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Oman Arab Bank – Outlook Revised to Stable from Negative
(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has revised the outlook on Oman Arab Bank’s (OAB) Long-Term Foreign Currency Rating (LT FCR) and Bank Standalone Rating (BSR) to Stable from Negative. This follows CI Ratings’ recent revision of the outlook for Oman’s sovereign rating to Stable from Negative.
At the same time, CI Ratings has affirmed OAB’s LT FCR and Short-Term Foreign Currency Rating (ST FCR) at ‘BB’ and ‘B’, respectively. The Bank’s BSR of ‘bb’, Core Financial Strength (CFS) rating of ‘bbb-’ and Extraordinary Support Level (ESL) of Moderate were also affirmed. As OAB’s LT FCR remains set at the same level as Oman’s sovereign rating of ‘BB’, the rating is closely correlated with the sovereign’s creditworthiness. Any improvement or deterioration in Oman’s LT FCR and/or outlook will have a corresponding effect on OAB’s ratings and outlook.
The revision of Oman’s LT FCR Outlook to Stable reflects the ongoing strengthening of fiscal and external balances, as well as improving government debt metrics – developments which are largely driven by the direct and indirect impact of higher hydrocarbon prices. Oman’s ratings (‘BB’/‘B’) remain supported by the country’s moderate fiscal and external buffers, relatively sound banking system, as well as CI’s expectation that financial support would be forthcoming from other GCC countries in the event of need. The sovereign’s ratings are constrained by limited economic diversification, with dependence on hydrocarbon output, limited revenue mobilisation (albeit improving), and geopolitical risk factors and institutional weaknesses.
As OAB’s BSR is already at the sovereign level, the Moderate ESL does not result in any uplift for the Bank’s LT FCR. CI is of the opinion that Oman’s strengthened fiscal capacity is expected to ensure that moderate levels of government support will continue to be available to the banking sector in case of need. The Bank’s BSR is derived from a CFS rating of ‘bbb-’ and an Operating Environment Risk Anchor (OPERA) of ‘bb-’. OPERA denotes moderate risk and takes into account the improving macroeconomic environment due to higher oil prices.
The Bank’s ratings are underpinned by its deep pool of customer deposits, which continues to support its good loan-based liquidity position, and the solid and improved capital ratios following the issue of perpetual bonds in 2021. Loan asset quality metrics are fairly resilient, with a moderate NPL ratio and stronger loss coverage position. The Bank’s earnings performance in 2021, however, was significantly impacted by a large increase in the cost of credit and profitability ratios were weaker than those of its peers. The Bank’s supportive major shareholder, Arab Bank Plc (Jordan), which continues to make available a sizeable line of credit, is an non-financial credit strength. Similar to peers, the main constraints on the ratings are the challenging operating environment and elevated global geopolitical risk factors (due to the conflict in Ukraine and its impact on the world economy and hydrocarbon prices, although a rise in the latter could benefit Oman). The other key constraints are ongoing high customer concentrations in funding and lending and its relatively high cost-to-income ratio.
Rating Outlook
The Stable Outlook indicates that the ratings are likely to remain unchanged over the next 12 months and reflects our expectation that the Bank will maintain a broadly stable business and reasonably sound financial metrics.
Rating Dynamics: Upside Scenario
Although not considered likely in the next 12 months, the LT FCR Outlook could be revised to Positive and/or the ratings raised if there was a similar rating action on the sovereign. An upgrade of the BSR would require a good improvement in loan asset quality as well as a sustainable recovery of earnings.
Rating Dynamics: Downside Scenario
The outlook and/or the LT FCR could be revised downwards in the next 12 months if there was a similar rating action on the sovereign, although this is not our base scenario. CI anticipates a further – albeit gradual – recovery of the economy. However a further weakening of loan asset quality could put pressure on the BSR.
Contact
Primary Analyst: Agnes Seah, Senior Credit Analyst; E-mail: agnes.seah@ciratings.com
Secondary Analyst: Karti Inamdar, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst
About the Ratings
The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.
