(MENAFN- Arab Times) LIMASSOL Feb 25: Moody''s Investors Service has today changed the outlook to negative from stable on the A1 senior unsecured debt and deposit ratings of Bank Muscat SAOG the A2 deposit ratings of Oman Arab Bank (SAOC) and the A3 deposit ratings of Bank Dhofar SAOG National Bank of Oman Limited (SAOG) and HSBC Bank Oman SAOG. Concurrently all bank ratings were affirmed. A full list of the banks'' ratings affected by this action is provided at the end of this press release. The negative outlook on the banks'' deposit ratings is driven by the rating agency''s assessment that the 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 (see ''Moody''s affirms Oman''s A1 rating changes outlook to negative'' published on 20 February 2015). The decision to affirm the banks'' ratings reflects the rating agency''s view that (1) the Omani banks'' creditworthiness will remain broadly resilient despite economic headwinds stemming from lower oil prices; and (2) Moody''s view of a very high probability that the government would extend support to the banking sector in case of need. Today''s rating actions reflect Moody''s view of a weakening in the capacity of the government to provide support to the banks if needed. This action is in line with the negative outlook assigned to Oman''s A1 sovereign rating. The outlook on the sovereign takes into account uncertainties surrounding the effectiveness of the government''s policy response to a sustained period of low oil prices which would exert downward pressures on economic growth government finances and the external payments position. Moody''s notes that a downgrade of the government debt rating would prompt the rating agency to reassess the multi-notch uplift from government (systemic) support currently embedded in the ratings of Omani banks. Moody''s decision to affirm the banks'' ratings reflects the rating agency''s view that (1) the banks'' creditworthiness will remain resilient despite economic headwinds with relatively strong capital buffers a strong deposit-based funding structure and good liquidity buffers and historically low levels of non-performing loans (NPLs); and (2) Moody''s view of a very high probability of government support.
Bank Muscat Bank Muscat''s baa1 standalone baseline credit assessment (BCA) reflects its deep franchise in Oman and with a 38% market share in assets Bank Muscat is the dominant bank in the system. Although the bank reports good profitability its efforts to diversify and grow outside Oman''s small economy through operations mainly in Saudia Arabia and Kuwait have yet to come to fruition (loans abroad accounted for 6.7% of total loans as of December 2014 according to preliminary financial statements). The bank''s international operations remained loss-making as of December 2014. Similar to its local peers Bank Muscat displays sizeable loan and deposit concentrations. Nevertheless the bank reported a low NPLs to gross loans ratio of 2.55% as of December 2014. Loan loss reserves (LLRs) accounted for 133% of NPLs providing an ample cushion against the asset-quality pressures the rating agency expects. At the same time the bank maintains sizeable capital and liquidity buffers. Bank Muscat''s ratio of shareholder equity to total assets stood at 13.48% against its peers'' median ratio of 7.8% and its Tier 1 ratio was 13.03%. The bank''s stock of liquid assets to total assets is at 22%.
Oman Arab Bank Oman Arab Bank''s baa2 BCA is supported by its modest market share of around 7% of Omani banking system assets its strong profitability and the benefits the bank derives from its association with its largest shareholder the Jordanbased Arab Bank PLC (local-currency deposits Ba2 stable BFSR D stable/BCA ba2) which maintains a 49% stake in Oman Arab Bank. Oman Arab Bank leverages the relationships of its largest shareholder to engage in ''large-ticket'' projects. Despite high single-borrower concentrations that expose the bank''s asset quality to risks Oman Arab Bank reported a relatively low NPLs to gross loans ratio of 2.31% as of September 2014. LLRs accounted for 103% of NPLs cushioning the bank against the asset-quality deterioration the rating agency expects. Moreover Oman Arab Bank''s capital ratios compare favorably with those of its peers. The bank reported a Tier 1 capital ratio of 12.34% while its ratio of shareholder equity to total assets stood at 12.3% against an 8.6% median ratio for its global peers. The bank''s the stock of liquid assets was 24%. The financial ratios of the following three banks HSBC Bank Oman Bank Dhofar National Bank of Oman compare favorably with the those of their global peers that have ba1 BCAs. As of December 2013 the median ratio of LLRs to NPLs for similarly rated banks globally was 87% while the median ratio of shareholders equity to total assets was 8.4%.
HSBC Bank Oman HSBC Bank Oman''s ba1 BCA is supported by its franchise as the fourth-largest Omani bank (by assets) with the secondlargest branch network in the country. The bank benefits from HSBC''s management quality and control (in terms of the group''s standards of operational practice riskmanagement experience product offerings and services technology and global support). HSBC Bank Oman is the product of the merger of a local bank with HSBC''s branches in Oman in June 2012 and is still undergoing a transition phase. The bank reports the weakest asset-quality metrics amongst Omani rated banks. HSBC Oman reported an NPLs to gross loans ratio of 3.69% as of December 2014 preliminary financial statements. Nevertheless HSBC Oman benefits from a high stock of LLRs as well as ample capital which buffer the bank against the asset-quality deterioration the rating agency expects. The bank''s LLR''s accounted for 116% of NPLs and 4.3% of gross loans while its equity to assets ratio was 13.8% and its Tier 1 ratio was 17.15% as of December 2014. 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% of total assets as of December 2014.
Bank Dhofar Bank Dhofar''s ba1 BCA is driven by the bank''s franchise as the third-largest bank in Oman its good earnings generation capacity and its strong asset-quality metrics despite the bank''s vulnerability to developments in the domestic environment through its lack of geographic diversification. Bank Dhofar reports the strongest asset-quality metrics amongst its Omani rated peers. Its ratio of NPLs to gross loans stood at 1.26% as of December 2014 draft financial statements and while the rating agency expects delinquencies to rise it notes that the bank''s high stock of LLRs accounting for 196% of NPLs and 2.5% of gross loans cushion the bank against assetquality pressures.
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