Capital Intelligence (CI), the international credit rating agency, announced that it has raised the National Bank of Oman’s (NBO) Financial Strength Rating to ‘BBB+’ supported mainly by its improved liquidity position and its large base of customer deposits.
The rating is also underpinned by the sound capital adequacy ratio (CAR) together with a high Tier 1 component and its good loan asset quality. While non-performing loans (NPLs) have increased in both 2013 and Q1 2014, these remained fully covered by loan-loss reserves (LLRs).
The rating also reflects the Bank’s well established franchise and its good market share, as well as its supportive major shareholder who continues to provide funding support by way of a standby letter of credit.
The rating is however constrained by the Bank’s declining net profitability, its low internal capital generation and concentrations in both its loan and deposit bases, although the latter is in common with the sector. With the upgrade, the Outlook for the FSR is moved back to ‘Stable’. Given the sound financial profile and the good economic prospects of Oman, NBO’s Foreign Currency Ratings are affirmed at ‘BBB+’ Long-Term and ‘A2’ Short-Term with a ‘Stable’ Outlook. NBO’s Support Rating is maintained at ‘3’ underpinned by the strong likelihood of support from the government of Oman.
NBO remained the second largest bank in terms of assets in Oman at end 2013 and end Q1 2014. It has a long established franchise and commands a good share of both the loan and deposit markets in Oman. A major strength of the Bank is its strong deposit gathering capability which is supported by its large network. The exceptionally high growth of customer deposits in the first three months of this year has significantly boosted the Bank’s overall liquidity position to among the best in the sector. Liquid asset metrics also rose to high levels as a large proportion of surplus funds were invested in certificates of deposit (CDs) with the Central Bank of Oman (CBO). Loan based ratios also moved to very comfortable levels given the slow loan growth in Q1 2014. While loan asset quality had slipped slightly in both 2013 and Q1 2014 with an increase in NPLs, the Bank’s more than full loan loss coverage position was maintained. The Bank remains adequately capitalised in the period under review, although its internal capital generation was weaker given its fairly generous dividend payment compared to its peers. The total capital to total assets ratio on the other hand remained good and was near the peer group average.
NBO’s performance in 2013 was lackluster with gross income growth constrained by a further decline of non-interest income (NII). Net interest income on the other hand held up well despite further pressure on margins, aided largely by lower funding costs from the improved customer deposit mix. While operating costs were under control, a step up in provisioning from continued loan growth and the increase in NPLs resulted in a near flat net profit growth in 2013. With the recovery on NII and a fairly stable provisioning charge, the Bank reported a good growth in net profit in Q1 2014. Nonetheless, the Bank’s net profitability registered a further decline. This downward trend is however largely in line with that of the sector which continues to experience a downward pressure on interest margin given the low interest rate environment and the high competition in what is a relatively small market in Oman.
NBO was established in 1973 as the first Omani incorporated bank. In October 2003, the Suhail Bahwan Group acquired a major shareholding in the Bank; in July 2005, Commercial Bank of Qatar (CBQ) acquired a 34.85% stake and signed a three-year renewable contract to manage the Bank. Although the contract was not renewed in 2011, CBQ continues to have a major role in the management of the Bank. CBQ is the second largest bank in Qatar, and is a publicly held company listed on the Doha Securities Market.
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