Alizz Islamic Bank SAOG. UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS 30 June 2018

Transcription

1 UNAUDITED INTERIM CONDENSED FINANCIAL STATEMENTS 30 June 2018

2 INTERIM CONDENSED STATEMENT OF FINANCIAL POSITION As at 30 June 2018 Notes (Unaudited) (Unaudited) (Audited) 30 June 30 June 31 December ASSETS Cash and balances with the Central Bank of Oman 45,679,280 35,059,578 26,693,236 Due from banks 26,597,429 46,460,084 22,522,495 Financial assets at fair value through other comprehensive income 3 22,241,970 50,916,213 41,313,573 Financial assets at amortised cost 18,095, Wakala bil Istithmar 4 119,701,277 79,731, ,305,502 Murabaha receivables 5 102,152,770 81,341,532 83,183,614 Ijarah assets-ijarah muntahia bittamleek 6 256,231, ,621, ,964,599 Diminishing Musharaka 7 62,156,862 21,253,543 38,752,764 Property and equipment 3,177,476 3,614,490 3,479,157 Intangibles 1,714,747 1,985,832 1,886,003 Deferred tax asset 12 3,078,872 3,245,479 3,245,479 Other assets 10,978,879 9,570,400 9,611,093 TOTAL ASSETS 671,806, ,800, ,957,515 LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNT HOLDERS AND OWNERS' EQUITY LIABILITIES Due to banks 2,424,194 22,330,001 5,775,000 Customers current accounts 39,049,270 33,852,314 27,304,809 Customers' wakala bil Istithmar 395,460, ,730, ,861,220 Other liabilities 13,663,706 11,405,029 10,423,588 TOTAL LIABILITIES 450,597, ,317, ,364,617 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNT 9 143,388,911 84,797, ,304,461 OWNERS' EQUITY Share capital 100,000, ,000, ,000,000 Legal reserve 384, , ,969 Fair value reserve (1,212,855) (580,495) (24,254) Restructured financing reserve ,884 Impairment Reserve 1,669, Accumulated losses (23,021,830) (21,024,187) (22,244,162) TOTAL OWNERS' EQUITY 77,819,645 78,685,287 78,288,437 TOTAL LIABILITIES, EQUITY OF UNRESTRICTED INVESTMENT ACCOUNT HOLDERS AND OWNERS' EQUITY 671,806, ,800, ,957,515 NET ASSETS PER SHARE COMMITMENTS AND CONTINGENT LIABILITIES 11 67,103,770 70,018,110 65,920,397 The interim condensed financial statements were approved by the Board of Directors on 29 July 2018 and signed on their behalf by: Chairman of the Board Chief Executive Officer The attached notes from 1 to 19 form part of these interim Condensed Financial Statements Page 2

3 INTERIM CONDENSED STATEMENT OF INCOME For the six month period ended Notes 1 April 1 April 1 January 1 January 2018 to 2017 to 2018 to 2017 to 30 June 30 June 30 June 30 June Income from financing and investing activities 7,579,893 5,051,466 14,277,135 9,394,272 Return on equity of investment accountholders before bank's share as a Mudarib (738,578) (263,665) (1,405,756) (464,126) Bank's share as a Mudarib 219,643 37, ,774 67,826 (518,935) (225,837) (1,029,982) (396,300) BANK'S SHARE IN INCOME AS MUDARIB AND RAB UL MAAL 7,060,958-4,825,629 13,247,153 8,997,972 Bank's income from own investments 454,029 19, , ,209 Other income - net 858, ,304 1,656,575 1,236,652 8,373,770 5,453,120 15,825,401 10,409,833 Profit on wakala bil Istithmar payable (3,476,994) (2,901,565) (6,673,980) (5,147,393) NET OPERATING INCOME 4,896,776 2,551,555 9,151,421 5,262,440 Staff expenses (2,220,604) (1,942,530) (4,236,116) (3,733,189) Depreciation (207,940) (191,947) (415,584) (374,017) Amortisation of intangibles (135,761) (126,983) (267,750) (253,740) Other general and adminstrative expenses (1,527,385) (1,206,531) (2,839,935) (2,420,676) TOTAL EXPENSES (4,091,690) (3,467,991) (7,759,385) (6,781,622) PFIT / (LOSS) BEFORE PVISION FOR IMPAIRMENT AND INCOME TAX 805,086 (916,436) 1,392,036 (1,519,182) Provision for impairment (55,223) (382,489) (281,326) (1,236,459) PFIT / (LOSS) BEFORE TAX 749,863 (1,298,925) 1,110,710 (2,755,641) Income tax 12 (115,050) - (166,607) 712,785 PFIT / (LOSS) FOR THE PERIOD 634,813 (1,298,925) 944,103 (2,042,856) PFIT / (LOSS) PER SHARE (0.001) (0.002) The attached notes from 1 to 19 form part of these interim Condensed Financial Statements Page 3

