Fitch affirms Oman's Bank Dhofar at 'BBB+'/'F2'; Outlook Stable

BDF's IDRs and Support rating reflect the expected high probability of support from the Omani authorities, should the need arise. This is based on the bank's systemic importance and the Central Bank of Oman's (CBO) strong history of support. The Individual rating considers BDF's expanding commercial franchise, consistent profitability and conservative approach to risk. These factors are balanced by tightening liquidity and capital ratios, loans and deposit concentrations and the lack of business and revenue diversification.

BDF has performed well under buoyant operating conditions, reporting strong profitability in 2006 and H107. Core operating revenues were healthy and supported by a relatively high net interest margin (NIM) and fast loan growth. Fitch notes some pressure on the NIM from fast rising funding costs, which needs to be addressed by a broader focus on revenues and a lesser reliance on more expensive deposits. Results were also boosted by realised gains on investments, which the agency considers unsustainable at this level, and low net provision costs. Fitch highlights BDF's tightening liquidity and capital ratios that are showing signs of strain under recent fast growth; these concerns put some negative pressure on the Individual rating.

BDF started operations in 1990 by acquiring the Muscat branch of Banque Paribas. Following a series of mergers, the bank has grown to be the fourth largest in Oman. Listed on the Muscat Securities Market, its main shareholders are the Dhofar International Development & Investment Holding Company with a 30% stake and a group of seven government pension funds with 29%. The bank appears to be structurally stronger following its recent reorganisation and the hiring of several new senior managers. Like other Omani banks BDF maintains a conservative approach to risk, which also reflects the CBO's tight control of the sector.