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Fitch affirms Bank Sohar with 'stable outlook' rating

June 24, 2014

Reuters



London: Fitch Ratings has affirmed Bank Sohar's Long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook. The Viability Rating (VR) has been affirmed at 'bb.' A full list of rating actions is at the end of this rating action commentary. Bank Sohar's Long-term and Short-term IDRs are support-driven. Its IDRs, Support Rating (SR) and Support Rating Floor (SRF) reflect Fitch's expectation that there would be a high probability of support for the bank, if needed, from the Omani authorities, underpinned by Fitch's belief that there would be a strong willingness to maintain stability in the banking system.



The IDRs, SR and SRF are sensitive to a change in Fitch's assumptions around the Omani authorities' propensity or ability to provide timely support to Bank Sohar.



Bank Sohar'sVR reflects its capitalisation, which is weaker than its peers, particularly in view of high loan book concentrations. The VR also factors in a stable operating environment, and the bank's relatively conservative risk appetite translating into sound asset quality.



Capitalisation remains relatively weak compared with peers, with a Fitch core capital ratio of 10.4 per cent at end-2013. However, Fitch expects growth to remain relatively moderate and for dividends to remain low, which should help boost capitalisation.



Loan quality ratios for Fitch-rated Omani banks are generally sound, and Bank Sohar's are consistently among the strongest (NPL ratio of 1.07 per cent at end of first quarter of 2014).



Bank Sohar is primarily funded by customer deposits, and liquidity is sound.



Deposits are concentrated, which is common in the region, particularly to the government, but tend to be stable despite their short maturities.



The bank continued to report solid growth in earnings and profitability in 2013 and of first quarter of 2014. Net income grew by 17 per cent in 2013, driven by increases in both net interest and fee income.



The relatively low capitalisation is the key negative driver for the bank's VR, and a downgrade of the VR would most likely be driven by reduced capitalisation, although this is not Fitch's expectation. In many other respects Bank Sohar's metrics are consistent with a higher VR and this could be achieved once the bank has taken steps to strengthen its capital.


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Source: Times of Oman


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