(MENAFNEditorial) Capital Intelligence (CI), the international credit rating agency, 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, its good asset quality and the sustained solid contribution of non-interest income. The rating also reflects the Bank's strong domestic franchise and its dominant market share in Oman. The Bank's rating, however, remains constrained by the high net loans to customer deposits ratio, the continued narrowing of net interest margin and the relatively small size of the Omani market. BM's Long-Term and Short-Term Foreign Currency Ratings are also affirmed at 'A' and 'A1' respectively, and are supported by high direct and indirect government of Oman's ownership of the Bank. As the flagship and largest bank in the country, BM is most likely to receive substantial support in case of need. The Bank's Support Rating is therefore maintained at '2'. While the operating environment will become more challenging this year, the Bank's overall sound financial metrics are likely to be maintained. Consequently, a 'Stable' Outlook is maintained for all the ratings.
Aided by the favourable economic environment in 2014, the Bank – as with most of its peers – experienced robust growth in both lending and customer deposits. BM's loan book remains well diversified and continues to exhibit good asset quality. Notwithstanding, some increase in non-performing loans (NPLs), the more than full loan loss coverage position was maintained. With customer deposit growth outpacing loan expansion, the Bank's loan based liquidity ratios eased although its net loans to customer deposits ratio remained on the high side. That said, these somewhat high ratios – particularly the net loans to customer deposits ratio – are a characteristic feature of the Omani banking sector due to the small size of the Omani market and the moderately low savings rate in the country. Nonetheless, the Bank has a large customer deposit base which contributed to its low funding cost compared to peers. BM's liquid asset ratio rose marginally, although its net liquid asset ratio was noticeably lower due to the higher level of interbank borrowings. However, both these ratios remained above the peer group average at end 2014.
On the earnings side, net interest income growth remained constrained by the further narrowing of the net interest margin. However, the Bank was able to grow non-interest income robustly to compensate for these falling margins in 2014 and over the past few years. With operating expenses under control, the Bank's operating profit growth surged and its operating profit to average assets ratio stood at a good level ratio – comparing well with its peers. The general provisions of the growing loan book and specific provisions for higher NPLs led to a fairly subdued net profit growth in 2014, while balance sheet assets rose briskly, resulting in a decline in ROAA.
As with the sector and its peers, the Bank remained well capitalised. The Bank's Basel III CAR was maintained at a solid level and together with the high Tier 1 component are strong supporting factors to the Bank's ratings.
BM was established in 1982 as Oman Overseas Trust Bank, and 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 2014, the Bank's total assets reached OMR9.7 billion (USD25.3 billion) and had an equity base of OMR1.3 billion (USD3.4 billion). The Bank reported a net profit of OMR163mn, which represented a growth of 7.3% over the previous year.
CONTACT
Primary Analyst
Agnes Seah
Credit Analyst
Tel: +357 2534 2300
E-mail: morris.helal@ciratings.com
Secondary Analyst
Karti Inamdar
Senior Credit Analyst
E-mail: karti.inamdar@ciratings.com
Rating Committee Chairman
Morris Helal
Senior Credit Analyst
The information sources used to prepare the credit ratings are the rated entity and public information. Capital Intelligence had access to the published financial statements of the issuer for the purpose of the rating, and had access to one or more of the following: the internal accounts, management; and other relevant internal documents of the issuer. CI considers the quality of information available on the issuer to be satisfactory for the purposes of assigning and maintaining credit ratings. CI does not audit or independently verify information received during the rating process.
The rating has been disclosed to the rated entity and released with no amendment following that disclosure. Ratings on the issuer were first released in October 1988. The ratings were last updated in May 2014.
The principal methodology used in determining the ratings is Bank Rating Methodology. The methodology, the meaning of each rating category, the time horizon of rating outlooks and the definition of default, as well as information on the attributes and limitations of CI's ratings, can be found at www.ciratings.com. CI's policy on unsolicited ratings including an explanation of the colour coding of credit rating symbols can be found at the same location. Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at http://cerep.esma.europa.eu.
Legal Disclaimer:
MENAFN provides the information “as is” without warranty of any kind. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article. If you have any complaints or copyright issues related to this article, kindly contact the provider above.