4 INTERIM CONDENSED STATEMENT OF CHANGES IN OWNERS' EQUITY Share Legal Fair value Impairment Restructured Accumulated capital reserve reserve reserve financing reserve losses Total Balance at 1 January ,000, ,969 (24,254) - 266,884 (22,244,162) 78,288,437 Changes on initial application of IFRS (173,257) 266,884 (266,884) 79,814 (93,443) Restated Balance at 1 January ,000, ,969 (197,511) 266,884 - (22,164,348) 78,194,994 Transfer to reserve - 94,410-1,403,067 - (1,497,477) - Realized loss on investments , (304,108) (32,919) Profit for the period , ,103 Investment fair value reserve - - (1,286,533) (1,286,533) Balance at 30 June 2018 (unaudited) 100,000, ,379 (1,212,855) 1,669,951 - (23,021,830) 77,819,645 Balance as at 1 January ,000, ,969 (64,393) - - (18,981,331) 81,244,245 Loss for the period (2,042,856) (2,042,856) Investment fair value reserve - - (516,102) (516,102) Balance at 30 June 2017 (unaudited) 100,000, ,969 (580,495) - - (21,024,187) 78,685,287 Balance at 1 July 2017 (unaudited) 100,000, ,969 (580,495) - - (21,024,187) 78,685,287 Loss for the period (953,091) (953,091) Investment fair value reserve , ,241 Transfer to restructured financing reserve ,884 (266,884) - Balance at 31 December 2017 (audited) 100,000, ,969 (24,254) - 266,884 (22,244,162) 78,288,437 The attached notes from 1 to 19 form part of these interim Condensed Financial Statements Page 4

5 INTERIM CONDENSED STATEMENT OF CASH FLOWS 1 January 1 January 2018 to 2017 to 30 June 30 June OPERATING ACTIVITIES Profit / (Loss) before tax 1,110,710 (2,755,641) Adjustments for: Depreciation 415, ,017 Amortisation 267, ,740 Provision for impairment 281,326 1,236,459 Operating Profit / (Loss) before changes in operating assets and liabilities 2,075,370 (891,425) Net changes in operating assets and liabilities: Capital deposit with Central Bank of Oman (118,354) (128,918) Wakala bil Istithmar (19,459,187) (24,741,554) Murabaha receivables (18,510,573) (21,121,406) Ijarah assets-ijarah muntahia bittamleek (18,781,815) (20,647,570) Diminishing Musharaka (23,477,897) (8,897,097) Other assets (1,393,959) (3,384,516) Customers current accounts 11,744,461 12,122,282 Customers' wakala bil Istithmar 61,599, ,968,324 Other liabilities 3,258,276 5,689,428 Equity of unrestricted investment account holders 30,084,450 20,261,051 Net cash generated operating activities 27,019,933 60,228,599 INVESTING ACTIVITIES Financial assets at fair value through equity - net 17,578,894 (42,178,910) Financial assets at amortised cost - net (18,095,000) - Purchase of property and equipment (113,903) (450,998) Additions to intangibles (96,494) (11,759) Net cash used in from investing activities (726,503) (42,641,667) Net increase in cash and cash equivalents 26,293,430 17,586,932 Cash and cash equivalents at the beginning of the period 43,034,085 41,196,083 Cash and cash equivalents at end of the period 69,327,515 58,783,015 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD COMPRISE: Cash in hand 4,944,437 2,998,783 Balances with Central Bank of Oman (excluding capital deposit and Oman net deposit) 40,209,843 31,654,149 Current accounts with local banks 2,619,791 3,740,083 Due from banks and financial institutions with original maturity of less than 90 days 23,977,638 42,720,001 Due to banks and financial institutions with original maturity of less than 90 days (2,424,194) (22,330,001) 69,327,515 58,783,015 The attached notes from 1 to 19 form part of these interim Condensed Financial Statements Page 5

6 STATEMENT OF SOURCES AND USES OF CHARITY FUND Sources of charity funds 1 January 1 January 2018 to 2017 to 30 June 30 June Undistributed charity funds at beginning of the period 26,759 17,953 Donation from Customers due to late payment 19,038 8,929 Forfeit of non-shari a compliant income 22,392 6,493 Total sources of funds at end of the period 68,189 33,375 Uses of charity funds Philanthropic societies (56,259) (28,574) Total uses of funds during the period (56,259) (28,574) Undistributed charity funds at end of the period 11,930 4,801 The attached notes from 1 to 19 form part of these interim Condensed Financial Statements Page 6

