Nov 15 - Fitch Ratings has affirmed National Bank of Oman's (NBO)
Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook and
Viability Rating (VR) at 'bb+'. A full list of rating actions is at the end of
this rating action commentary.
RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR
NBO's IDRs, Support Rating and Support Rating Floor reflect the high probability
of support from the Omani authorities, in case of need, given the government's
strong supportive stance towards the domestic system and the bank's systemic
As the IDRs are at their Support Rating Floor, they would be sensitive to
changes in Fitch's perception of the willingness or ability of the state of Oman
to support NBO.
RATING DRIVERS AND SENSITIVITIES - VR
Fitch has affirmed NBO's VR due to its strong franchise and improving financial
metrics, specifically recent profitability, liquidity and asset quality as the
bank's new strategy is being deployed. However, these factors are constrained by
NBO's weaker capital buffer as it presses ahead with its growth strategy.
Capital is also considered tight in the context of high borrower concentrations,
which expose the bank to significant event risk.
Net income improved by 12% yoy in 9M12, reflecting strong net interest income
and a sharp fall in impairment charges. While business growth is being driven by
stable economic conditions, threats to earnings could come from new Central Bank
regulations on retail banking, rising competition and high operating costs due
to wage inflation.
Asset quality (9M12: NPL ratio at 3.6%) appears to be stabilising, with NPLs
rising modestly in 2012. This implies that impairment charges will remain low
over the rating horizon. This could change due to large single name
concentrations in lending, which expose the bank to event risk, particularly
from its large exposure to the contracting segment.
The healthy funding and liquidity position is underpinned by a large, stable and
increasing customer deposit base. NBO's asset liability maturity mismatch is
comfortable, partly reflecting its good balance of longer-term government and
pension fund deposits. With increasing demand for longer term lending, NBO
raised a three-year, USD250m syndicated loan in August 2012 to further reduce
funding gaps and any currency mismatch.
In Fitch's view, the main negative for NBO's VR is its weaker capitalisation.
Due to rapid business growth since 2011, its Fitch core capital ratio fell to
12.8% at end-9M12 (2011: 13.3%). Although its ratio is currently slightly higher
than most peers, NBO apparently has no immediate plans to enhance core capital
other than through retained earnings at a time when several banks are planning
rights issues. Given Fitch's expectations of NBO's loan growth (around 20% in
2012) and dividend pay-outs remaining at historic levels (2011: actual 55% of
net income) it is possible that further pressure on core capital could trigger a
downgrade of its VR.
NBO is the second-largest bank in Oman, offering a full range of banking
products and services. Listed on the Muscat Securities Market, the bank is 34.9%
owned by the Commercial bank of Qatar and 14.7% by the Suhail Bahwan Group.
Several Omani government entities hold a further 20%.
The rating actions are as follows:
Long-term foreign currency IDR affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR affirmed at 'F2'
VR affirmed at 'bb+'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB+'
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
Applicable criteria, 'Global Financial Institutions Rating Criteria' dated 15
August 2012, available at www.fitchratings.com.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria