Fitch Affirms Bank Sohar at 'BBB+'; Outlook Stable

Mon Jun 23, 2014 12:08pm EDT

(The following statement was released by the rating agency) LONDON, June 23 (Fitch) Fitch Ratings has affirmed Oman-based Bank Sohar's Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook. The Viability Rating (VR) has been affirmed at 'bb'. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR Bank Sohar's Long-term and Short-term IDRs are support-driven. Its IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation that there would be a high probability of support for the bank, if needed, from the Omani authorities, underpinned by Fitch's belief that there would be a strong willingness to maintain stability in the banking system. RATING SENSITIVITIES - IDRS, SUPPORT RATING AND SUPPORT RATING FLOOR The IDRs, SR and SRF are sensitive to a change in Fitch's assumptions around the Omani authorities' propensity or ability to provide timely support to Bank Sohar. KEY RATING DRIVERS - VR Bank Sohar's VR reflects its capitalisation, which is weaker than its peers, particularly in view of high loan book concentrations. The VR also factors in a stable operating environment, and the bank's relatively conservative risk appetite translating into sound asset quality. Capitalisation remains relatively weak compared with peers, with a Fitch core capital ratio of 10.4% at end-2013. However, Fitch expects growth to remain relatively moderate and for dividends to remain low, which should help boost capitalisation. Loan quality ratios for Fitch-rated Omani banks are generally sound, and Bank Sohar's are consistently among the strongest (NPL ratio of 1.07% at end-1Q14). Bank Sohar is primarily funded by customer deposits, and liquidity is sound. Deposits are concentrated, which is common in the region, particularly to the government, but tend to be stable despite their short maturities. The bank continued to report solid growth in earnings and profitability in 2013 and 1Q14. Net income grew by 17% in 2013, driven by increases in both net interest and fee income. RATING SENSITIVITIES - VR The relatively low capitalisation is the key negative driver for the bank's VR, and a downgrade of the VR would most likely be driven by reduced capitalisation, although this is not Fitch's expectation. In many other respects Bank Sohar's metrics are consistent with a higher VR and this could be achieved once the bank has taken steps to strengthen its capital. In addition, a resolution of the merger discussions with Bank Dhofar would be positive in that it would remove any uncertainty surrounding Bank Sohar's strategy and capital raising plans. The rating actions are as follows: Long-term IDR affirmed at 'BBB+'; Stable Outlook Short-term IDR affirmed at 'F2' Viability Rating affirmed at 'bb' Support Rating affirmed at '2' Support Rating Floor affirmed at 'BBB+' Contact: Primary Analyst Laila Sadek Director +44 20 3530 1308 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Patrick Breen Analyst +44 20 3530 1645 Committee Chairperson Jens Hallen Senior Director +44 20 3530 1326 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1003, Email: Elaine.Bailey@fitchratings.com. Additional information is available on www.fitchratings.com Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 31 January 2014, is available at www.fitchratings.com. Applicable Criteria and Related Research: Global Financial Institutions Rating Criteria here 2014 Outlook: GCC/Middle East Banks here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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