7 1 INCORPORATION AND ACTIVITIES Alizz Islamic Bank SAOG ( the Bank ) is incorporated in the Sultanate of Oman ( Oman ), as a public joint stock company to carry out banking activities in accordance with the principles of Islamic Shari a. The Central Bank of Oman ( CBO ) has issued an islamic banking license to the Bank on 5 September 2013 and the Bank commenced its operations on 30 September The Bank has ten branches as of 30 June 2018 (31 December 2017: ten branches). At 30 June 2018, the Bank had 298 employees ( 2017: 286 employees) The Bank provides banking services which includes accepting customer deposits and providing financing through various Islamic instruments such as Murabaha, Mudaraba, Ijara and other products as defined in the Central Bank of Oman s Islamic Banking Regulatory Framework. The Bank s registered office is P.O.Box 753, PC 112 Ruwi, Muscat amd its share are listed on Muscat Securities Market. The Bank is regulated by the CBO and its Shari a Supervisory Board is entrusted to ensure the Bank s adherence to Shari a in carrying out its activities. The Bank has commenced commercial operations on 30 September 2013 and as expected has reported loss during the initial years. As a result the Bank's minimum capital is below 100 million, which is a CBO requirement. The Bank has developed an appropriate strategy to comply with the minimum prescribed capital requirement and remains above the minimum capital adequacy ratio prescribed by CBO (refer note 18). 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The Bank follows Financial Accounting Standards ( FAS ) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions ( AAOIFI ) for its accounting purposes. In line with the requirement of AAOIFI, for matters that are not covered by AAOIFI standards, the Bank uses guidance from the relevant International Financial Reporting Standards ( IFRS ). In the absence of separate FAS on interim financial reporting in AAOIFI, the interim condensed financial statements of the Bank for the six month period ended 30 June 2018 have been prepared in accordance with the guidance given by the International Accounting Standard 34 - "Interim Financial Reporting" and applicable regulations of CBO. The interim condensed financial statements do not contain all information and disclosures required in the annual financial statements, and should be read in conjunction with the Bank's annual financial statements as at 31 December The condensed interim financial information is reviewed not audited. The comparatives for the condensed interim statement of financial position have been extracted from the audited financial statements for the year ended 31 December 2017 and for 30 June 2017, has been extracted from reviewed financial information for the six-month period ended 30 June 2017 and comparatives for the condensed statements of income, cash flows, changes in owners equity and sources and uses of charity fund have been extracted from the reviewed condensed interim financial information for the period ended 30 June Basis of measurement The interim condensed financial statements have been prepared on a historical cost basis, except for financial assets which are classified as fair value through equity, which are measured at fair value. The interim condensed financial statements have been presented in Rial Omani (), which is the functional and presentation currency of the Bank. One is equivalent to one thousand Baizas. 2.3 Significant accounting policies The accounting policies adopted in the preparation of the interim condensed financial statements are consistent with those used in the preparation of the annual financial statements for the year ended 31 December 2017 except for the new and amended conceptual framework and financial accounting standards, which were prepared in accordance with the Financial Accounting Standards issued by Accounting and Auditing Organisation for Islamic Financial Institutions ("AAOIFI"). For matters which are not covered by AAOIFI standards, including "Interim Financial Reporting", the Bank uses the International Financial Reporting Standards (the "IFRSs") Change in accounting policies The accounting policies applied in these interim financial statements are the same as those applied in the last annual financial statements except for changes resulting from adoption of the following: a) IFRS 9 Financial Instruments b) IFRS 15 Revenue from Contracts with Customers IFRS 15- Revenue from contract with customers The Bank has adopted IFRS 15 as issued by IASB with effective date from 1 January This standard has superceded all revenue recognition requirements under IFRS and provides a principle based approach for revenue recognition with the introduction of concept for revenue recognition for performance obligation as they are satisfied. The Bank has assessed the impact of IFRS 15 and concluded that the application of this standard does not have any material impact on Bank's financial statements International Financial Reporting Standard 9- Financial Instruments (IFRS 9) The Bank has adopted IFRS 9 issued by International Accounting Standards Board (IASB) effective from 01 January This required the Bank to change certain accounting policies and adjust certain balances reported earlier. As allowed under transitional provisions of IFRS 9, the Bank did not restate comparative periods and changes were affected through adjustment to the opening balances of accumulated losses and reserves as at 01 January The following are the significant changes to the accounting policies resulted from the implementation of the IFRS 9 Classification and Measurement of financial instruments The classification and measurement is based on the business model for managing the financial asset and contractual cash flow characteristics associated with it. IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, Fair value through other comprehensive income (FVOCI) and Fair value through profit and loss (FVTPL). On initial recognition, a financial asset is classified as measured at amortised cost, FVOCI or FVTPL. 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 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 profit on the principal amount outstanding. Page 7

8 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Significant accounting policies (Continued) International Financial Reporting Standard 9- Financial Instruments (IFRS 9) (Continued) Classification and Measurement of financial instruments (Continued) A debt type instruments e.g. Sukuk is measured at FVOCI only if it meets both of the following conditions and is not designated as FVTPL; - The asset is held within 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 profit. For an equity instrument that is not held for trading, the Bank has elected at initial recognition to irrevocably designate those instruments under FVOCI. This election is made on an investment on investment basis. All other financial assets are classified as measured at FVTPL. Under this category, fair value changes are recognised in other comprehensive income (OCI) while dividends are recognised in profit or loss. On disposal of the investment the capital gain / loss is required to remain in OCI and is not transferred to profit or loss. All other financial assets are classified as measured at FVTPL. In addition, on initial recognition the Bank 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 Bank 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 revenue, maintaining a particular profit 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 Bank'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 Bank'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. Assessment whether contractual cash flows are solely payments of principal and profit For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Profit' 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 financing 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 profit, the Bank 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. Modifications of financial assets 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 Bank 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. Impairment The Bank recognises impairment provision for ECL on the following financial instruments that are not measured at FVTPL: - financial assets that are debt-type instruments; - financing receivables; - financial guarantee contracts issued; and - financing commitments issued. No impairment loss is recognised on equity investments. The Bank measures impairment provision 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 Impairment provision for lease receivables are always measured at an amount equal to lifetime ECL. The Bank considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally understood definition of 'investment grade'. 12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Measurement of ECL IFRS 9 introduces a new expected credit loss (ECL) impairment model for all financial assets and certain off balance sheet commitments and guarantees. The new ECL model results in an provision for credit losses being recorded on financial assets regardless of whether there has been an actual loss event. This differs from the previous approach where the provision was recorded on performing financing is designed to capture only losses that have been incurred whether or not they have been specifically identified. ECL reflects an unbiased, probability-weighted outcome as opposed to the single best estimate allowed under the previous approach. The probability-weighted outcome considers multiple scenarios based on reasonable and supportable forecasts. The Bank s approach leveraged the existing regulatory capital models and processes for Bank s financing portfolios that use the existing Internal Rating based and behavioral credit models. IFRS 9 considers the calculation of ECL by multiplying the Probability of default (PD), Loss Given Default (LGD) and Exposure at Default (EAD). Impairment model uses a three stage approach based on the extent of credit deterioration since origination: Stage 1: 12-month ECL applies to all financial assets that have not experienced a significant increase in credit risk (SICR) since origination and are not credit impaired. The ECL will be computed using a 12-month PD that represents the probability of default occurring over the next 12 months. For those assets with a remaining maturity of less than 12 months, a PD is used that corresponds to remaining maturity. Stage 2: When a financial asset experiences a SICR subsequent to origination but is not credit impaired, it is considered to be in Stage 2. This requires the computation of ECL based on lifetime PD that represents the probability of default occurring over the remaining estimated life of the financial asset. Stage 3 Financial assets that have an objective evidence of impairment will be included in this stage. Similar to Stage 2, the provision for credit losses will continue to capture the lifetime expected credit losses. 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. Details of these statistical parameters/inputs are as follows: PD The probability of default is an estimate of the likelihood of default over a given time horizon. EAD The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date LGD The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD Page 8

