Capital Intelligence affirms Oman Arab Bank's ratings

The ratings are underpinned by its ownership (and management) by Arab Bank, Jordan. The financial strength rating is maintained at BBB reflecting OAB's good profitability and very sound asset quality.

The Bank's small balance sheet size and its tightening liquidity ratios which nevertheless remain better than industry average are constraining factors.

The economic downturn could result in higher NPLs over the next few quarters, but OAB's good coverage ratio and high profitability are strong mitigants. A Stable outlook has therefore been appended to all the ratings.

Strong business growth, a wider interest differential and good growth in fees, commissions and foreign exchange trading profits contributed to OAB's good performance in 2008.

The Bank continues to enjoy wider than industry average interest differentials due to its low funding cost. Its large contingent accounts business contributes to its strong non-interest revenue base.

OAB draws on the resources of Arab Bank for financing and providing guarantees for projects, overcoming some of the disadvantages associated with its relatively small size. Asset quality ratios are sound - the non-performing loans (NPLs) to gross loans and the provision coverage ratios strengthened last year.

The Bank's capital adequacy ratio fell at end 2008 owing to the sizeable increase in risk assets, but following an injection of fresh capital in H1 2009, the ratio strengthened.

OAB's first-half 2009 results were good although net profit declined owing to lower investment related income. Asset quality and capital adequacy ratios improved, and while liquidity ratios tightened further they were satisfactory.

The Bank does not expect to grow its balance sheet at more than a moderate pace this year given the reduced demand from the corporate sector and the postponement of several major projects due to lack of adequate and timely financing.

OAB intends to focus on retail customer deposit growth and will expand its branch network this year.

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 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 (5.5% of total assets in the banking sector at end 2008) does not appear to have impaired its overall competitiveness, nor its access to top-tier customers within the country.