Oman Arab Bank’s ratings affirmed

May 21, 2014 9:38 am

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed Oman Arab Bank (OAB)’s Financial Strength Rating at ‘BBB+’. The rating is underpinned by OAB’s solid capital adequacy ratio (CAR), together with the high Tier 1 component, the Bank’s high net liquid asset ratio compared to its peers and a good total capital to total assets ratio. A standby line of credit from Arab Bank PLC also provides an additional source of liquidity for the Bank. OAB’s rating is on the other hand constrained by its weaker of loan asset quality, increasing operating costs and the tighter loan based liquidity ratios. The latter nonetheless remained better than the peer group average and some improvement was also seen in Q1 2014. Another constraining factor is the relatively small size of the Bank’s balance sheet at end 2013. In view of the generally sound financial profile of the Bank and the favourable economic conditions in Oman, OAB’s Foreign Currency Ratings are affirmed at ‘BBB+’ Long-Term and ‘A2’ Short-Term. The Support Level is maintained at ‘2’ reflecting the high likelihood of support from the government as well as support from its relatively sound major shareholders. The Outlook for all the ratings is ‘Stable’.

OAB continues to have a strong corporate banking franchise despite its relatively small balance sheet. Working closely with its strategic investor, Arab Bank PLC Jordan, the Bank remained active in the financing of infrastructure and industrial projects in the country. While the loan book continued to expand at a healthy pace, loan asset quality slipped and stood some way behind peer group average at end 2013. Some improvement was however seen in the first quarter of 2014, with a decline in the non-performing loan (NPL) ratio and loan loss reserve (LLR) coverage maintained at a high level. The Bank remained fairly well capitalised with a solid Basel II CAR at end Q1 2014, together with a large proportion of Tier 1 Capital. OAB’s key liquidity ratios tightened in 2013 with loan expansion outpacing customer deposit growth, although these ratios eased in Q1 2014. With the low interbank borrowings, OAB’s net liquid asset ratio tends to be higher than most of its peers. Its liquidity position is also supported by the standby line of credit from Arab Bank, Jordan. The stronger customer deposits growth in the first quarter also marginally eased these loan based liquidity ratios, which nonetheless remained better than the peer group average. An area of continued negative trend relates to the narrowing of net interest margin (NIM) and the decline of net profitability over past few years, largely attributed to increased competition, a low interest rate environment and the fine margins of the larger corporate book, particularly in 2013. Although the downward trend was in line with that of the industry, the contraction in both these ratios was perhaps a little sharper at OAB. That said, the Bank continues to maintain one of the widest NIMs among its peers and remained among the more profitable banks in CIs peer group.

OAB was established in 1984 after it acquired the Omani branches of Arab Bank. Arab Bank subscribed to 49% of OAB’s share capital and Omani shareholders took 51%. Arab Bank manages OAB and is closely involved in the running of the Bank. The Bank’s local shareholder is Ominvest, the country’s oldest investment company, whose shares are widely held by Omani individuals and enterprises; OAB itself owns 5% of shares. OAB is the only major commercial bank that is not listed in Oman. Plans for an IPO were shelved earlier this year. At end Q1 2014, the Bank has assets totaling OMR1.6 billion and an equity base of OMR194mn. It reported a net profit of OMR6.9mn for the first three months of 2014, which represented a 5.8% increase over the same period last year.


Primary Analyst
Agnes Seah
Credit Analyst
Tel: +357 2534 2300