Capital Intelligence raises Oman Arab Bank Foreign Currency Ratings

Press release
Published December 26th, 2010 - 04:13 GMT
Capital Intelligence
Capital Intelligence

Capital Intelligence (CI), the international credit rating agency, today announced that it has raised Oman Arab Bank’s (OAB) Foreign Currency ratings to BBB+ long-term and A2 short-term (from BBB and A3 respectively). The rating upgrade reflects CI’s increased confidence that government support for the local banking sector will be high in case of need. The Financial Strength rating is maintained at BBB, with the Bank’s good asset quality and profitability underpinning the rating. OAB’s small size remains a constraint. The support rating is maintained at 2 and reflects the Bank’s ownership by Arab Bank. All ratings carry a ‘Stable’ outlook.

OAB, along with its majority shareholder, has been actively involved in financing, syndicating and advising infrastructure and industrial projects in the country. The Bank has successfully leveraged its close association with Arab Bank to develop a strong corporate banking business in the country. However, OAB’s corporate credit exposures have declined in recent years due to the postponement of new projects. The Bank has offset this by expanding its retail credit portfolio.

Although asset quality ratios weakened at end 2009 due to increased classification in the retail and corporate loan portfolios, the ratios continued to be very sound and in fact strengthened in the first half of 2010. OAB’s profitability ratios were strong in 2009 and in H1 2010 despite a decline in net profit. A wide interest differential and a strong fee and commission income base underpin its high profitability. OAB’s liquidity ratios, which have been substantially better than the peer group average for several years, continued to be quite strong at end 2009. The capital adequacy ratio improved in 2009 and rose further in June 2010. Shareholders injected new capital in 2009 and in H1 2010. OAB’s loan growth is likely to remain low this year, despite expectations of increased government spending in H2, and the capital ratio is therefore unlikely to come under stress.

OAB was established in 1984 when it purchased the Omani branches of Arab Bank. Arab Bank subscribed to 49% of OAB's share capital and Omani shareholders took 51%. OAB participates in financing development projects across Oman, and the Bank, either solely or together with Arab Bank, has been involved in all the Sultanate’s major industrial and infrastructure projects over the last several years. OAB has successfully leveraged its close association with Arab Bank to develop a strong corporate banking business. The Bank’s relatively small asset base (6% of total assets in the banking sector at end 2009) does not appear to have impaired its overall competitiveness, nor its access to top tier customers within the country.

Background Information

Capital Intelligence

Capital Intelligence Ratings Ltd has been providing credit analysis and ratings since 1982, and now rates over 300 Banks, Corporates and Financial Instruments (Bonds & Sukuk) in 30 countries. A specialist in emerging markets, CI Ratings geographical coverage includes the Middle East, the wider Mediterranean region, Central and Eastern Europe, South Asia, South-East Asia, the Far East, and North Africa.

Oman Arab Bank

Oman Arab Bank SAOC was established in 1984 following the acquisition of Arab Bank’s branches in the Sultanate. Over the past three decades, the Bank has consistently expanded its reach as well as its products and services offering to provide customers in the country with a comprehensive suite of innovative solutions in Retail banking, Corporate and Project finance, Investment banking, trade finance and most recently, Islamic Banking.

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