This is a correction of a rating action commentary published on 2 May 2023.

It clarifies the rationale for the rating actions taken on BM, BD, NBO, SIB, and ABO.

Fitch Ratings has revised five Omani banks' Outlooks to Positive from Stable, while affirming their Long-and Short-Term Issuer Default Ratings (IDRs). The banks are Bank Muscat SAOG (BM; BB/B), Bank Dhofar S.A.O.G. (BD; BB-/B), National Bank of Oman SAOG (NBO; BB-/B), Ahli Bank SAOG (ABO; BB-/B) and Sohar International Bank SAOG (SIB; BB-/B).

Fitch has also affirmed the Viability Ratings (VRs) of BM at 'bb', BD and NBO at 'bb-', ABO at 'b+' and maintained the Rating Watch Positive (RWP) on SIB's 'b+' VR. Fitch has also maintained the Rating Watch Negative (RWN) on HSBC Bank Oman SAOG's (HBON) 'BB+' Long-Term IDR, 'bb-' VR and Shareholder Support Rating (SSR) 'bb+'.

The rating actions follow a similar action on Oman's sovereign rating on 11 April 2023 (see ' Fitch Revises Outlook on Oman to Positive; Affirms at 'BB' at www.fitchratings.com). For BM, BD and NBO, the rating action reflects Fitch's view on improving trends in these banks' standalone profiles and an improving probability of support for the banks from the Omani authorities. For ABO and SIB, the rating action reflects the agency's view of an improving probability of support for the banks from the Omani authorities.

Fitch has also revised its outlook to positive from stable on the 'bb' Omani banks' operating environment score, in line with the Outlook revision on the sovereign ratings, given banks' large direct and indirect exposure to the government and the wider public sector. We also believe 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.

A full list of rating actions is detailed below.

Key Rating Drivers

The IDRs of BM, BD, and NBO continue to be 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 affirmed at 'bb' (BM) and 'bb-' (BD and NBO).

The affirmation of these banks' VRs considers limited changes in their standalone creditworthiness since the last rating review and the key rating drivers for these banks' VRs are outlined in our rating action commentaries published on 8 December 2022 ('Fitch Affirms Bank Muscat's IDR at 'BB', Stable Outlook; Upgrades GSR to 'bb'; 'Fitch Affirms Bank Dhofar at 'BB- '/Stable; Upgrades Government Support Rating to 'bb-' and 'Fitch Affirms NBO at 'BB-'/Stable; Upgrades Government Support Rating to 'bb-'). The Positive Outlooks on the Long-Term IDRs reflect Fitch's view on the trends in these banks' standalone profiles, as indicated by the outlook revision on the Omani operating environment.

The IDRs of ABO and SIB are driven by potential support from the Omani authorities and their GSRs have been affirmed at 'bb-'. The Positive Outlooks mirror that on the Oman's sovereign rating.

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 remains limited, despite recent improvements in the sovereign balance sheet. This leads to a GSR of 'bb-' for domestic systemically important banks (D-SIB) in Oman, which is at the lower end of the typical range for D-SIB GSRs in jurisdictions where the sovereign is rated 'BB'. BM's GSR is one notch above all other Omani banks' GSRs given its flagship status and strong links with the government.

ABO's VR is affirmed and its key rating drivers are unchanged as outlined in our rating action commentary ('Fitch Affirms Ahli Bank SAOG at 'BB-'; Outlook Stable' dated 14 February 2023).

We have maintained SIB's VR on RWP pending the conclusion of its merger with HBON, which we expect in 2H23. For additional details and the key rating drivers for the VR, see our rating action commentary published on 13 February 2023 ('Fitch Affirms Sohar International Bank's IDR at 'BB-'; Places VR on Rating Watch Positive').

We maintained HBON's IDRs, SSR and VR on RWN pending the conclusion of its merger with SIB. The RWN on the SSR, which is capped by Oman's Country Ceiling of 'BB+', and its IDR reflects that on completion of the merger, Fitch will cease to factor in potential support from the bank's ultimate parent HSBC Holdings plc (HSBC; A+/Stable) into HBON's ratings. This is likely to result in a downgrade and withdrawal of HBON's SSR and Long-Term IDR as HBON will be liquidated as a legal entity. For more details see also 'Fitch Places HSBC Bank Oman on Rating Watch Negative on Merger Agreement', dated 13 February 2023.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

Unless stated otherwise, the six banks' VR sensitivities are those outlined in our rating action commentaries mentioned above.

A downgrade of BM's, BD's and NBO's Long-Term IDRs would require a downgrade of their GSRs and a downgrade of their VRs. GSR downgrades would be triggered by a sovereign downgrade.

A downgrade of ABO's and SIB's Long-Term IDRs would require a downgrade of their GSRs, which would be triggered by a sovereign downgrade.

HBON's Long-Term IDR, SSR and VR would be downgraded and withdrawn upon the completion of the merger with SIB as the bank will cease to exist as a legal entity. A downgrade of Oman's Country Ceiling would lead to a downgrade of HBON's IDRs and SSR.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

Unless stated otherwise, the six banks' VR sensitivities are those outlined in our rating action commentaries mentioned above.

An upgrade of BM's, BD's and NBO's Long-Term IDRs could come from an upgrade of their VRs or GSRs. An upgrade of their GSRs would likely be triggered by a sovereign upgrade.

An upgrade of ABO's and SIB's Long-Term IDRs and GSRs would likely follow an upgrade of the sovereign rating.

An upgrade of Oman's sovereign rating and an upgrade of Oman's Country Ceiling could result in an upgrade of HBON's IDRs. HBON's IDRs, SSR and VR may be affirmed if the merger does not go ahead.

OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS

BM's senior unsecured euro medium-term note programme and debt ratings are rated in line with its IDRs and are therefore driven by the same factors that drive its IDRs.

OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES

BM's senior unsecured euro medium-term note programme and debt ratings are subject to same sensitivities as BM's IDRs.

VR ADJUSTMENTS

All banks

The operating environment score of 'bb' is below the 'bbb' category implied score for Oman due the following adjustment reasons: size and structure of economy (negative) and sovereign rating (negative).

NBO

The capitalisation & leverage score of 'bb-' is above the 'b & below' category implied score, due to the following adjustment reason: leverage and risk-weight calculation (positive).

ABO

The asset quality score of 'b+' is below the 'bb' category implied score, due to the following adjustment reason: underwriting standards and growth (negative).

The earnings & profitability score of 'b+' is below the 'bb' category implied score, due to the following adjustment reason: earnings stability (negative).

The funding and liquidity score of 'b+' is below the 'bb' category implied score, due to the following adjustment reason: deposit structure (negative).

SIB

The capitalisation and leverage score of 'b+' is below the 'bb' category implied score, due to the following adjustment reason: risk profile and business model (negative).

The funding and liquidity score of 'b+' is below the 'bb' category implied score, due to the following adjustment reason: non-deposit funding (negative).

HBON

The business profile score of 'bb-' is above the 'b' category implied score due to the following reason: group benefits and risks (positive).

The earnings and profitability score of 'b+' is below the 'bb' category implied score due to the following reason: earnings stability (negative).

The capitalisation and leverage score of 'bb' is below the 'bbb' category implied score due to the following reason: risk profile and business model (negative).

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

The IDRs of SIB and ABO are linked to Oman's sovereign rating. HBON's IDRs are linked to HSBC's and indirectly to the sovereign rating.

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 entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg.

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