio

0.00%

1.55%1.34%

1.19%

-

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2002 2003 2004 2005

0.00%

0.50%

1.00%

1.50%

2.00%

Total Assets Long term debt Debt Ratio

5. Investment Ratios:

Earning Per Share (EPS):

Earning per share is one of the most important ratios for investors. It tells them the earning strength of the company and it is generally used to evaluate public joint stock companies.

The shareholders are particularly interested in knowing how much has been earned during the financial year on each of the shares held by them.




Earning Per Share (EPS)=Profit after tax – preference dividends

No. of Ordinary Shares

From the following table, Bank Dhofar had high earning per share over the period 2002 to 2005. In 2002, Bank Dhofar made RO 0.235 profit share and it was constantly continued in the 2003 & 2004 to reach at RO 0.263 & RO .264 per share.

The year 2005, was a milestone for bank Dhofar. Bank Dhofar reported EPS of RO 0.338 for the year end 2005, an increase of 28% over the study period. This increase was due to an increase in Net profit RO 14,199.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Profit After Tax (excluding Preference Dividends) 8,295 10,156 11,078 14,199 No. of Ordinary Shares 35,280 38,621 41,962 41,962 Earning per Share (EPS) RO 0.235 0.263 0.264 0.338Ratio Calculation based on Bank Dhofar’s Annual Reports

Earning Per Share

0.2

35

0.2

63

0.2

64 0.3

38

-

10,000

20,000

30,000

40,000

50,000

2002 2003 2004 2005

0.000

0.100

0.200

0.300

0.400

Profit After Tax No. of Ordinary Shares EPS

Price Earning (PE):

Price Earning Ratio is a useful indicator of what premium investors are prepared to pay or receive for the investment.

It is calculated by dividing The Market Price per Share by Earning per Share:

Price Earning (PE)=Market Price per Share

Earning per Share



Amount in ‘000 Omani Rial 2002 2003 2004 2005Market Value Per Share 2.260 3.000 3.750 3.600 Earning Per Share 0.235 0.263 0.264 0.338 Price Earning (PE) 9.612 times 11.408 times 14.205 times 10.639 timesRatio Calculation based on Bank Dhofar’s Annual Reports

The above table shows the share was traded at much higher premium in 2004 were than 2002, 2003, and 2005. In 2004 the price was 14.408 times higher than earnings while in 2002, 2003 and 2004 the price was only 9.612, 11.408 & 10.639 times higher respectively.

In other words, the above statement shows high Price Earning of Bank Dhofar share which generally reflects lower risk and higher growth prospects for earnings.

This high Price earning ratio catches more investors to invest and buy Bank Dhofar’s Share.

Price Earning (PE)

0.2

35

0.2

63

0.2

64

0.3

38

9.6

12

11

.40

8

14

.20

5

10

.63

9

-

1.000

2.000

3.000

4.000

2002 2003 2004 2005

In R

O

0.000

5.000

10.000

15.000

Market Value Per Share Earning Per Share

Price Earning (PE)

Dividends Cover Ratio:

This ratio measures the extent of earnings that are being paid out in the form of dividends.

It is calculated by dividing The Profit after tax by Dividends:

Dividends Cover Ratio=Profit after tax

Dividends



From the following table it reveals that how many times the dividend of Bank Dhofar which has been paid are covered by earnings.

In 2002, the dividend covered 1.318 times by earnings, while in 2003 the coverage ratio increased to reach at 1.614 times by earnings.

In 2004, dividends paid by Bank Dhofar have been covered by 1.760 times by earnings which in turn reflect the high ratio over the study period. In 2005, the ratio was 1.692 times which is lower than 2004 by -4%.

This means Bank Dhofar made high dividends cover ratio over the study period. However, a higher cover would indicate that a larger percentage of earnings are being retained and reinvested in the business while a lower dividends cover would indicate the opposite.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Profit After Tax 8,295 10,156 11,078 14,199 Dividends 6,294 6,294 6,294 8,392 Dividends Cover Ratio 1.318 times 1.614 times 1.760 times 1.692 timesRatio Calculation based on Bank Dhofar’s Annual Reports

Dividends Cover Ratio

1.3

18

1.6

14

1.7

60

1.6

92

-

5,000

10,000

15,000

2002 2003 2004 2005

0.000

0.500

1.000

1.500

2.000

Profit After Tax Dividends Dividends Cover Ratio

Dividends Payout Ratio:

This ratio looks at the dividend payment in relation to net income and can be calculated as follows:

Dividends Payout Ratio=Dividends

Profit after tax



Bank Dhofar paid high Dividends payout ratio in 2002 of 75.88% than 2003 61.97%. In 2004, the dividends payout ratio decreased to 56.82% and it is slightly increased to 59.10% in 2005.

