Muscat – Fitch Ratings has upgraded the long-term issuer default ratings (IDRs) of Bank Muscat to ‘BB+’ from ‘BB’ and the long-term issuer default ratings of BankDhofar, National Bank of Oman (NBO), Ahlibank, and Sohar International Bank to ‘BB’ from ‘BB-‘.

Fitch has also upgraded the viability ratings (VRs) of Bank Muscat to ‘bb+’ from ‘bb,’ the VR of BankDhofar and NBO to ‘bb’ from ‘bb-‘, and that of Sohar International Bank to ‘bb-‘ from ‘b+’, and affirmed the VR of Ahlibank.

The rating actions follow the upgrade of Oman’s sovereign rating on September 25 and reflect the agency’s view of an improving probability of support for the banks from the Omani authorities, as well as improved business conditions that will benefit the banks’ intrinsic credit profiles.

The IDRs of Bank Muscat, BankDhofar and NBO are driven by their respective VRs and are also underpinned by potential support from the Omani authorities, as captured by these banks’ government support ratings (GSR), which have been upgraded to ‘bb+’ from ‘bb’ (Bank Muscat) and ‘bb’ from ‘bb-‘ (BankDhofar and NBO). The IDRs of Ahlibank and Sohar International Bank are also driven by potential sovereign support.

“The stable outlooks on the long-term IDRs of Bank Muscat, BankDhofar, and NBO reflect Fitch’s view on the trends in these banks’ standalone profiles, but also mirror the stable outlook on the sovereign, and, in the case of Ahlibank and Sohar International Bank, it reflects the stable outlook on the sovereign,” Fitch said in a statement.

Fitch believes the Omani authorities have a high propensity to support the banking sector given the high contagion risk and the importance of the banking system in supporting the local economy.

However, the authorities’ financial flexibility and ability to provide extraordinary support are limited, despite recent improvements in the sovereign balance sheet, the rating agency added.

The VR upgrades of Bank Muscat, BankDhofar, NBO, and Sohar International Bank reflect their large direct and indirect exposure to the government and the wider public sector.

‘We also believe the banks’ business models, risk profiles, as well as funding and liquidity, will benefit from a stronger sovereign credit profile in revenue generation, business volumes, and deposit inflows. This was also reflected through the upgrade of the Omani banks’ operating environment score to ‘bb+’ from ‘bb,’ in line with the sovereign rating,’ Fitch said.