9 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Significant accounting policies (Continued) International Financial Reporting Standard 9- Financial Instruments (IFRS 9) (Continued) Assessment of Significant Increase in Credit Risk The expected credit loss model requires the recognition of credit losses based on 12 months of expected losses for performing financing and the recognition of lifetime expected losses on financing that have experienced a significant increase in credit risk since origination. The determination of a significant increase in credit risk takes into account of many different macro-economic factors and will vary by product and risk segment. The main factors considered in making this determination are relative changes in probability- weighted probability of default since origination and certain criteria such as 30 day past due and watch list status. The assessment of a significant increase in credit risk will require experienced credit judgement. Macroeconomic factors In its models, the Bank relies on a broad range of forward looking information as economic inputs, such as: GDP growth, unemployment rates and oil prices. The inputs and models used for calculating expected credit losses may not always capture all characteristics of the market at the date of the financial statements. To reflect this, qualitative adjustments or overlays are made as temporary adjustments using expert credit judgement. Forward Looking Information (FLI) and Multiple Scenarios The Bank s ECL provision methodology, requires the Bank to use its experienced credit judgement to incorporate the estimated impact of factors not captured in the modelled ECL results, in all reporting periods. Presentation of provision for ECL in the statement of financial position Impairment provision 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; - financing commitments and financial guarantee contracts: generally, as a provision; - where a financial instrument includes both a drawn and an undrawn component, and the Bank cannot identify the ECL on the financing commitment component separately from those on the drawn component: the Bank presents a combined impairment provision for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the impairment over the gross amount of the drawn component is presented as a provision; and - debt instruments measured at FVOCI: no impairment provision is recognised in the statement of financial position because the carrying amount of these assets is their fair value. However, the impairment loss is disclosed and is recognised in the fair value reserve. Expected Life When measuring ECL, the Bank considers the maximum contractual period over which the Bank is exposed to credit risk. All contractual terms considered in determination of the expected life, including prepayment options and extension and rollover options. For certain revolving credit facilities that do not have a fixed maturity, the expected life is estimated based on the period over which the Bank is exposed to credit risk and where the credit losses would not be mitigated by management actions. Definition of Default and Write-off The Bank considers a financial asset to be in default when: - The borrower is unlikely to pay its credit obligations to the Bank in full, without recourse by the Bank to actions such as realising security (if any is held); or - The borrower is past due more than 90 days on any material credit obligation to the Bank. In assessing whether a borrower is in default, the Bank considers indicators that are: - qualitative - e.g. breaches of covenant; - quantitative - e.g. overdue status and non-payment on another obligation of the same issuer to the Bank; 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. Transition Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below: - Comparative periods have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognised in accumulated losses and reserves as at 1 January Accordingly, the information presented for 2017 does not reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9. The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application: - The determination of the business model within which a financial asset is held. - The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL. - The designation of certain investments in equity instruments not held for trading as at FVOCI. - For financial liabilities designated as at FVTPL, the determination of whether presenting the effects of changes in the financial liability's credit risk in OCI would create or enlarge an accounting mismatch in profit or loss. - If a debt security had low credit risk at the date of initial application of IFRS 9, then the Bank has assumed that credit risk on the asset had not increased significantly since its initial recognition. The classification and measurement of financial assets and liabilities before and after implementation of IFRS 9 as follows: Financial Assets Cash and balances with the Central Bank of Oman Due from banks Investment securities - debt-type Investment securities - debt-type Wakala bil Istithmar Murabaha receivables Ijarah assets-ijarah muntahia bittamleek Diminishing Musharaka Other assets Fnancial Liabilities Due to banks Customer Deposits including customers' wakala bil Istithmar Equity Of Unrestricted Investment Account Holders Other liabilities Original Classification New Classification Original Carrying Amount Remeasureme nt Reclassification New Carrying Amount IAS 39 IFRS 9 Financing & receivables Amortised cost 26,693, ,693,236 Financing & receivables Amortised cost 22,522,495 (24,496) - 22,497,999 Available for sale Amortised cost ,116,171 18,116,171 Available for sale FVOCI 41,313,573 - (18,137,342) 23,176,231 Financing & receivables Amortised cost 100,305,502 (390,114) - 99,915,388 Financing & receivables Amortised cost 83,183, ,260-84,148,874 Financing & receivables Amortised cost 237,964,599 (674,803) - 237,289,796 Financing & receivables Amortised cost 38,752, ,676-38,947,440 Financing & receivables Amortised cost 9,611,093 43,095-9,654, ,346, ,618 (21,171) 560,439,323 Amortised cost Amortised cost 5,775, ,775,000 Amortised cost Amortised cost 361,166, ,166,029 Amortised cost Amortised cost 113,304, ,304,461 Amortised cost Amortised cost 10,423, ,423, ,669, ,669,078 Commitments and contingent liabilities Amortised cost Amortised cost 65,920,397 (185,890) - 65,734,507 The impact from the adoption of IFRS 9 as at 1 January 2018 has decreased accumulated losses by OMR 79,815 and decreased the fair value reserve by OMR 173,257. Closing balance under IAS 39 (31 December 2017) Impact of reclassification of equity instruments from available for sale to amortised cost Impact of excess provision as per IFRS 9 over provision as per CBO Norms Accumulated losses Fair value Reserve (22,244,162) (24,254) 152,086 (152,086) (72,272) - Reversal of fair value reserve due to reclassification of a debt type instruments from FVOCI to amortised cost - (21,171) Opening balance under IFRS 9 (1 January 2018) (22,164,348) (197,511) Page 9

