Capital Intelligence affirms National Bank of Oman's ratings

The ratings reflect the bank's good ownership and the strong likelihood that it would receive official support in case of need.

The financial strength rating is maintained at BBB. The bank's good operating profitability and asset quality are supporting factors.

The slow GDP growth has increased credit risk this year and NBO's provision charges could rise straining its overall profitability. However there are mitigating factors. Despite sharply lower net profit in H1 2009 (due to higher impairment provisions and lower recoveries of previously written off nonperforming loans (NPLs)), the bank's operating profitability was high. Moreover, NBO's improved spreads could partly offset the decline in fee income this year.

Asset quality and capital adequacy ratios were good and liquidity remained satisfactory at end June 2009. Oman is less affected than other GCC countries by the global financial crisis. Lending opportunities could grow in the second half of the year although raising long-term funds will be a challenge. NBO's exposures are primarily to domestic entities and its regional exposures are at a very low level. A 'Stable' outlook has therefore been assigned to all the ratings.

NBO's financials improved over the last few years under its new management. Asset quality ratios have strengthened considerably. NPLs have declined as a proportion of gross loans and are fully covered by loan-loss reserves.

The bank's large consumer loan book is not expected to come under any significant stress since consumer loan beneficiaries are primarily Omani citizens and unemployment levels have not risen. NBO has small but manageable exposures to three foreign banks which are currently being restructured. Some provisions have been made against these outstandings, but more may be required later.

There was only a marginal increase in net profit last year owing to fewer recoveries of NPLs that were previously written off and increased impairment losses on investments. But operating profit, underpinned by higher non-interest and net interest revenues, recorded strong growth and ROAA was high. Liquidity ratios tightened last year and in the first half of 2009 but were satisfactory overall.

There was a substantial improvement in the customer deposit mix this year owing to significant increases in demand and savings balances. This has helped to widen the interest spread. The capital adequacy ratio has been maintained at a satisfactory level. The bank may raise subordinated debt this year if the credit book expands.

NBO is owned 34.85% by Commercial Bank of Qatar and 14.74% by the Suhail Bahwan Group. It is the second largest bank in the country with total assets of $5bn. It is a full service bank offering a wide range of retail and corporate banking activities.