Alizz Islamic Bank – Ratings on Oman National Scale Affirmed with Stable Outlook

(MENAFN- Capital Intelligence Ltd) 14 May 2026

Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term and Short-Term ratings on the Oman National Scale of Alizz Islamic Bank (AIB or the Bank) at ‘omAA+’ and ‘omA1+’, respectively. The Outlook for the ratings is Stable.

The ratings are supported by AIB’s solid Islamic franchise and status as a wholly owned subsidiary of Oman Arab Bank (OAB). AIB remains one of only two fully fledged Islamic banks in the country, with a significant share of the Islamic banking market, and one of the largest Islamic banking branch networks. That said, the Islamic banking sector has remained moderate in size, despite good growth over the years. Other supporting factors include the Bank’s sound liquidity profile with a large deposits base, fairly good capital ratios, and its sound and resilient financing asset quality metrics despite the still elevated Stage 2 financings.

The ratings are constrained by AIB’s sizeable real estate exposure and moderately low, albeit improving, profitability metrics. Further, the small size of the domestic banking market and Oman’s narrow economy, which remains highly dependent on hydrocarbons, constitute another credit challenge. This, in turn, has the effect of producing moderately high customer concentrations in both the financing book and the deposit base. The latter stem from the high proportion of government deposits in the banking system. Although the current US/Irael conflict with Iran has elevated geopolitical risk across the entire GCC region, its geographical location has spared Oman from most of the direct negative effects.

While military exchanges between the US/Israel and Iran have recently moderated, broadly in line with CI’s baseline assumption, the risk of renewed escalation persists in the absence of a near-term negotiated settlement. For the banking sector in Oman, the direct impact is likely to be more contained, reflecting the country’s comparatively lower exposure to regional capital flow volatility. Nevertheless, a deterioration in regional conditions could still weigh on investor sentiment, moderate deal activity, and exert some pressure on asset valuations and fee-generating income. Indirect risks may arise through tighter external funding conditions or higher-risk premia, particularly for entities reliant on cross-border financing. Downside risks would increase if the conflict is prolonged or results in sustained disruptions to shipping through the Strait of Hormuz, with potential spillovers to investment activity and business confidence.

AIB’s financing receivables (FRs) growth was largely stable in 2025. While the corporate book was fairly well-spread across a wide range of industries, its personal financing portfolio mainly comprised housing financings. The latter, together with financings to the construction and real estate sector, constitute a high degree of exposure to the real estate sector. The concentration risk, however, remains mitigated by the granularity of the financing book, the collateralised nature of these financings, and the good quality of these exposures. Notwithstanding an increase in non-performing financing receivables (NPFRs), AIB’s key asset quality metrics remained sound and compared reasonably well with the peer group. The NPFR loss coverage increased to slightly over 100%, which is a positive development. In common with the sector, still elevated levels of Stage 2 FRs are a cause for some concern, and emerging trends continue to warrant close monitoring, especially in light of the current geopolitical situation. That said, CI continues to derive comfort from the Bank’s good risk management, and the prudent and well-regulated banking system in Oman.

The Bank’s funding and liquidity profile remains underpinned by a large customer deposit base with a good share of cost-effective demand and savings accounts, and minimal dependence on wholesale funding. The customer deposit base grew at a relatively faster pace in 2025. CI expects AIB to maintain its good share of the growing Islamic deposit market. Liquidity metrics are expected to be maintained at a sound level and in compliance with related liquidity requirements of the Central Bank of Oman (CBO). The financing-to-deposit ratio slightly eased last year, and remained better than the overstretched positions of its immediate peers and other conventional banks. The net financings to stable funds ratio was also at a comfortable level. The Bank’s net broad liquid asset ratio edged up slightly to a moderate 12.9% in 2025, supported by rising government securities and lower interbank borrowings. AIB’s liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) also remained above regulatory requirements.

Moderately high customer concentration in both the financing book and the deposit base are key rating constraints, in common with peers. This is attributable to the small size of the Omani market and the high proportion of government deposits in the financial system. The attendant risks are partially mitigated by the relative ‘stickiness’ of government deposits. The withdrawal risk has reduced noticeably in recent years – thanks to the government’s strong fiscal position. However, elevated geopolitical risk in the event of resumption of the Iran and US/Israel conflict, which if prolonged, could put fiscal pressures and potentially reduce liquidity in the broader economy.

The Bank recorded further improved operating and net profits in 2025; however, the profitability metrics remain moderate and still lag those of its immediate peer and the CI-rated conventional peer banks. Operating income growth continued to be supported by good traction in net financing income (NFI) and complemented by modestly higher fee and commission as well as investment income. NFI was supported by growth in financing volumes and a slightly wide net financing margin (NFM) in 2025. The NFM has hovered around low 2% range over the last four years. The NFM could stabilise this year, as growth in new business generation is anticipated to moderate and further policy rate cuts are unlikely in the short-term given the spike in energy prices. Furthermore, competition will remain keen given the relatively small Omani market. Despite a modest rise in operating expenses, the cost-to-income ratio (CIR) further improved but remained high vis-a-vis peers. The Bank’s financing loss provision expense to operating profit ratio also improved further, underscoring sound risk absorption capacity, and we anticipate this to remain the case in the near term. AIB’s strong franchise and good share of the Islamic banking market should continue to provide the Bank with a sound and sustainable level of earnings going forward.

In 2024, AIB reinforced its capital through the additional Tier 1 perpetual sukuk issuance. Thereafter, overall capitalisation and balance sheet leverage ratios remained at fairly good levels, despite both metrics having mildly softened in 2025. The capital ratios also still lag those of the conventional banks’ average. The quality of capital remains good given the high share of CET1 and Tier 1 components. With commencement of dividend distribution in 2025, AIB’s internal capital generation may be constrained to some degree going forward. CI considers AIB’s capital as adequate to support its growth and also expected to continue to serve as a reasonably good buffer against NPFs, over the medium term. As AIB remains a wholly owned subsidiary of OAB, CI also expects that ordinary support from its financially sound ultimate shareholders, Arab Bank Plc (Jordan) and Oman International Development and Investment Company (Ominvest), to be forthcoming in case of need.

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 financial position. The Stable Outlook is also on the basis of our expectation that the regional military conflict, at least in so far as it directly affects Oman, will be limited in both duration and severity.

Rating Dynamics: Upside Scenario

A revision of the Outlook to Positive or an upgrade of the Bank’s LT rating would require an improvement in the operating environment and significant improvement in financial metrics, and/or an improvement in the extraordinary support assessment.

Rating Dynamics: Downside Scenario

A downward revision of the LT rating, or a change in the Outlook to Negative, would need to be preceded by a similar rating action on the sovereign, all other factors remaining unchanged.


A National Rating summarises the repayment risk of an entity relative to other entities within the same economy. It is not an absolute measurement of risk. National Ratings are not directly comparable across borders.

Contact

Primary Analyst: Farah Parveen Khan, Senior Credit Analyst; E-mail: ...
Secondary Analyst: Agnes Seah, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst

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