Fitch affirms 5 Omani Banks' IDRs; upgrades 3 banks' viability ratings | Fitch affirms 5 Omani Banks' IDRs; upgrades 3 banks' viability ratings -
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Fitch affirms 5 Omani Banks’ IDRs; upgrades 3 banks’ viability ratings

: Tuesday, July 22 - 2014 @ 11:20

Fitch Ratings has affirmed Bank Muscat’s (BM) Long-term Issuer Default Rating (IDR) at ‘A-’ and the IDRs of National Bank of Oman (NBO), Bank Dhofar (BD) and Ahli Bank SAOG (ABO) at ‘BBB+’, based on support from the Omani sovereign. HSBC Bank Oman’s (HBON) IDR has been affirmed at ‘A+’ based on support from its ultimate parent, HSBC Holdings PLC (HSBC; AA-/Stable). The Outlooks on all the banks’ Long-term IDRs are Stable.

At the same time, Fitch has upgraded NBO’s and ABO’s Viability Ratings (VR) to ‘bbb-’ from ‘bb+’, and BD’s VR to ‘bb+’ from ‘bb’. Fitch has affirmed BM’s VR at ‘bbb’ and HBON’s at ‘bb+’. A full list of rating actions is at the end of this rating action commentary.

The upgrades of NBO’s, ABO’s and BD’s VRs are a result of the banks’ resilient performance, with generally sound asset quality and capital, which are now closer to more highly rated peers’.

The rating actions follow a periodic review of the Omani banks.

KEY RATING DRIVERS – IDRs, SUPPORT RATINGS AND SUPPORT RATING FLOORS

BM, NBO, BD and ABO’s IDRs, Support Ratings (SRs) and Support Rating Floors (SRFs) reflect Fitch’s expectation of an extremely high probability of support from the Omani authorities in case of need, reflecting Oman’s strong ability to provide support to the banking system, combined with our belief that there would be a high willingness to do so. Fitch makes a distinction between BM’s SRF and that of the other banks in Oman, because of BM’s dominant role in the sector, and its greater systemic importance.

HBON’s IDRs and SR are driven by Fitch’s expectation of an extremely high probability of support available to the bank from HSBC. Fitch considers HBON to be a strategically important subsidiary of HSBC, given its importance to the group’s regional strategy and franchise. Fitch does not consider it to be a core subsidiary as HSBC does not have full ownership of the bank (although it does have board and management control) and because of HBON’s small size relative to other core HSBC subsidiaries globally. HBON’s Long-term IDR is notched down once from HSBC’s Long-term IDR.

RATING SENSITIVITIES – IDRs, SRs AND SRFs

BM, NBO, BD and ABO’s IDRs, SRs and SRFs are sensitive to a change in Fitch’s assumptions around the Omani authorities’ propensity or ability to provide timely support to the banking sector. At present Fitch considers the likelihood of any change to be small.

HBON’s Long-term IDR is based on support from HSBC, if required, and is therefore sensitive to any change in HSBC’s ability, as reflected in its ratings, or willingness to provide support.

KEY RATING DRIVERS – VRs

Omani banks’ VRs benefit from a stable operating environment, with the government’s capital investment programme driving solid GDP growth and creating lending opportunities for domestic banks. Bank regulation and oversight is strong in Oman, which is partly mitigating concentration risks on the banks’ balance sheets. However, the economy is still almost wholly dependent on oil, providing limited diversification.

BM’s VR reflects its dominant franchise in Oman, which supports its ability to generate healthy operating profits, and within the context of the operating environment, resilient asset quality and sound capitalisation. It also takes into account fairly high concentrations on both sides of the balance sheet.

NBO’s VR is constrained by its capitalisation, which given high loan concentrations, is only adequate, in Fitch’s view. The VR also factors in the bank’s sound asset quality, despite a slight increase in impaired loans during 2013, and a deposit funded loan book. Profitability is somewhat low compared with the bank’s domestic peers.

HBON’s VR reflects its still weak asset quality (the weakest of all Fitch-rated banks in Oman), due to legacy impaired loans resulting from the 2012 merger with Oman International Bank. The VR also takes into account HBON’s sound capitalisation and the ample funding and liquidity Fitch expects are available from HSBC.

BD’s VR reflects its limited franchise, and acceptable capitalisation. This is partly offset by its deposit funded loan book and a fairly low risk appetite, which is reflected in healthy asset quality, despite high lending concentrations.

ABO’s VR reflects the bank’s just adequate capitalisation, in light of lending concentrations, and comparatively small franchise in Oman. However, as part of Ahli United Bank group it benefits from being part of a wider regional network. The VR also takes into account the bank’s relatively concentrated funding, which is mitigated by consistent profitability and sound asset quality, which compares well with peers’.

RATING SENSITIVITIES – VRs

BM’s VR is the highest in Oman and is constrained by the operating environment. An upgrade would require continued improvement in the Omani economy including continued diversification and private sector growth.

A downgrade of the VR would most likely be a result of a significant weakening of capital, or material worsening of asset quality.

Further weakening of NBO’s capitalisation or significant worsening of asset quality could put pressure on the VR. An upgrade of the VR would require a significant strengthening of the bank’s franchise.

HBON’s VR is sensitive to any material deterioration of asset quality, although this is not Fitch’s expectation. HBON’s VR could be upgraded if the bank’s asset quality improves combined with strengthened profitability.

Further upgrades to BD’s VR could arise if the bank significantly strengthens its franchise in Oman. Downward pressure would most likely be a result of weakening capital or worsening asset quality.

ABO’s capitalisation is just adequate given the high loan book concentration and the VR is sensitive to any capital deterioration, or significant worsening of asset quality.

The rating actions are as follows:

Bank Muscat

Long-Term IDR affirmed at ‘A-’, Outlook Stable

Short-Term IDR affirmed at ‘F2′

Viability Rating affirmed at ‘bbb’

Support Rating affirmed at ’1′

Support Rating Floor affirmed at ‘A-’

HSBC Bank Oman

Long-Term IDR affirmed at ‘A+’, Outlook Stable

Short-Term IDR affirmed at ‘F1′

Viability Rating affirmed at ‘bb+’

Support Rating affirmed at ’1′

Bank Dhofar

Long-Term IDR affirmed at ‘BBB+’, Outlook Stable

Short-Term IDR affirmed at ‘F2′

Viability Rating upgraded to ‘bb+’ from ‘bb’

Support Rating affirmed at ’2′

Support Rating Floor affirmed at ‘BBB+’

National Bank of Oman

Long-Term IDR affirmed at ‘BBB+’, Outlook Stable

Short-Term IDR affirmed at ‘F2′

Viability Rating upgraded to ‘bbb-’ from ‘bb+’

Support Rating affirmed at ’2′

Support Rating Floor affirmed at ‘BBB+’

Ahli Bank SAOG

Long-Term IDR affirmed at ‘BBB+’, Outlook Stable

Short-Term IDR affirmed at ‘F2′

Local currency Long-Term IDR affirmed at ‘BBB+’, Outlook Stable

Local currency Short-Term IDR affirmed at ‘F2′

Viability Rating upgraded to ‘bbb-’ from ‘bb+’

Support Rating affirmed at ’2′

Support Rating Floor affirmed at ‘BBB+’

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Tuesday, July 22- 2014 @ 11:20 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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