Overall Bank Dhofar paid a high percentage of dividends to shareholders which in turn increase the market price of Bank Dhofar’s share. Therefore, it is a good sign for the shareholders to hold the company shares with favorable dividends on there investments.

Amount in ‘000 Omani Rial 2002 2003 2004 2005Dividends 6,294 6,294 6,294 8,392 Profit After Tax 8,295 10,156 11,078 14,199 Dividends Payout Ratio 75.88% 61.97% 56.82% 59.10%Ratio Calculation based on Bank Dhofar’s Annual Reports

Dividends Payout Ratio

75

.88

%

61

.97

%

56

.82

%

59

.10

%

-

5,000

10,000

15,000

2002 2003 2004 2005

0%

20%

40%

60%

80%

Dividends Profit After Tax Dividends Payout Ratio

Dividends Yield Ratio:

The dividend yield ratio indicates the return that investors are obtaining on their investment in the form of dividends.



This yield is usually low as the investors are also receiving capital appreciation on their investments in the form of an increase of share price.

Moreover, the higher the dividends the higher the market value of the share which shows strong correlation between dividend yields and market prices.


Dividends Yield Ratio=Dividends Per Share

Market value Per Share

Amount in ‘000 Omani Rial 2002 2003 2004 2005Dividends Per Share 0.178 0.150 0.150 0.200 Market Value Per Share 2.260 3.000 3.750 3.600 Dividends Yield Ratio 7.89% 5.00% 4.00% 5.56%

From the above table, the Dividends Yield Ratio decreased from 7.89% to 5.56% over the study period. The main reason for this is that the dividend per share dropped from RO 0.178 in 2002 to RO 0.150 in 2004 and again increased in 2005 and reached at RO 0.200. While at the same time the price of a share increased over the study period.

Dividends Yield Ratio

7.8

9%

5.0

0%

4.0

0%

5.5

6%

-

1.000

2.000

3.000

4.000

2002 2003 2004 2005

In R

o

0%

2%

4%

6%

8%

10%

Dividends Per Share Market Value Per Share

Dividends Yield Ratio

Analysis of Additional Techniques:

1. Vertical Analysis:



Vertical/Cross-sectional/ Common size statements came from the problems in comparing the financial statements of the firms that differ in size.

In the balance sheet the assets as well as the liabilities and equity are each expressed as a 100% and each item in these categories is expressed as percentage of the respective totals.

In the common size income statements, turnover is expressed as 100% and every item in the income statement is expressed as a percentage of turnovers.

Analysis of asset structure of Bank Dhofar Over 2002-2003:

Particulars2002

RO'000% of Total

2003 RO'000

% of Total

Cash & cash equivalents 10,372 3.0% 13,983 2.9%Investments in securities 14,226 4.1% 22,860 4.8%Loans and Advances to Banks 12,583 3.7% 20,271 4.3%Loans and Advances to Customers 266,006 77.3% 367,185 77.5%Other Assets 40,816 11.9% 49,786 10.5%Total Assets 344,003 100% 474,085 100%

During the year 2002 & 2003 Bank Dhofar has consistently increased its book sized. Bank Dhofar’s total assets at the end of FY2003 amounted to RO 474.08 mn, compared with RO 344 mn in FY 2002, a whooping growth of 37.8%.

Bank Dhofar acquired the majan International Bank in March 2003 which helped the bank to enlarge its asset size by RO 96.5 mn. Over 2002-2003, the balance sheet composition has remained more or less consistent with respects to its various components. Loans & advances to customers as a % of total assets remained in the range of 77.3% to 77.5% during this period.

As a result of acquisition of Majan International Bank in 2003 for total consideration of RO 26.8 mn, partly financed by cash and the balance through issuing 6,681,818 shares of Bank Dhofar shares in addition to RO 7.36 mn subordinated bonds bearing 7% coupon payable annually and maturing in April 2008. (Bank Dhofar’s Annual Report 2003)

The investments in securities as a % of total assets increased in 2003 and reached at 4.8% compared with 2002 4.1%. Furthermore, loans & advances to banks as a % of total assets increased in 2003 and reached at 4.3% compared with 2002 3.7%.