10 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued) 2.3 Significant accounting policies (Continued) International Financial Reporting Standard 9- Financial Instruments (IFRS 9) (Continued) Transition (Continued) The following table reconciles the closing impairment provision for financial assets in accordance with IAS 39 AS at 31 December 2017 to the opening ECL provision determined in accordance with IFRS 9 as at 1 January Due from banks Financing Receivables Investments Other Assets Commitments and contingent liabilities 31 December 2017 Remeasurement 01 January ,496 24,496 5,969,229 (95,019) 5,874, ,086 (152,086) - 76,262 (43,095) 33, , ,890 6,197,577 (79,814) 6,117,762 Exposure of Financial Assets The following table contains an analysis of stagewise risk exposure of financial assets for which ECL provision is recognised as at 30 June Exposure subject to ECL Stage 1 Stage 2 Stage 3 Total Due from banks 26,624, ,624,793 Financial assets at amortised cost 18,095, ,095,000 Wakala bil Istithmar Murabaha receivables Ijarah assets-ijarah muntahia bittamleek Diminishing Musharaka Other assets Commitments and contingent liabilities Movement in impairment provision by class of Financial Asset 117,061,617 3,743, ,805,149 95,289,325 7,161, , ,300, ,877,280 26,121,294 4,695, ,693,609 58,692,472 3,837,066 76,734 62,606,272 1,032, ,328 36,129 1,236,754 38,222,369 1,504, ,857 39,871, ,895,153 42,536,133 5,802, ,233,550 Opening balance as at 1 January 2018 Stage 1 Stage 2 Stage 3 Total Due from banks 24, ,496 Financial assets at amortised cost Wakala bil Istithmar Murabaha receivables Ijarah assets-ijarah muntahia bittamleek Diminishing Musharaka Other assets Commitments and contingent liabilities 1,311, ,335-1,430, ,332 92,087 84, ,704 1,387, ,399 1,746,637 3,621, ,188 23, ,934 20,688 5,706 6,772 33, ,705-65, ,890 3,486, ,273 1,902,879 6,117,762 Net transfer between stages and P&L impact Due from banks 2, ,869 Financial assets at amortised cost Wakala bil Istithmar (346,485) 19,783 - (326,702) Murabaha receivables (57,346) 266, , ,676 Ijarah assets-ijarah muntahia bittamleek (657,072) 124, ,906 (159,934) Diminishing Musharaka 181,660 52,270 34, ,476 Other assets (10,939) 2,861 9,486 1,408 Commitments and contingent liabilities (12,154) (11,467) (899,467) 465, , ,326 Closing balance as at 30 June 2018 Due from banks 27, ,365 Financial assets at amortised cost Wakala bil Istithmar 964, ,118-1,103,872 Murabaha receivables 406, , ,279 1,147,380 Ijarah assets-ijarah muntahia bittamleek 730, ,631 2,119,543 3,462,064 Diminishing Musharaka 338,848 76,016 34, ,410 Other assets 9,749 8,567 16,258 34,574 Commitments and contingent liabilities 108, , ,429 2,587,149 1,194,134 2,617,811 6,399, Accounting estimates The basis and the methods used for critical accounting estimates and judgments adopted in the preparation of this condensed interim financial information are the same as those applied in the preparation of the annual financial statements of the Bank for the year ended 31 December 2017, except the below which were as a result of adoption of IFRS 9: Financial asset classification Assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and profit on the principal amount outstanding. Impairment of financial instruments Assessment of whether credit risk on the financial asset has increased significantly since initial recognition and incorporation of forward-looking information in the measurement of ECL. 2.5 Financial Risk Management The financial risk management objective and policies adopted by the Bank are consistent with those disclosed in the financial statements of the Bank for the year ended 31 December Page 10