The following information sources were used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s audited financial statements for FY2018-21. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. CI considers the quality of information available on the rated entity 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 principal methodology used to determine the ratings is the Bank Rating Methodology, dated 3 April 2019 (see Information on rating scales and definitions, the time horizon of rating outlooks, and the definition of default can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at
This rating action follows an ad hoc review of the rated entity. Ratings on the entity were first released in August 1987. The ratings were last updated in May 2021. The ratings and rating outlook were disclosed to the rated entity prior to publication and were not amended following that disclosure.
The ratings have been assigned or maintained at the request of the rated entity or a related third party.
Conditions of Use and General Limitations
The information contained in this publication including opinions, views, data, material and ratings may not be copied, distributed, altered or otherwise reproduced, in whole or in part, in any form or manner by any person except with the prior written consent of Capital Intelligence Ratings Ltd (hereinafter “CI”). All information contained herein has been obtained from sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error or other factors by third parties, CI or others, the information is provided “as is” and CI and any third-party providers make no representations, guarantees or warranties whether express or implied regarding the accuracy or completeness of this information.
Without prejudice to the generality of the foregoing, CI and any third-party providers accept no responsibility or liability for any losses, errors or omissions, however caused, or for the results obtained from the use of this information. CI and any third-party providers do not accept any responsibility or liability for any damages, costs, expenses, legal fees or losses or any indirect or consequential loss or damage including, without limitation, loss of business and loss of profits, as a direct or indirect consequence of or in connection with or resulting from any use of this information.
Credit ratings and credit-related analysis issued by CI are current opinions as of the date of publication and not statements of fact. CI’s credit ratings provide a relative ranking of credit risk. They do not indicate a specific probability of default over any given time period. The ratings do not address the risk of loss due to risks other than credit risk, including, but not limited to, market risk and liquidity risk. CI’s ratings are not a recommendation to purchase, sell, or hold any security and do not comment as to market price or suitability of any security for a particular investor.
The information contained in this publication does not constitute investment or financial advice. As the ratings and analysis are opinions of CI they should be relied upon to a limited degree and users of this information should conduct their own risk assessment and due diligence before making any investment or other business decisions.
Copyright © Capital Intelligence Ratings Ltd 2022
At the same time, CI Ratings has affirmed OAB’s LT FCR and Short-Term Foreign Currency Rating (ST FCR) at ‘BB’ and ‘B’, respectively. The Bank’s BSR of ‘bb’, Core Financial Strength (CFS) rating of ‘bbb-’ and Extraordinary Support Level (ESL) of Moderate were also affirmed. As OAB’s LT FCR remains set at the same level as Oman’s sovereign rating of ‘BB’, the rating is closely correlated with the sovereign’s creditworthiness. Any improvement or deterioration in Oman’s LT FCR and/or outlook will have a corresponding effect on OAB’s ratings and outlook.
The revision of Oman’s LT FCR Outlook to Stable reflects the ongoing strengthening of fiscal and external balances, as well as improving government debt metrics – developments which are largely driven by the direct and indirect impact of higher hydrocarbon prices. Oman’s ratings (‘BB’/‘B’) remain supported by the country’s moderate fiscal and external buffers, relatively sound banking system, as well as CI’s expectation that financial support would be forthcoming from other GCC countries in the event of need. The sovereign’s ratings are constrained by limited economic diversification, with dependence on hydrocarbon output, limited revenue mobilisation (albeit improving), and geopolitical risk factors and institutional weaknesses.
As OAB’s BSR is already at the sovereign level, the Moderate ESL does not result in any uplift for the Bank’s LT FCR. CI is of the opinion that Oman’s strengthened fiscal capacity is expected to ensure that moderate levels of government support will continue to be available to the banking sector in case of need. The Bank’s BSR is derived from a CFS rating of ‘bbb-’ and an Operating Environment Risk Anchor (OPERA) of ‘bb-’. OPERA denotes moderate risk and takes into account the improving macroeconomic environment due to higher oil prices.
