Capital Intelligence affirms Bank Muscat SAOG Financial Strength Rating at ‘A’
07/05/2014 12:46 pm EDT

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Capital Intelligence (CI), affirms Bank Muscat SAOG (BM)’s Financial Strength Rating (FSR) at ‘A’, underpinned by the Bank’s solid capital adequacy ratio (CAR) together with the high Tier 1 component, good asset quality and solid non-interest generation capabilities. The rating also reflects the Bank’s strong domestic franchise and dominant market share in Oman. The Bank’s rating, however, continues to be constrained by its high net loans to customer deposit ratio.

The relatively small size of the Omani market and stiff competition is likely to suppress earnings and could pose a challenge for the Bank to maintain its market share. CI also affirms BM’s Long-Term and Short-Term Foreign Currency Ratings at ‘A’ and ‘A1′ respectively, supported by the Bank’s government of Oman ownership and its overall good financial position. As the largest bank in the country and the government’s flagship bank, BM is likely to receive substantial support in case of need. The Support Rating is therefore maintained at ’2′. The Outlook for all the Ratings is ‘Stable’.

BM has posted an improving net profitability over the past two years. While modest, this improvement contrasted positively against the general decline witnessed in the sector. Nonetheless, net interest margin – as with its peers – has been narrowing in the face of fierce competition in its key corporate segment, but the Bank was able to supplement this shortfall by successfully growing its non-interest income, in particular its fee based income over this period.

The Bank’s bottom line in 2013 was also aided by its good cost control and a lower provision charge, which it can afford to take in view of its improving loan asset quality trend. The latter was characterised by a decline in non-performing loans (NPLs) and more than full loan loss coverage position at end 2013. Another support to the rating was the Bank’s strong CAR under both the Basel II and Basel III standards at end 2013 with a high Tier I capital component.

The Bank’s sizeable share of customer deposits aided by its large distribution network is another strength – but with loan extension outpacing customer deposits growth, its loan based liquidity ratios remained fairly tight despite a small improvement in 2013. BM’s liquidity risk on the other hand is partly mitigated by the Bank’s adequate holdings of liquid assets and the maintenance of low asset-liability maturity mismatches.

BM, established in 1982 as Oman Overseas Trust Bank, merged with Al Bank Al Ahli Al Omani (BAO) in 1993. In December 2000, the Bank merged with Commercial Bank of Oman to become the largest bank in the country. In 2001, the Bank also took over the four-year old Industrial Bank of Oman (IBO) and Al Ahlia Securities Company, which was Oman’s largest brokerage and fund management company. Its retail banking services were strengthened with the acquisition of HSBC’s merchant acquisition business and Citibank Oman’s retail portfolio. At end 2013, the Bank’s total assets reached OR8.4bn ($ and had an equity base of OR1.2bn ($3.2bn). The Bank reported a net profit of OMR152.2mn in 2013, which represented a growth of 9.3% over the previous year.


Primary Analyst
Agnes Seah
Credit Analyst
CI Rating
Tel: +35725342300

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