11 3 FINANCIAL ASSETS AT FAIR VALUE THUGH OTHER COMPREHENSIVE INCOME (Unaudited) (Unaudited) (Audited) 30 June June December 2017 Self Jointly Self Jointly Self Jointly financed financed Total financed financed Total financed financed Total Quoted Financial assets classified as fair value through other comprehensive income Regional listed Sukuks (Cost: 18,016,361, 30 June 2017: 44,782,089, 31 December 2017: 40,026,905) Regional listed equities (Cost: 1,510,825, 31 March 2017: 2,347,495,31 December 2017: 1,615,094) - 20,852,202 20,852,202 48,789,269-48,789,269 40,065,000-40,065,000-1,389,768 1,389,768 2,159,233-2,159,233 1,400,659-1,400,659 Less: Impairment Loss (32,289) - (32,289) (152,086) - (152,086) - 22,241,970 22,241,970 50,916,213-50,916,213 41,313,573-41,313,573 4 WAKALA BIL ISTITHMAR (Unaudited) (Unaudited) (Audited) 30 June June December 2017 Self Jointly Self Jointly Self Jointly financed financed Total financed financed Total financed financed Total Wakala bil Istithmar - 120,805, ,805,149-80,588,952 80,588, ,345, ,345,962 Less: Impairment provision - (1,103,872) (1,103,872) - (857,270) (857,270) - (1,040,460) (1,040,460) - 119,701, ,701,277-79,731,682 79,731, ,305, ,305,502 5 MURABAHA RECEIVABLES (Unaudited) (Unaudited) (Audited) 30 June June December 2017 Self Jointly Self Jointly Self Jointly financed financed Total financed financed Total financed financed Total Murabaha receivables - 119,269, ,269,449-96,241,264 96,241,264-99,696,282 99,696,282 Less: Deferred profit - (15,969,298) (15,969,298) - (13,433,673) (13,433,673) - (14,906,704) (14,906,704) Less: Impairment provision - (1,147,381) (1,147,381) - (1,466,059) (1,466,059) - (1,605,964) (1,605,964) Net murabaha receivables - 102,152, ,152,770-81,341,532 81,341,532-83,183,614 83,183,614 Page 11

12 6 IJARAH ASSETS-IJARAH MUNTAHIA BITTAMLEEK (Unaudited) (Unaudited) (Audited) 30 June June December 2017 Self Jointly Self Jointly Self Jointly financed financed Total financed financed Total financed financed Total Building Cost: At beginning of the period / year - 290,126, ,126, ,803, ,803, ,803, ,803,456 Additions - 45,202,003 45,202,003-34,681,992 34,681,992-92,666,228 92,666,228 Disposal - (10,840,000) (10,840,000) - (10,342,687) (10,342,687) - (10,342,687) (10,342,687) At the end of the period / year - 324,489, ,489, ,142, ,142, ,126, ,126,997 Depreciation: At beginning of the period / year - 53,853,327 53,853,327-30,340,096 30,340,096-30,340,096 30,340,096 Charge for the period / year - 24,616,438 24,616,438-12,230,672 12,230,672-33,855,918 33,855,918 Disposal - (10,840,000) (10,840,000) - (10,342,687) (10,342,687) - (10,342,687) (10,342,687) At the end of the period / year - 67,629,765 67,629,765-32,228,081 32,228,081-53,853,327 53,853,327 Provision for impairment: At the end of the period / year - (3,432,610) (3,432,610) - (2,563,194) (2,563,194) - (2,900,814) (2,900,814) Net book value - 260,291, ,291, ,477, ,477, ,174, ,174,484 Plant and machinery Cost: At beginning of the period / year - 12,263,333 12,263,333-12,263,333 12,263,333-12,263,333 12,263,333 Additions Disposal At the end of the period / year - 12,263,333 12,263,333-12,263,333 12,263,333-12,263,333 12,263,333 Depreciation: At beginning of the period / year - 7,625,209 7,625,209-3,115,833 3,115,833-3,115,833 3,115,833 Charge for the period / year - 1,803,750 1,803,750-1,803,750 1,803,750-4,509,376 4,509,376 Disposal At the end of the period / year - 9,428,959 9,428,959-4,919,583 4,919,583-7,625,209 7,625,209 Page 12

