(MENAFNEditorial) 20th May 2015
Oman Arab Bank's Ratings Affirmed
Capital Intelligence (CI), the international credit rating agency, announced today that Oman Arab Bank's (OAB) Financial Strength Rating has been affirmed at 'BBB+'. The rating is underpinned largely by the Bank's solid Basel III capital adequacy ratio (CAR), its good and improved liquidity position in 2014, and it is also supported by the Bank's strong corporate franchise and large customer deposit base including the good customer deposit mix. OAB's rating however remained constrained by the weaker than peer group average asset quality, notwithstanding the improvement in 2014, the high operating costs, the narrowing of net interest margin (NIM) and the decline in both operating and net profitability ratios in 2014. The relatively small balance sheet size of the Bank is also a constraint. Nonetheless, the Bank's financial profile remained overall sound and together with the ownership and management by Arab Bank, 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' as CI anticipates the Bank's financial metrics to remain fairly stable in the near term, notwithstanding the more challenging environment with the lower oil price.
OAB has a strong corporate banking franchise in Oman, notwithstanding its relatively small balance sheet size. The Bank continues to work closely with its strategic investor, Arab Bank PLC Jordan, in the area of infrastructure and industrial projects in the country, and prospects in this area remain good, with the increased government spending projected in the Budget this year. In 2014, the Bank's loan book expanded at a robust pace and was fairly well balanced between the retail and corporate customer segments. While the Bank continues to exhibit relatively sound asset quality, key indicators remained weaker than peers. Loan loss reserve coverage rose, but remained behind the more than full coverage position of most of its peers. The Bank remained well capitalised at end 2014, but internal capital generation remained low in view of its higher dividend payout policy compared to peers. Its solid Basel III CAR and high CET1 CAR at end 2014 continue to strongly support the Bank's ratings. Liquidity saw good improvement in 2014. Strong customer deposit growth in 2014 compared to loan extension saw loan based liquidity ratios moving to comfortable levels and the higher holding of government securities provided the Bank with one of the highest liquid and net liquid ratios in 2014. But with the more liquid balance sheet and keen competition in the Omani market, the Bank's NIM narrowed further. OAB's operating expense âˆ' while under control – remained high compared to peers. Notwithstanding the strong growth in operating and net profit in 2014, profitability ratios declined further. While this is in common with its peers, this downward trend is a constraint on the Bank's rating as is the case with a number of its peers. That said the Bank's modest net impairment charge enabled the Bank to maintain an above peer group average net profitability in 2014.
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 have been shelved indefinitely. At end 2014, the Bank had assets totalling OMR1.8 billion and an equity base of OMR213mn. It reported a net profit of OMR28.4mn in 2014 which represented a 13.5% growth over the year earlier.
CONTACT
Primary Analyst
Agnes Seah
Credit Analyst
Tel: +357 2534 2300
E-mail: agnes.seah@ciratings.com
Secondary Analyst
Karti Inamdar
Senior Credit Analyst
E-mail: karti.inamdar@ciratings.com
Rating Committee Chairman
Rory Keelan
Senior Credit Analyst
The information sources used to prepare the credit ratings are the rated entity and public information. 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 August 1987. 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. Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at http://cerep.esma.europa.eu.
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