International rating agency Fitch Ratings has revised National Bank of Oman SAOG's (NBO) outlook to stable from negative and affirmed the bank's Long-Term Issuer Default Rating (IDR) at 'BB-'. Fitch has also affirmed the bank's Viability Rating (VR) at 'bb-'.
The rating actions follow a similar action on the Sultanate of Oman's sovereign rating on December 20, 2021. Fitch has also revised its outlook on the Omani operating environment score to stable from negative.
“The outlook revision reflects our view that pressures on the operating environment from the pandemic and lower oil prices have eased sufficiently, and that the bank's financial metrics have been resilient in the past quarters, despite these pressures,” the ratings agency said on Thursday.
Fitch has withdrawn NBO's Support Rating and Support Rating Floor as they are no longer relevant to the agency's coverage following the publication of its updated Bank Rating Criteria on November 12, 2021. In line with the updated criteria, it has assigned NBO a Government Support Rating (GSR) of 'b'.
NBO's IDRs are driven by the VR. The bank's VR reflects NBO's strong franchise, well-balanced business model, reasonable capitalisation and funding. “NBO is the third-largest bank in Oman, supported by a large retail branch network, which aids its deposit-collection ability. NBO's business model is well-balanced, in our view, with its loan book evenly split between retail and corporate banking. Nonetheless, the bank's domestic focus and a narrow Omani economy create a heavy reliance on government spending, the main driver of credit growth in Oman and results in high concentrations on both sides of the balance sheet,” said Fitch
NBO's most recent asset-quality metrics have strengthened with the bank's Stage 3 loans decreasing to 4.9 per cent of gross loans at end-3Q21 (end-2020: 5.6 per cent). Stage 2 loans represented 18.4 per ent of end-3Q21 gross loans, unchanged from end-2019's 18 per cent, but reduced from 20 per cent at end-2020.
“This is high in a global context but is in line with the peer groups, reflecting conservative classification policies at Omani banks. Coverage is comparable to peers', with total loan loss allowances (LLAs) equal to 93 per cent of end-3Q21 impaired loans,” Fitch added.
Fitch's assessment of NBO's asset quality also factors in the bank's high exposure to the Omani economic environment, both as part of its lending but also investment portfolios (including substantial holdings of sovereign/central-bank assets), where high single-name concentrations means the bank is exposed to event risk.