13 6 IJARAH ASSETS-IJARAH MUNTAHIA BITTAMLEEK (continued) (Unaudited) (Unaudited) (Audited) 30 June June December 2017 Self Jointly Self Jointly Self Jointly financed financed Total financed financed Total financed financed Total Provision for impairment: At the end of the period / year - (29,454) (29,454) - (73,438) (73,438) - (46,381) (46,381) Net book value - 2,863,828 2,863,828-7,417,188 7,417,188-4,684,505 4,684,505 TOTAL Cost - 336,752, ,752, ,406, ,406, ,390, ,390,330 Less: Accumulated depreciation - (77,058,724) (77,058,724) - (37,147,664) (37,147,664) - (61,478,536) (61,478,536) Less: Impairment provision - (3,462,064) (3,462,064) - 2,636,632 2,636,632 - (2,947,195) (2,947,195) Net book value - 256,231, ,231, ,895, ,895, ,964, ,964,599 7 DIMINISHING MUSHARAKA (Unaudited) (Unaudited) (Audited) 30 June June December 2017 Self Jointly Self Jointly Self Jointly financed financed Total financed financed Total financed financed Total Diminishing Musharaka - 62,606,272 62,606,272-21,527,257 21,527,257-39,128,374 39,128,374 Less: Impairment provision - (449,410) (449,410) - (273,714) (273,714) - (375,610) (375,610) - 62,156,862 62,156,862-21,253,543 21,253,543-38,752,764 38,752,764 Page 13

14 8. FINANCING RECEIVABLES In accordance with CBO circular BM 1149 Banks should continue to maintain and update the risk classification (i.e. standard, special mention, substandard, etc.) of accounts as per the extant CBO norms, including those on restructuring of accounts for regulatory reporting purposes. 8.1 Comparison of provision held as per IFRS 9 and required as per CBO norms Disclosure requirements containing the risk classification-wise gross and net amount outstanding, provision required as per CBO norms, allowance made as per IFRS 9, profit recognised as per IFRS 9 and reserve profit required as per CBO are given below based on CBO circular BM Asset Classification as per CBO Norms Asset Classification as per IFRS 9 Gross Amount Provision required as per CBO Norms Provision held as per IFRS 9 Difference between CBO provision required and provision held Net Amount as per CBO norms* Net Amount as per IFRS 9 Profit recognised in P&L as per IFRS 9 Reserve profit as per CBO norms (1) (2) (3) (4) (5) (6) = (4)-(5) (7)=(3)-(4)-(10) (8) = (3)-(5) (9) (10) Stage 1 499,061,033 5,777,310 2,442,804 3,334, ,283, ,618, Standard Stage 2 35,922,469 1,296, , ,726 34,626,146 34,939, Stage 3 116,016 1,392 52,224 (50,832) 114,624 63, Subtotal 535,099,518 7,075,025 3,477,625 3,597, ,024, ,621, Stage 1 1,891,957 22,703 8,419 14,284 1,869,254 1,883, Special Mention Stage 2 5,109,068 98, ,850 (111,949) 5,010,167 4,898, Stage 3 2,919,786 35,037 1,314,133 (1,279,096) 2,884,749 1,605, Subtotal 9,920, ,641 1,533,402 (1,376,761) 9,764,170 8,387, Stage Substandard Stage Stage 3 1,461, , ,203 (303,654) 1,087, ,255-13,021 Subtotal 1,461, , ,203 (303,654) 1,087, ,255-13,021 Stage Doubtful Stage Stage Subtotal Stage Loss Stage Stage 3 1,160, , ,066 (119,115) 696, ,082-60,858 Subtotal 1,160, , ,066 (119,115) 696, ,082-60,858 Other items not Stage 1 83,219, ,926 (135,926) 83,219,250 83,083, covered under CBO Stage 2 circular BM 977 and 1,504, (687) 1,504,596 1,503, related instructions Stage 3 144,856-65,185 (65,185) 144,856 79, Subtotal 84,868, ,798 (201,798) 84,868,702 84,666, Stage 1 584,172,240 5,800,013 2,587,149 3,212, ,372, ,585, Total Stage 2 42,536,133 1,395,224 1,194, ,090 41,140,909 41,341, Stage 3 5,802, ,929 2,617,811 (1,817,882) 4,928,456 3,184,453-73,879 Total 632,510,637 7,995,166 6,399,094 1,596, ,441, ,111,543-73,879 Other items disclosed above includes exposure outstanding and respective provisions held against due from banks, investments and other assets. Page 14

15 8. FINANCING RECEIVABLES (Continued) 8.2 Restructured Financing Asset Classification as per CBO Norms Asset Classification as per IFRS 9 Gross Carrying Amount Provision required as per CBO Norms Provision held as per IFRS 9 Difference between CBO provision required and provision held Net Carrying Amount as per CBO norms* Net Carrying Amount as per IFRS 9 Profit recognised in P&L as per IFRS 9 Reserve profit as per CBO norms (1) (2) (3) (4) (5) (6) = (4)-(5) (7)=(3)-(4)-(10) (8) = (3)-(5) (9) (10) Stage 1 1,673,351 16,734 11,403 5,331 1,656,617 1,661, Classified as performing Stage 2 12,444, , , ,916 11,542,018 12,033, Stage Subtotal 14,118, , , ,247 13,198,635 13,695, Classified as nonperforming Stage Stage Stage Sub total Stage 1 1,673,351 16,734 11,403 5,331 1,656,617 1,661, Stage 2 12,444, , , ,916 11,542,018 12,033, Total Stage Total 14,118, , , ,247 13,198,635 13,695, *Net of provisions and reserve profit as per CBO norms 8.3 Impairment charge and provisions held Impairment Loss charged to profit and loss account Provisions required as per CBO norms / held as per IFRS 9 Gross NPA ratio (percentage) Net NPA ratio (percentage) As per CBO Norms As per IFRS 9 Difference - 281,326 (281,326) 8,069,045 6,399,094 1,669, % 0.92% -0.45% 0.33% 0.51% -0.18% In accordance with CBO requirements, where the aggregate provision on portfolio & specific basis computed as per CBO norms is higher than the impairment allowance computed under IFRS 9, the difference, net of the impact of taxation, is transferred to an impairment reserve as an appropriation from the retained earnings. Page 15