Composition of Assets as on 2003

2.95%

4.82%

4.28%77.45%

10.50%

Cash & cash equvalents Investments in securities

Loans and Advances to Banks Loans and Advances to Customers

Other Assets

Analysis of asset structure of Bank Dhofar Over 2004-2005:

Particulars2004

RO'000% of Total

2005 RO'000

% of Total

Cash & cash equivalents 38,096 6.9% 84,344 13.6%Investments in securities 25,415 4.6% 24,568 4.0%Loans and Advances to Banks 18,708 3.4% 25,826 4.2%Loans and Advances to Customers 406,503 73.7% 470,937 76.2%Other Assets 62,571 11.3% 12,550 2.0%Total Assets 551,293 100% 618,225 100%

Bank Dhofar’s total assets at the end of FY 2005 was RO 618.23 mn, compared with RO 551.29 mn in FY 2004, recording a growth of 12%.

The investment of securities as a % of the total assets decreased in 2005 and reached at 4.0% compared with 2002 4.6%. Moreover, loans & advances to banks as a % of total assets increased in 2005 and reached at 4.2% compared with 2004 3.4%.

Loans and advances to customers as a % of total assets increased in 2005 and reached at 76.2% compared with 2004 73.7%.



Composition of Assets as on 2005

13.64%3.97%

4.18%

76.18%

2.03%

Cash & cash equvalents Investments in securities

Loans and Advances to Banks Loans and Advances to Customers

Other Assets

Analysis of Bank Dhofar's Liabilities and Equity:

Particulars2002

RO'0002003

RO'0002004

RO'0002005

RO'000

Deposits from Customers 277,219 348,298 421,093 452,132% of total 80.6% 73.5% 76.4% 73.1%Other Liabilities 19,376 55,298 55,067 79,326% of total 5.6% 11.7% 10.0% 12.8%Subordinated Bonds 0 7,362 7,362 7,362% of total 0.0% 1.6% 1.3% 1.2%Total Shareholder's Equity 47,408 63,127 67,771 79,405% of total 13.8% 13.3% 12.3% 12.8%

Total Liabilities and Equity 344,003 474,085 551,293 618,225

Bank Dhofar’s total liabilities and equity at the end of FY2005 amounted to RO 618.23 mn, compared with RO 344 mn in FY 2002, recording an increase of 80%.

Total shareholder’s equity as a % of total liabilities and equity decreased in 2005 and reached at 12.8% compared with 2002 13.8%.

Deposits from customers as a % of total liabilities and equity decreased in 2005 and reached at 73.1% compared with 2002 80.6%.



Pursuant to a merger agreement with Majan Bank, Bank Dhofar in 2003 issued 7.36 mn subordinated bonds of RO 1 each for 5 year to the erstwhile shareholders of Majan.

Analysis of Bank Dhofar's Income Statements Structure:

The common-size income statement items expressed as a percentage of total revenue.

Particulars2002

RO'0002003

RO'0002004

RO'0002005

RO'000

Interest Expense 6,416 6,273 6,755 10,342% of total Revenue 26.0% 22.7% 22.5% 29.8%Other Operating Income 4,068 5,040 5,187 5,584% of total Revenue 16.5% 18.2% 17.3% 16.1%Other Operating Expenses 12,957 15,019 15,851 13,849% of total Revenue 52.6% 54.3% 52.8% 39.9%Taxation 1,040 1,267 1,522 1,932% of total Revenue 4.2% 4.6% 5.1% 5.6%Net Profit 8,295 10,156 11,078 14,199% of total Revenue 33.7% 36.7% 36.9% 40.9%

Total Revenue 24,640 27,675 30,019 34,738

The Interest expenses as a % of total revenue increased in 2005 and reached at 29.8% compared with 2002 26%.

The operating Income as a % of total revenue was more or less 16% to 18% over the study period.

The net profit of Bank Dhofar as a % of total revenue consistently increased and reached at 40.9% compared to 33.7%, 36.7% & 36.0% in 2002, 2003 & 2004 respectively.



2. Horizontal Analysis:

This technique is also known as comparative analysis. It is conducted by setting repeated balance sheet. Income statement or statement of cash flow side by side and reviewing changes in individual categories year to year.

The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend.

