Capital Intelligence (CI), the international credit rating agency, announced that it has upgraded Oman Arab Bank’s (OAB) Financial Strength Rating to ‘BBB+’ from ‘BBB’ in view of the Bank’s good asset quality and profitability. The Outlook for the Financial Strength Rating is changed to ‘Stable’ from ‘Positive’.
The Foreign Currency Ratings are maintained at ‘BBB+’ Long-Term and ‘A2’ Short-Term, with a ‘Stable Outlook. The Support Rating is maintained at ‘2’.
The ratings are underpinned by the high likelihood of support from the government and the Bank’s strong financials.
OAB working closely with its strategic investor, Arab Bank PLC Jordan, is involved in financing several infrastructure and industrial projects in Oman.
The Bank has successfully leveraged its close association with Arab Bank to develop a strong corporate banking business, despite its relatively low asset base.
OAB’s return on average assets (ROAA) has been well above the industry average for several years and in 2011, ROAA continued to be the highest among local banks. The Bank’s historically strong profitability has been due to its wide net interest differential, high non-interest revenue base and low risk provision charge.
However, key profitability ratios have weakened over the years due to lower gross income levels and increased impairment provision charges. In 2011, higher operating costs also contributed to the fall in ROAA.
Gross income rose moderately due to increased competition and overall lower interest rates on loans. Asset quality parameters improved in 2011, despite an increase in non-performing loans (NPLs), with the NPLs to gross loans ratio declining over the year and loan restructuring down substantially. Moreover, NPLs were more than fully provided.
OAB’s capital adequacy ratio is quite strong and capital was supplemented in April 2012 via a subordinated bond issue and a rights issue of shares. The Bank’s liquidity ratios tightened in 2011 but are at good levels.
OAB was established in 1984 after purchasing 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 Sultanate’s major industrial and infrastructure projects over the last several years.
Despite its relatively small asset base (6% of total assets in the banking sector at end 2011), the Bank has been successful in doing business with top-tier customers within the country. The Bank’s retail banking business is also a large contributor to revenues.
Press Release