16 9 EQUITY OF UNRESTRICTED INVESTMENT ACCOUNT HOLDERS (Unaudited) (Unaudited) (Audited) 30 June 30 June 31 December Equity of unrestricted investment accountholders 143,388,911 84,797, ,304,461 Profit equalisation reserve Investment risk reserve ,388,911 84,797, ,304,461 By type Saving deposits 141,366,883 82,747, ,953,135 Term deposits 2,022,028 2,050,746 2,351, ,388,911 84,797, ,304,461 As investment accountholder's funds are commingled with the Bank's funds for investment, no priority is granted to any party for the purpose of investments and distribution of profits. No appropriation for profit equalisation reserve and investment risk reserve has been made to maintain healthy pay out for unrestricted investment account holders. 10 NET ASSETS PER SHARE (Unaudited) (Unaudited) (Audited) 30 June 30 June 31 December Net assets () 77,819,645 78,685,287 78,288,437 Number of shares at reporting date 1,000,000,000 1,000,000,000 1,000,000,000 Net assets per share () Net assets per share is calculated by dividing the shareholders equity at the reporting date by the number of shares outstanding. 11 COMMITMENTS AND CONTINGENT LIABILITIES (Unaudited) (Unaudited) (Audited) 30 June 30 June 31 December Letter of guarantees 34,605,141 18,117,697 22,913,197 Letters of credit 5,266,681 8,666,919 8,558,869 Irrevocable financing commitments 27,231,948 38,269,000 34,448,331-67,103,770 65,053,616 65,920, TAXATION (Unaudited) (Unaudited) (Audited) 30 June 30 June 31 December Current tax Deferred tax (166,607) 712, ,785 (166,607) 712, ,785 Deferred tax At beginning of the period / year 3,245,479 2,532,694 2,532,694 Provided during the period / year (166,607) 712, ,785 At the end of the period / year 3,078,872 3,245,479 3,245,479 The tax rate applicable to the Bank is 15% ( %). For the purpose of determining the taxable result of the year, the accounting loss has been adjusted for tax purposes. Adjustment for tax purposes include items relating to both income and expense. The adjustments are based on the current understanding of the existing tax laws, regulations and practices. The Bank has reported a taxable loss. Therefore the applicable tax rate is nil. The average effective tax rate cannot be determined in view of the taxable loss. Page 16

17 12 TAXATION (continued) The Bank has assessed that following taxable losses available for offset against future taxable profits will be utilised prior to their expiry: (Unaudited) (Unaudited) (Audited) 30 June 30 June 31 December Available until 31 December 2018 (declared) Available until 31 December 2019 (declared) Available until 31 December 2020 (declared) Available until 31 December 2021 (declared) Available until 31 December 2022 (declared) 2,457,795 3,568,508 3,568,508 7,543,788 7,543,788 7,543,788 6,678,921 6,678,921 6,678,921 5,558,375 5,558,375 5,558,375 3,930,918-3,930,918 None of the assessments have been agreed by the tax authorities. The islamic finance regulations relating to tax treatment of various products are awaited. Thus based on on the current regulations governing taxation in Oman, deferred tax asset on taxable losses net of timing differences arising on property and equipment and intangibles has been recorded in these interim condensed financial statements. 13 PFIT / (LOSS) PER SHARE (Unaudited) (Unaudited) 30 June 30 June Profit / (Loss) attributable to shareholders () 944,103 (2,042,856) Weighted average number of shares outstanding 1,000,000,000 1,000,000,000 Profit / (Loss) per share - basic and diluted () (0.002) For the purpose of calculating loss per share, the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares. As there are no dilutive potential shares, the diluted loss per share is identical to the loss per share. Page 17

18 14 RELATED PARTY TRANSACTIONS Related parties comprise major shareholders, directors and key management personnel of the Bank, entities owned or controlled, jointly controlled or significantly influenced by them, companies affiliated by virtue of shareholding in common with that of the Bank and Shari'a supervisory board. The significant balances with related parties at reporting date were as follows: Directors Other related parties Total 30 June 30 June 31 December 30 June 30 June 31 December 30 June 30 June 31 December Assets: Wakala bil Istithmar ,244, ,065 3,092,668 6,244, ,065 3,092,668 Murabaha receivables ,506 70,956 61,703 55,506 70,956 61,703 Ijarah assets-ijarah muntahia bittamleek , , , , , ,625 Other assets - 9,029 6,095 64,650 58,227 64,363 64,650 67,256 70,458-9,029 6,095 7,003,174 1,309,783 3,870,359 7,003,174 1,318,812 3,876,454 Liabilities: Current account 29, , ,443 1,271,488 5,601,364 1,635,105 1,301,359 6,210,624 1,818,548 Customer wakala bil Istithmar , , , ,000 29, , ,443 1,271,488 5,726,364 1,760,105 1,301,359 6,335,624 1,943,548 Equity of unrestricted investment accountholders Contingent Liabilities and Commitments 3, , , , , , , ,429 1,610, , ,429 1,610, ,829 Page 18