Comparative Balance Sheet:

Particulars2001

RO'0002002

RO'0002003

RO'0002004

RO'0002005

RO'000

Investments in securities 16,361 14,226 22,860 25,415 24,568% Change 100 -13% 61% 11% -3%

Loans and Advances to Customers 257,676 266,006 367,185 406,503 470,937% Change 100 3% 38% 11% 16%

Other Assets 63,017 63,771 84,040 119,375 122,720% Change 100 1% 32% 42% 3%

Total Assets 337,054 344,003 474,085 551,293 618,225

Deposits from Customers 268,406 277,219 348,298 421,093 452,132% Change 100 3% 26% 21% 7%

Other Liabilities 25,997 19,376 62,660 62,429 86,688% Change 100 -25% 223% 0% 39%

Total Shareholder's Equity 42,651 47,408 63,127 67,771 79,405% Change 100 11% 33% 7% 17%

Total Liabilities and Equity 337,054 344,003 474,085 551,293 618,225

Comparative Balance Sheet is the study of the trend of the same items which summed up in term of two or more balance sheet of the business on various dates.

As stated above the total assets of the Bank Dhofar increased dramatically over last 4 years. The effected change was mostly in 2003 when Bank Dhofar acquired MIB. Investment in securities & loans and advances increased in 2003 & by 61% & 38% respectively.



The change in Deposits from Customer in 2003 was 26% which was the highest change over the study period. In 2004 & 2005, the change in deposits from customer was 21% & 7% respectively.

The highest change in total shareholder’s equity was in 2003 by 33%. In 2004 & 2005, the change in total shareholders equity was 7% & 17% respectively.

Comparative Income Statement:

Particulars2002

RO'0002003

RO'0002004

RO'0002005

RO'000

Net Income 18,189 22,439 25,097 29,301% Change 100 23% 12% 17%Operating Expenses (8,854) (11,016) (12,497) (13,170)% Change 100 -24% -13% -5%Taxation (1,040) (1,267) (1,522) (1,932)% Change 100 -22% -20% -27%

Net Profit 8,295 10,156 11,078 14,199

Comparative Income Statement gives the results of the business operations. The comparative income statement shows the progress of the business over a period of time.

From the above table, Bank Dhofar has successfully increased the Net profit over the study period and reached at RO 14,199 K at the end of 2005.

In 2003, the net income increased by 23% but in 2004 & 2005 the net income increased by 12% & 17% respectively.

The change in operating expenses increased to reach at -24% in 2003 and -13% & -5% in 2004 & 2005 respectively.



Z-Score Model:

Z-Score Model = 0.012X1 + 0.014X2 + 0.033X3 + 0.006X4 + 0.999X5

Where:

X1 =Working Capital

Total Assets

X2 =Retained Earning

Total Assets

X3 =Profit before interest & tax

Total Assets

X4 =Market Value of Shares

Book Value of debt

X5 =Revenue

Total Assets

The following table shows X values of Bank Dhofar:

2002 2003 2004 2005

X1 0.000939376 0.000740804 0.000717201 0.00078915

X2 0.000062348 0.000078315 0.000105262 0.000159877

X3 0.001510984 0.001231779 0.001158576 0.001413092

X4 0 0.00000244 0.00000306 0.00000293

X5 0.071555655 0.058317232 0.054397536 0.056133709

Z-Score 0.074 0.060 0.056 0.058

Where:

2002 2003 2004 2005

Working Capital 26,929 29,267 32,949 40,656Retained Profit 1,532 2,652 4,145 7,060Profit before tax & 15,751 17,696 19,355 26,473



InterestMarket Value of Share 2.260 3.000 3.750 3.600Book Value of debt 0 7,362 7,362 7,362Revenue 24,640 27,675 30,019 34,738Total Average Assets 344,003 474,085 551,293 618,225

Cash Flow Statements:

A statement of Cash flows is a detailed report that shows how the company generated cash over a specified period of time. It shows where the financial resources have come from and where they have gone.

The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which on the income statement and balance sheet, includes cash sales and sales made on credit.

Users of a company’s financial statements might even be misled by a reported profit figure. For example, shareholders may expect more dividends; employees may expect higher wages based on the profit of the company without having the knowledge of the cash position. Similarly, the survival of a business depends not so much on profits as on its ability to pay its debts when they fall due.

The cash flow statement is divided into three parts:

Cash from Operations: Operating activities are the daily internal activities of a business that either require cash or generate it. They include cash collection from customer, cash paid to suppliers and employees, cash paid for operating expenses etc.

Cash from Investing: Cash used for investing in assets as well as the proceeds from the sale of other businesses, equipment, or other long term assets.



