MOODY’S LOWERS OUTLOOK ON 5 OMANI BANKS’ DEPOSIT RATINGS

Moody’s Investors Service has changed its outlook on the deposit ratings of five Omani banks to ‘negative’ from ‘stable’.

They include the A1 senior unsecured debt and deposit ratings of Bank Muscat, the A2 deposit ratings of Oman Arab Bank (OAB) and the A3 deposit ratings of BankDhofar, National Bank of Oman (NBO) and HSBC Bank Oman.

Concurrently, however, all bank ratings were affirmed by Moody’s.

The negative outlook on

deposit ratings is driven by the assessment that Oman government’s capacity to support the banks is weakening, as implied by the recent change in outlook on the government bond rating to negative from stable, the ratings agency said.

On February 20, Moody’s had affirmed Oman’s A1 rating and changed the outlook to negative amid the recent sharp fall in oil prices.

Moody’s said its decision to affirm Omani banks’ ratings reflects its view that banks’ creditworthiness will remain broadly resilient, despite economic headwinds stemming from lower oil prices; and Moody’s view of a very high probability that the government would extend support to the banking sector, in case of need.

Moody’s said Bank Muscat’s baa1 standalone baseline credit assessment (BCA) reflects its deep franchise in Oman, and with a 38 per cent market share in assets. “Although Bank Muscat reports good profitability, its efforts to diversify and grow outside Oman’s small economy through operations mainly in Saudi Arabia and Kuwait have yet to come to fruition (loans abroad accounted for 6.7 per cent of total loans as of December 2014). At the same time, the bank maintains sizeable capital and liquidity buffers.”

According to Moody’s, NBO is growing its regional presence to diversify its business and revenues away from the local market. “However, its international operations remain small in relation to the group’s assets. Similar to other banks in Oman, large single-borrower concentrations pose risks to NBO’s asset quality.

Regarding BankDhofar, Moody’s said the bank reported the strongest asset-quality metrics amongst its Omani rated peers. It noted that BankDhofar’s ratio of NPLs to gross loans stood at 1.26 per cent as of December 2014.

Moody’s said HSBC Bank Oman reports the weakest asset-quality metrics amongst Omani rated banks. HSBC Oman reported an NPL-to-gross-loan ratio of 3.69 per cent as of December 2014. “At the same time, HSBC maintains the largest liquidity buffers amongst its Omani peers and is better positioned to absorb liquidity pressures; the bank’s liquid assets accounted for 31.4 per cent of total assets as of December 2014.”

The ratings agency added that OAB leverages the relationships of its largest shareholder, Jordan-based Arab Bank Plc, to engage in ‘large-ticket’ projects. “Despite high single-borrower concentrations that expose the bank’s asset quality to risks, OAB reported a relatively low NPLs to gross loans ratio of 2.31 per cent as of September 2014. Moreover, OAB’s capital ratios compare favourably with those of its peers.”

SOURCE: MUSCAT DAILY