Fitch: Omani Banks continue strong performance

'The sector is the smallest in the GCC region and this constrains the ratings, but all-in-all the story is good; healthy financial indicators, better management, larger franchises and adequate risk management are key rating factors considered by Fitch in this market,' says Mahin Dissanayake, Associate Director at Fitch's Financial Institutions team.

'Furthermore, banks have recovered from past asset quality problems and appear unaffected from more recent issues such as regional stock market corrections, US subprime investments/structured credit exposures and the global credit crunch,' adds Mr. Dissanayake.

High profitability, fast loan expansion, strong inflows of customer deposits and improving asset quality, capitalisation and liquidity are factors now common across the sector as the banking system benefits from high international oil prices and the resultant positive implications for Oman's economy. The negatives are the size of banks' balance sheets, which limits capacity and competitiveness, plus their narrow product ranges compared to regional peers and the relatively small size of the domestic economy.

Credit is also due to the CBO, which has provided tight regulatory oversight and successfully led the development of the Omani banking system in recent years. Fitch's Issuer Default ratings (IDR) of the rated Omani banks factor in a high probability of state support, given Oman's currently sound credit fundamentals and the strong propensity of the CBO to support local banks.

Fitch believes that the main challenges for the Omani banks are rising competition, tight regulatory controls on retail lending, asset and liability concentrations and operational structures still at an early stage of development. Although asset quality is improving, maintaining low non-performing loans should be a priority for all banks, given the rapid lending growth in the last three years. 'However, prospects are also bright, especially with the rapid expansion of Oman's non-oil economy and retail and SME segments, which should ensure that downside rating risk for banks remains low,' says Mr. Dissanayake.

Fitch-rated Omani banks are Bank Muscat (Long-term IDR 'A-' (A minus), Short-term IDR 'F2', Individual 'B/C' and Support '1'), Oman International Bank ('BBB+', 'F2', 'C, and '2'), Bank Dhofar ('BBB+', 'F2', 'C' and '2') and Oman Arab Bank (BBB+', 'F2', 'C' and '2'), all on Stable Outlook.