Cash from Financing: Cash paid or received from issuing and borrowing of funds. This also includes dividends paid (Dividends paid may also be shown as operating cash flows).

Net change in cash: This is a net movement from all the cash flows in the period.

The following table is a Cash Flow Statements of the Bank Dhofar for the period from 2002 to 2005:

Particulars2002

RO'0002003

RO'0002004

RO'0002005

RO'000

Net Cash Flow from Operating activities 5,318 23,525 33,504 48,855 Net Cash Flow from Investing Activities 2,621 (13,442) (3,097) 3,687 Net Cash Flow from Financing Activities (3,481) (6,472) (6,294) (6,294)Net change in cash and cash equivalents 4,458 3,611 24,113 46,248 Cash and cash equivalents at 31 January 5,914 10,372 13,983 38,096 Cash and cash equivalents at 31 December 10,372 13,983 38,096 84,344

From the view point of Bank Dhofar’s cash flow statement, there was an increase in the cash generated from the operating activities over the study period.

The net Cash Flow from operating activities increased by 342% from RO 5,318 K for the year 2002 to RO 23,525 K for 2003. This huge increase was a result of high deposits from customers in 2003 amounted RO 22,871 K compared to RO 8,813 K in 2002 which increased by 160%. Moreover, interest and commission receipts increased by 17% in 2003 compared to 2002.

In 2005, the net Cash Flow from operating activities grew by 46% from RO 33,504 K for the year 2004 to RO 48,855 K for 2005. One of the main reasons behind 46% increase in the net cash from operating activities in 2005 was increase in the deposits from banks by 247% compared to 2004. Furthermore, interest and commission receipts increased by 15% in 2005 compared to 2004.

In short, from the above cash flow statement indicates positive cash flow from cash earned from operations, which is good sign for investors that the company is doing



well as well as improving and generating enough cash from operations and that there is enough money to make such investments.

The net Cash Flow from investing activities decreased by -613% from RO 2,621 K for the year 2002 to RO (13,442) K for 2003. This decrease was due to acquisition of Majan International Bank in March 2003. In March 2003, Bank Dhofar paid RO 7,350 K in cash for MIB existing shareholders. Moreover, Bank Dhofar paid RO 6,017 K cash and cash equivalent for cash flow purposes acquired by MIB.

The following statements of cash flows in respect of the acquisition of MIB:RO’000

Cash & balances with CBO 4,112Due from Banks 2,888Due to Banks (13,017)cash and cash equivalent for cash flow purposes acquired from MIB (6,017)Source: Bank Dhofar Annual Report 2003

In 2004, the net Cash Flow from investing activities was a negative balance of RO (3,097) K. This was mainly because of purchasing of investments amounted RO (4,137) K in 2004 and proceeds from sale of investments was RO 1,343 K in the same period. Moreover, in 2004 there was an acquisition of property and equipment amounted RO (1,149) K.

In 2005, the net Cash Flow from investing activities was a positive balance of RO 3,687 K. The positive balance was due to increase in the proceeds from sale of investments amounted RO 6,512 K.

In general, the negative cash flow form investing activities in 2003 & 2004 was a result of Bank’s decision to expand its activities through acquisition of Majan International Bank which in fact would be a good thing for the future.

The net Cash Flow from financing activities over the study period was almost payments of dividends. In 2003, the net cash flow from investing activities was RO (6,472) K decreased by -86% compared to 2002 negative balance of RO (3,481) K. The negative balance of RO (6,472) K in 2003 was total of dividends paid of RO 6,294 K and directors remunerations paid of RO 178.

In 2004, the net cash flow from financing activities increased by 3% and reached at negative balance of RO (6,294) K. In 2005, the net cash flow from investing activities was more or less the same negative balance of 2004 RO (6,294) K. This was fully the payments of dividends.

The Net Change in Cash and cash equivalent was a healthy indicator. During the year from 2002 to 2005 the net change in Cash and cash equivalent has consistently



increased. The net change in cash increased in 2003 and reached at RO 13,983 K compared with RO 10,372 K for 2002. In 2005, the net change in cash significantly increased to RO 84,344 K which was the higher balance of net change in Cash over the study period.

Mostly, this was due to the sharp increase in the net Cash Flow from Operating activities which in turn indicates how the company generating cash from operating activities and it is a good signal for investors to keep in mind the ability of the company to pay its liabilities when they fall due.

