Muscat – Fitch Ratings has revised National Bank of Oman’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 Oman’s sovereign rating on December 20, 2021 when Fitch revised Oman’s outlook to ‘stable’ from ‘negative’ while affirming the long-term foreign- and local- currency issuer default ratings at ‘BB-’.

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,’ Fitch said.

Fitch has withdrawn NBO’s support rating and support rating floor as they are no longer relevant to the agency’s coverage following the publication of its updated bank rating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, we have assigned NBO a government support rating (GSR) of ‘b’,’ the ratings agency said.

NBO’s issuer default ratings are driven by the viability rating. The bank’s viability rating reflects NBO’s strong franchise, well-balanced business model, reasonable capitalisation and funding, according to Fitch.

NBO is the third-largest bank in Oman, supported by a large retail branch network, which aids its deposit-collection ability.

The ratings agency said that ‘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.’

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 the end of the third quarter of 2021 as compared to 5.6 per cent reported in the end of 2020. Stage 2 loans represented 18.4 per cent of the gross loans at the end of the third quarter of 2021, unchanged from end-2019’s 18 per cent, but reduced from 20 per cent at the end of 2020. This is high in a global context but is in line with the peer group’s, reflecting conservative classification policies at Omani banks. Coverage is comparable to peers’, with total loan loss allowances equal to 93 per cent of impaired loans at the end of the third quarter of 2021.

‘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,’ the ratings agency said.

NBO’s operating profit/risk-weighted assets increased to 1.1 per cent in the first nine months of 2021 from 0.65 per cent in 2020, owing to lower loan impairment charges, but remains below its pre-pandemic level (2019: 1.74 per cent).

‘The extent of the recovery in NBO’s profitability in 2022 will depend on the bank’s ability to manage margin pressures and improvement of non-interest income generation,’ Fitch Ratings said.