The Bank’s ratings are underpinned by its deep pool of customer deposits, which continues to support its good loan-based liquidity position, and the solid and improved capital ratios following the issue of perpetual bonds in 2021. Loan asset quality metrics are fairly resilient, with a moderate NPL ratio and stronger loss coverage position. The Bank’s earnings performance in 2021, however, was significantly impacted by a large increase in the cost of credit and profitability ratios were weaker than those of its peers. The Bank’s supportive major shareholder, Arab Bank Plc (Jordan), which continues to make available a sizeable line of credit, is an non-financial credit strength. Similar to peers, the main constraints on the ratings are the challenging operating environment and elevated global geopolitical risk factors (due to the conflict in Ukraine and its impact on the world economy and hydrocarbon prices, although a rise in the latter could benefit Oman). The other key constraints are ongoing high customer concentrations in funding and lending and its relatively high cost-to-income ratio.
Rating Outlook
The Stable Outlook indicates that the ratings are likely to remain unchanged over the next 12 months and reflects our expectation that the Bank will maintain a broadly stable business and reasonably sound financial metrics.
Rating Dynamics: Upside Scenario
Although not considered likely in the next 12 months, the LT FCR Outlook could be revised to Positive and/or the ratings raised if there was a similar rating action on the sovereign. An upgrade of the BSR would require a good improvement in loan asset quality as well as a sustainable recovery of earnings.
Rating Dynamics: Downside Scenario
The outlook and/or the LT FCR could be revised downwards in the next 12 months if there was a similar rating action on the sovereign, although this is not our base scenario. CI anticipates a further – albeit gradual – recovery of the economy. However a further weakening of loan asset quality could put pressure on the BSR.
Contact
Primary Analyst: Agnes Seah, Senior Credit Analyst; E-mail: agnes.seah@ciratings.com
Secondary Analyst: Karti Inamdar, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst
About the Ratings
The credit ratings have been issued by Capital Intelligence Ratings Ltd, P.O. Box 53585, Limassol 3303, Cyprus.
The following information sources were used to prepare the credit ratings: public information and information provided by the rated entity. Financial data and metrics have been derived by CI from the rated entity’s audited financial statements for FY2018-21. CI may also have relied upon non-public financial information provided by the rated entity and may also have used financial information from credible, independent third-party data providers. CI considers the quality of information available on the rated entity 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 principal methodology used to determine the ratings is the Bank Rating Methodology, dated 3 April 2019 (see Information on rating scales and definitions, the time horizon of rating outlooks, and the definition of default can be found at Historical performance data, including default rates, are available from a central repository established by ESMA (CEREP) at
This rating action follows an ad hoc review of the rated entity. Ratings on the entity were first released in August 1987. The ratings were last updated in May 2021. The ratings and rating outlook were disclosed to the rated entity prior to publication and were not amended following that disclosure.
The ratings have been assigned or maintained at the request of the rated entity or a related third party.
Conditions of Use and General Limitations
The information contained in this publication including opinions, views, data, material and ratings may not be copied, distributed, altered or otherwise reproduced, in whole or in part, in any form or manner by any person except with the prior written consent of Capital Intelligence Ratings Ltd (hereinafter “CI”). All information contained herein has been obtained from sources believed to be accurate and reliable. However, because of the possibility of human or mechanical error or other factors by third parties, CI or others, the information is provided “as is” and CI and any third-party providers make no representations, guarantees or warranties whether express or implied regarding the accuracy or completeness of this information.
Without prejudice to the generality of the foregoing, CI and any third-party providers accept no responsibility or liability for any losses, errors or omissions, however caused, or for the results obtained from the use of this information. CI and any third-party providers do not accept any responsibility or liability for any damages, costs, expenses, legal fees or losses or any indirect or consequential loss or damage including, without limitation, loss of business and loss of profits, as a direct or indirect consequence of or in connection with or resulting from any use of this information.
Credit ratings and credit-related analysis issued by CI are current opinions as of the date of publication and not statements of fact. CI’s credit ratings provide a relative ranking of credit risk. They do not indicate a specific probability of default over any given time period. The ratings do not address the risk of loss due to risks other than credit risk, including, but not limited to, market risk and liquidity risk. CI’s ratings are not a recommendation to purchase, sell, or hold any security and do not comment as to market price or suitability of any security for a particular investor.
The information contained in this publication does not constitute investment or financial advice. As the ratings and analysis are opinions of CI they should be relied upon to a limited degree and users of this information should conduct their own risk assessment and due diligence before making any investment or other business decisions.
Copyright © Capital Intelligence Ratings Ltd 2022
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