SWOT Analysis of Bank Dhofar:

Strengths/Opportunities:

Bank Dhofar is one of the well-known banks in Oman, with a market share of 10.3% of the total domestic banking assets, 11.2% in terms of total credit and 15.05% in terms of total customer deposits as pf September end 2004.

The bank operates a 48 branch network throughout he country which provides the bank a large presence.

Year 2003 was an eventful year for Bank Dhofar when its completed its merger with Majan International Bank.

As one of the leading banks in Oman, the bank can expect governmental support in case of financial needs.

Privatization projects and other infrastructure development projects initiated by Omani government would provide the bank with business opportunities in corporate and investment banking field.

In an expect rising interest rate environment, a low cost funding base for Bank Dhofar will help it in insulting and improving its profitability.

The bank has healthy levels of capitalization which will allow it to expand its loan book.



The bank’s ratings are comparable to its banking peers in Oman, as reflected in the following ratings:Fitch: BBB-Capital Intelligence: BBB- ( Bank Dhofar Annual Report)

Weaknesses/Challenges:

Increased competition in the domestic market, not only from the local banks but also from the foreign banks in Oman may adversely affect the deposit base growth of the bank. Also, the entrance of bank Sohar with RO 100,000,000 share capital in the market will affect the market structure in the Omani banking sector.

Significant changes in the regulatory environment and other banking regulation could bring some distortion to the overall banking sector.

Oil dependent economy which would affect the operation environment if faced with price swings and production change.

PEST Analysis:

The external environment of an organization can be analyzed by conducting a PEST analysis.

This is a simple analysis of an organization Political, Economical, Social and Technological environment.

Banking Industry in Oman:

Oman’s financial sector has been considerably strengthened and transformed in recent years leading to a modern financial consisting of commercial banks, specialized banks and other financial institution.

Out of the 14 commercial banks, 5 are locally incorporated and 9 are the local branches of foreign banks.

Upon joining World Trade Organization (WTO), Oman has made extensive commitments to open and free up its banking sector.



The Central Bank of Oman has also undertaken several measures to ensure financial sector stability and efficiency in the domestic market. The CBO has also intensified its efforts to expand the monetary and capital markets and issuing government development bonds and treasury bonds.

Moreover, commercial banks have also issued certificates of deposits and have undertaken investment related activities.

Banks in Oman have an important role to play in economic development of the country by promoting private sector activities and mobilizing resources for financing productive sector of the economy.

There has also been an increasing acceleration of the applications in information technology and the internet, e-commerce and e-banking etc in providing banking services. In this respect local banks face certain challenges, particularly in the field of E-commerce.

Users of Financial Statements:

Users of financial statements are parties who are willing to know or obtain information about the financial performance of a particular company.

According to the analysis of Bank Dhofar’s financial statements as has been analyzed earlier, the operating performance of Bank Dhofar has shown a good performance over the study period. Regarding to the operating performance of Bank Dhofar such demand may a raise on financial statements information by the following parties:

Current Shareholders:

These are major recipients of the financial statements of corporation. They would like to know how their fund has been used by the firm. Moreover, they interest whether the company is paying a good percentage of dividends and whether the market value of the share is high or not to obtain capital appreciation. In other word, shareholders interested in Dividend payout Ratio as well as Earning per share is most important. Furthermore, huge reserve of the company is a good indicator for issuing bonus share and dividends.

As has been analyzed earlier, Bank Dhofar’s dividend payout ratio more or less was stable at 60% to 75%. Moreover, the market value per share of the Bank



Dhofar has been increased during the last 4 years. It jumped from RO 2.260 to RO 3.600 increased by 59% which is a good indicator for shareholders to hold the company share.

The following chart shows the market value per share of the Bank Dhofar:

Market Value Per Share

2.260

3.000

3.750

3.600

-

1.000

2.000

3.000

4.000

2002 2003 2004 2005

Years

Mar

ket P

rice

in R

O

Market Value Per Share

Potential Shareholders:

People who want to invest in the company. Regarding to the results shown before, the Bank paid a good percentage of dividends and the payout ratio was fine which in turn make these people buy the bank’s share. Moreover, the Earning per Share of the Bank Dhofar was consistently increased during the last 4 years. Bank Dhofar reported EPS of RO 0.338 for the year end 2005, an increase of 28% over the study period. This was a good signal for potential investors to buy the company’s share.

Government:

Government officials are generally concerned that reporting and valuation regulation have been compiled with and that taxable income is fairly represented.



Creditors:

These are people who lent the company in the form of loan. They concern whether the company has made profit or loss. Also, they interested in liquidity of the firm to ensure that the company has enough money to repay the loan.

