Thursday 28 / November / 2024
Muscat: Fitch Ratings has upgraded the long-term Issuer Default Ratings (IDRs) of Bank Muscat (BM) to 'BB+' from 'BB', and the long-term IDR of Bank Dhofar (BD), National Bank of Oman (NBO), Ahli Bank (ABO) and Sohar International Bank (SIB) to 'BB' from 'BB-'.
Fitch has also upgraded the Viability Ratings (VRs) of Bank Muscat to 'bb+' from 'bb', the VR of Bank Dhofar and NBO to 'bb' from 'bb-', and that of SIB to 'bb-' from 'b+', and affirmed the VR of ABO. Fitch has maintained Sohar International Bank's VR on Rating Watch Positive (RWP). At the same time, the agency upgraded Sohar International Bank's Long-Term IDR (xgs) in line with the upgrade of its VR, and affirmed ABO's Long-Term IDR (xgs) in line with the affirmation of its VR.
The rating actions follow the upgrade of Oman's sovereign rating on 25 September 2023 and reflect the agency's view of an improving probability of support for the banks from the Omani authorities as well as improved business conditions that will benefit banks' intrinsic credit profiles.
Key rating drivers
The IDRs of Bank Muscat, Bank Dhofar, and NBO are driven by their respective VRs and are also underpinned by potential support from the Omani authorities, as captured by these banks' Government Support Ratings (GSR), which have been upgraded to 'bb+' from 'bb' (BM) and 'bb' from 'bb-' (BD and NBO). The IDRs of ABO and SIB are also driven by potential sovereign support as reflected in their GSRs, which have been upgraded to 'bb' from 'bb-'. The Stable Outlooks on the Long-Term IDRs of BM, BD, and NBO reflect Fitch's view on the trends in these banks' standalone profiles, but also mirror the Stable Outlook on the sovereign, and, in the case of ABO and SIB, it reflects the Stable Outlook on the sovereign.
Fitch believes the Omani authorities have a high propensity to support the banking sector given the high contagion risk and the importance of the banking system in supporting the local economy. However, the authorities' financial flexibility and ability to provide extraordinary support is limited, despite recent improvements in the sovereign balance sheet. This leads to a GSR of 'bb' for domestic systemically important banks (D-SIB) in Oman, which is at the lower end of the typical range for D-SIB GSRs in jurisdictions where the sovereign is rated 'BB+'.
The VR upgrades of BM, BD, NBO and SIB reflect their large direct and indirect exposure to the government and the wider public sector. “We also believe the banks' business models, risk profiles as well as funding and liquidity will benefit from a stronger sovereign credit profile in revenue generation, business volumes and deposit inflows,” the ratings agency said in a statement. “This was also reflected through the upgrade of the Omani banks' operating environment score to 'bb+' from 'bb', in line with the sovereign rating,” it added.
BM's GSR is one notch above all other Omani banks' GSRs, given its flagship status in Oman and strong links with the government. Its 'bb+' VR is the highest in the group, also reflecting its flagship status, giving it access to high-quality borrowers and significant funding from the government and its related entities. The VR also considers BM's superior asset quality, sound profitability and capitalisation, strong funding and good liquidity.
BD's 'bb' VR considers the bank's sound franchise and reasonable capitalisation with a common equity Tier 1 (CET1) ratio of 14.14 percent at end-1H23. It also considers concentrations on both sides of the balance sheet, weaker-than-average profitability and weaker asset quality.
NBO's 'bb' VR factors in its well-balanced business model, sound funding and liquidity profile. It also considers high concentration risk and some weaknesses in asset quality reflected through higher-than-average impaired loans ratio, as with peers.
ABO's 'b+' VR reflects moderate, but strengthening franchise, slightly higher risk profile than peers and limited capital buffers. It also considers the bank's stable funding and good liquidity. The affirmation of ABO's VR reflects our view that the improved operating conditions will not result in a material improvement in the bank's intrinsic creditworthiness considering pre-existing weaknesses in its credit profile, in particular in its asset quality and capital.
SIB's 'bb-' VR reflects the bank's growing franchise, recovering asset quality and reasonable capitalisation given its risk profile. The RWP reflects Fitch's view of further potential upside for the VR following the completion of the merger with HSBC Bank Oman on 17 August 2023. “We expect further improvements in the bank's business profile, in particular its market position, being Oman's second-largest bank with a market share of 18 percent (Fitch's estimates), but also through enhanced customer deposit franchise,” the international rating agency said in a statement.
