Fitch Ratings has upgraded Sohar International Bank SAOG's (SIB) and Ahli Bank SAOG's (ABO) Long-Term Issuer Default Ratings (IDRs) to 'BB-' from 'B+'.

The Outlooks are Stable. Fitch has also upgraded the banks' Government Support Ratings (GSRs) to 'bb-' from 'b+'. The Short-Term IDRs have been affirmed at 'B'. A full list of rating actions is at the end of this rating action commentary.

The Stable Outlooks on the banks' Long-Term IDRs mirror that on the Omani sovereign rating.

The rating actions reflect the Omani authorities' improved ability to provide support to the banking sector.

Key Rating Drivers

IDRs and GSRs

SIB's and ABO's IDRs are driven by potential sovereign support, as expressed by their 'bb-' GSRs.

Oman's external balance sheet position has significantly improved and we expect this will be sustained over the rating horizon. In particular, Fitch forecasts government debt/GDP ratio will fall to 46.7% in 2022 and 44.9% in 2023, from around 70% in 2020, on better budget performance and oil-fuelled nominal GDP growth in 2022 (forecast at 24%). Additionally, sovereign net foreign assets are forecast to turn positive by end-2022 at 1% of GDP (2021: -6.3%) before increasing to 4.6% of GDP in 2023. The Central Bank of Oman's gross foreign reserves will strengthen in 2022-2023 due to current account surpluses and average more than 4.5 months of current external payments.

Fitch believes the Omani authorities' propensity to support the banking system is high because of high contagion risk in the sector, the role the banking sector plays in financing the economy and the authorities' drive to preserve financial stability as the country implements its economic development plans.

Viability Ratings (VRs)

The banks' VRs are unaffected by the rating action. See the previous rating action commentaries: 'Fitch Revises Outlook on Sohar International Bank to Stable; Affirms at 'B+' and Fitch Revises Ahli Bank SAOG's Outlook to Stable; Affirms at 'B+' dated 22 February 2022.

Rating Sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade:

IDRs, GSRs

SIB's and ABO's GSRs and IDRs are sensitive to a sovereign downgrade.

Factors that could, individually or collectively, lead to positive rating action/upgrade:

IDRs, GSRs

An upgrade of SIB's and ABO's GSRs and IDRs could follow an upgrade of the sovereign rating.

VRs

VR sensitivities are as outlined in the previous rating action commentaries referenced above.

Best/Worst Case Rating Scenario

International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

ABO's and SIB's IDRs are linked to the creditworthiness of the Omani authorities.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entities, either due to their nature or the way in which they are being managed by the entities. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg

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