As an analysis made earlier on Cash Flow statement of the Bank Dhofar, the Bank was generating cash from operating activities and it was healthy position.

Management:

These are the people who utilize the financial statement information in many of their financing, investment and operating decisions. A financial statement based variable such as the current debt to equity ratio or the interest coverage ratio is frequently important in deciding how much long-term debt to raise. They also need the financial statements information for making future concepts and preparing the Budget of the organization.

Employees:

Employees have several motivations. They have interest in the continued and profitable operations of their firm. Financial statements are an important source of information about current and potential future profitability and solvency. They may also need them to monitor the viability of their pension plan.

Competitors:

They are surely interested in the financial statement of other firms. They need the financial statement to compare the profitability ratios, sales, growth of the other firms, new expansion and financial position of other firms with themselves. Also, they need it for future plan whether the company should expand the business or download new product in the market.

Limitations of information provided in the Financial Statement:

The objectives of financial reporting are affected not only by the environment in which financial reporting takes place but also by the limitations of the kind of information that financial statements can provide.



Limitation of Ratios can be through:

i. Accounting Information:

- Different Accounting Policies: The choices of accounting policies may distort inter company comparisons. Example IAS 16 allows valuation of assets to be based on either revalued amount or at depreciated historical cost.

ii. Information problems:

- Ratios are not definitive measures: Ratios need to be interpreted carefully. They can provide clues to the company’s performance or financial situation. But on their own, they cannot show whether performance is good or bad.Ratios require some quantitative information for an informed analysis to be made.

- Ratios are based on financial statements which are summaries of the accounting records. Through the summarisation some important information may be left out which could have been of relevance to the users of accounts. The ratios are based on the summarised year end information which may not be a true reflection of the overall year’s results.

iii. Comparison of performance over time:

- Inflation renders comparisons of results over time misleading as financial figures will not be within the same levels of purchasing power. Changes in results over time may show as if the enterprise has improved its performance and position when in fact after adjusting for inflationary changes it will show the different picture.

- When comparing performance over time, the changes in technology should be considered. The movement in performance should be in line with the changes in technology. For ratios to be more meaningful the enterprise should compare its results with another of the same level of technology as this will be a good basis measurement of efficiency.



Bank Dhofar Performance Report:

To: Board of Directors

Subject: Financial Analysis of Bank Dhofar for the period from 2002 to 2005.

From: Taher Albelushi (Financial Analyst)

Date: 20th November 2006

The outlook for 2002-2005:



As stated above, Bank Dhofar continued its excellent achievements as almost

financial indicators showed significant growth.

The total assets grew in 2005 by 80% over the last 4 year and reached RO 618 mn.

The net consumer loans portfolio increased from RO 266 mn in 2002 to reach RO

471 mn, a growth of 77%. Also, the customer deposits recorded growth of 63% and

increased from RO 277 mn at the end of 2002 to RO 452 mn at the end of 2005.

The shareholders’ equity was RO 79 mn at 31 December 2005 compared with RO 47

mn at 31 December 2002.

Also, most profitability indicators recorded significant growth, as net revenue grew by

41% from RO 24.6 mn for the year 2002 to RO 34.7 mn for 2005. Albeit, the

operating expenses have increased due to the additional expenses related to the

merger of Majan International Bank activities.

The Bank maintained an acceptable Return on Assets ratio of 2.43% for the year

2005 compared with 2.41% for 2002.

The net profit of the Bank grew in 2005 by 71% and reached RO 14.2 mn compared

with RO 8.2 mn in 2002. This remarkable growth in net profit improved the earning

per share from RO 0.235 in 2002 to RO 0.338 in 2003.

Appendix:

BALANCE SHEET Bank Dhofar

Amount in '000 Omani Rial 2002 2003 2004 2005Assets

Cash & balances with Central Bank of Oman 10,372 13,983 38,096 84,344Treasury bills 28,710 32,837 50,514 - Placements with banks 12,583 20,271 18,708 25,826Loans and advances (Gross) 284,402 404,766 449,068 515,301Other assets 5,853 8,287 3,994 4,732Provisions (18,396) (37,581) (42,565) (44,364)



Total Current Assets 323,524 442,563 517,815 585,839Investments in securities 14,226 22,860 25,415 24,568Property and equipment (Gross) 8,428 10,435 10,777 11,929less: accumulated depreciation (4,975) (6,998) (7,289) (8,082)

