Capital Intelligence affirms Bank Dhofar's ratings

The ratings are underpinned by the Bank's sound asset quality and good profitability. The Bank's tight liquidity position and its small balance sheet size are major constraining factors. Oman's GDP growth rate has slowed this year and corporate NPLs could rise over the coming quarters. However, BD is expected to be able to absorb higher provision charges if required. Its H1 2009 results have been good overall, and although key financial ratios weakened slightly they remained satisfactory. The outlook for all the ratings is therefore 'Stable'.

BD has grown its asset base substantially over the last two years following the implementation of new strategies focusing on the expansion of the corporate banking book, widening of the product base and aggressive marketing of customer deposit products. The Bank performed well in 2008 owing to strong growth in non-interest revenues and net interest income (on the back of sizeable credit expansion and an historically wide interest differential). The return on average assets was good, although there was only a modest increase in net profit owing to higher provision charges for loans and investments.

BD's asset quality ratios have strengthened over the years. Non-performing loans (NPLs) are at a very low level and provisions exceed NPLs. NPLs increased in H1 2009 owing to the classification of a small loan to a Saudi group which is in financial difficulties, but BD's key ratios remained sound. The Bank raised new equity last year and is presently well capitalised. Liquidity ratios tightened at end 2008 and in the first half of 2009. Customer deposit growth rates have more or less kept pace with credit expansion, but BD's key liquidity ratios (net loans to stable funds and liquid asset ratios) have been tighter than the industry average in the past, partly reflecting the relatively high level of loans and advances on its balance sheet compared to its peers.

The Bank expects only a moderate increase in total assets this year, subject to the expansion of its customer deposit base. While Oman's GDP growth rate has slowed over the last two quarters, the country is relatively less impacted by the global financial crisis than other GCC countries. Private sector investment has slowed considerably and government spending is expected to boost demand for credit.

BD is owned 30% by the Dhofar International Development and Investment Holding Company, a listed investment company, and 27% by a number of state-sponsored pension and social insurance funds. It is a small bank with total assets of $3.4bn at end 2008 and a 7% market share of total assets in the banking system. BD is a full-scale commercial bank offering a wide variety of retail and corporate banking services.