Capital Intelligence (CI), the international credit rating agency, announced that it has maintained Bank Muscat’s (BM) Financial Strength rating at A-; the rating is underpinned by the Bank’s dominant market position in Oman, its improved profitability in 2011 and better asset quality ratios including its strong provision coverage ratio.
BM’s performance in the current year is expected to be good given a favorable economic environment and the expected rise in credit demand, notwithstanding the increasing competition domestically.
The Outlook for the Financial Strength rating is therefore changed to ‘Positive’ from ‘Stable’.
The Long-term and Short-term Foreign Currency Ratings are affirmed at A and A1, respectively, with a ‘Stable’ Outlook. The ratings are supported by Oman government’s ownership of the Bank, together with its good financial position. As the largest bank in the country and the government’s flagship bank, BM is likely to receive substantial support in case of need. The Support rating is affirmed at 2, reflecting the Bank’s government ownership.
The Bank’s overall financials are strong and its key profitability ratios improved further in 2011, following the better results achieved in 2010. Operating profit grew due to higher interest income and a substantial increase in non-interest income. Losses from the international operations declined last year and the bank expects a turnaround in the performance of its international ventures in 2012. ROAA strengthened in 2011 due to higher operating profitability and a lower net impairment charge to total assets ratio.
BM’s asset quality is satisfactory. Its asset quality ratios improved at end 2011, partially due to write-offs of fully provided non-performing loans (NPLs) and also due to better recoveries. NPLs were more than fully covered by loan-loss provisions. Restructured loans have declined over the last twelve months. While credit risks in the region remain challenging, given the small size of BM’s international operations, the Bank is not significantly affected by these risks. The Bank is well capitalized with a good capital adequacy ratio, which showed improvement in 2011. It has plans to raise capital in 2012 to fund its future growth, together with planned entry into Islamic banking. BM’s liquidity ratios have shown improvement in 2011 and are at good levels.
At end 2011, BM is the largest bank in Oman with a 38% share of the total assets in the banking sector. The Bank is owned 24.83% by the government of Oman and 14.99% by Dubai Financial Group, owned by the government of Dubai. It is a market leader in each of its major businesses. The Bank has built a large and valuable consumer banking franchise through its network of 130 branches. BM has a small international presence through branches in Riyadh and Kuwait and a 49% stake in a bank in Bahrain.