Intangible assets 2,800

5,225

4,575

3,971

Total Assets 344,003 474,085 551,293 618,225

LiabilitiesDue to banks 6,936 26,575 34,364 60,060Deposits from customers 277,219 358,397 421,093 452,132Taxation 1,566 2,230 - - Subordinated bonds - 7,362 7,362 7,362Other liabilities 10,874 16,394 20,703 19,266

Total Current Liabilities 296,595 410,958 483,522 538,820

Owner's EquityPaid-up Equity Capital 35,280 41,962 41,962 41,962Share premium 0 5,429 5,429 5,429Legal reserve 4,302 5,318 6,437 7,857Subordinated bond reserve 0 1,472 2,944 4,416Proposed dividends 6,294 6,294 6,294 8,392Retained earnings 1,532 2,652 4,145 7,060Investment revaluation reserve 0 0 560 4,289Total Shareholder's Equity 47,408 63,127 67,771 79,405

Total Liabilities and shareholder’s Equity 344,003 474,085 551,293 618,225

INCOME STATEMENT

Bank DhofarAmount in '000 Omani Rial 2002 2003 2004 2005

Interest Income 24,640 27,675 30,019 34,738 Interest Expense (6,416) (6,273) (6,755) (10,342)

Net Interest Income 18,224 21,402 23,264 24,396 Fees and commision 1,039 1,450 1,827 2,198 Foreign Exchange gains 273 404 461 566 Profit/(loss) on Investment Securities 1,197 1,702 1,508 1,256 Other Operating Income 1,559 1,484 1,391 1,564



Provision for loan impairement (3,513) (3,918) (5,314) (2,781)Recoveries from provision for Loan impairement - - 2,667 2,120 Impairement (8) (57) (707) (18)Provision for Investment (462) - - - Provision for property & equipment (120) (28) - -

Net Operating Income 18,189 22,439 25,097 29,301 Staff wages and salaries (4,313) (5,612) (6,654) (6,834)Other administrative expenses (3,707) (4,374) (4,737) (5,270)Depreciation (834) (1,030) (1,106) (1,066)Operating Expenses (8,854) (11,016) (12,497) (13,170)

Profit before taxation 9,335 11,423 12,600 16,131 Income tax expense (1,040) (1,267) (1,522) (1,932)

Net Profit 8,295 10,156 11,078 14,199

Cash Flow Statement

Particulars2002

RO'0002003

RO'0002004

RO'0002005

RO'000

Cash flows from operating activitiesInterest and commission receipts 27,124 31,693 34,187 39,400 Interest payments (7,797) (5,461) (6,599) (9,028)Cash payments to suppliers and employees (5,673) (7,105) (3,681) (15,532)

13,654 19,127 23,907 14,840 Increase in operating assets



Loans and advances to customers (12,009) (25,153) (42,642) (65,143)Loans and advances to banks 599 (6,904) (2,181) 2,167 Purchase of treasury bills (42,246) (58,905) (76,276) (8,850)Proceeds from sale of treasury bills 45,536 54,895 62,465 50,608

(8,120) (36,067) (58,634) (21,218)Increase in operating liabilitiesDeposits from customers 8,813 22,871 62,696 31,039 Due to banks (8,147) 18,634 7,411 25,740

666 41,505 70,107 56,779

Net cash from operating activities 6,200 24,565 35,380 50,401 Income tax paid (882) (1,040) (1,876) (1,546)Net cash generated from operating activities 5,318 23,525 33,504 48,855

Cash flows from investing activitiesInvestment income 903 714 844 616 Purchase of investments (867) (1,003) (4,137) (2,016)Proceeds from sale of investments 3,202 817 1,343 6,512 Purchase of property and equipment (654) (681) (1,149) (1,473)Proceeds from sale of property and equipment 37 78 2 48 Acquisition of MIB - (13,367) - - Net cash generated from investing activities 2,621 (13,442) (3,097) 3,687

Cash flow from financing activitiesDividend paid (3,360) (6,294) (6,294) (6,294)Directors remuneration paid (121) (178) - - Net cash used in financing activities (3,481) (6,472) (6,294) (6,294)

Net increase in cash and cash equivalents 4,458 3,611 24,113 46,248 Cash and cash equivalents at 1 January 5,914 10,372 13,983 38,096 Cash and cash equivalents at 31 December 10,372 13,983 38,096 84,344

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seventh edition, Prentice Hall.

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Prentice Hall, UK

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