Fitch Ratings has upgraded
The Outlooks are Stable. Fitch has also upgraded BM's Viability Rating (VR) to 'bb' from 'bb-' and its Government Support Rating (GSR) to 'bb-' from 'b+'. HBON's Shareholder Support Rating (SSR) has been upgraded to 'bb+' from 'bb' and its VR affirmed at 'bb-'. The Stable Outlook on HBON's Long-Term IDR mirrors that on the Omani sovereign rating.
Fitch has also affirmed the Long-Term IDRs and VRs of
The six banks' Short-Term IDRs have been affirmed at 'B'. A full list of rating actions is at the end of this rating action commentary.
The rating actions follow the upgrade of the Omani sovereign (see 'Fitch Upgrades Oman to 'BB; Outlook Stable' dated
The upgrade of
Key Rating Drivers
IDRS and VRs
Unless stated, the banks' Key Rating Drivers are as stated in the previous rating action commentaries (RACs): see 'Fitch Revises Bank Muscat's Outlook to Stable; Affirms at 'BB-'; 'Fitch Revises Bank Dhofar's Outlook to Stable; Affirms at 'BB-'; 'Fitch Revises National Bank of
BM
BM's Long-Term IDRs are driven by its VR. The bank's VR reflects its dominant position in
BM's VR is capped by the Omani operating environment. This reflects Fitch's view that BM's credit profile is closely correlated with the sovereign due to the bank's domestically-focused business model, including large exposures to the sovereign through holdings of government securities, financing to civil servants, high reliance on government spending to drive credit growth, as well as a large proportion of government and GRE deposits.
BM's senior unsecured EMTN programme and debt ratings are rated in line with its IDRs and are therefore driven by the same factors that drive its IDRs.
HBON
HBON's IDRs and SSR are driven by Fitch's expectation of a moderate probability of support available to the bank from its ultimate parent,
HBON's Long-Term IDR is capped by
HBON's VR reflects the bank's adequate franchise and business model benefiting from its links with
BD
BD's IDRs are driven by its VR. The VR reflects its strong franchise as well as reasonable capitalisation and funding. BD is the second-largest bank in
NBO
NBO's IDRs are driven by its VR. The bank's VR reflects NBO's strong franchise and well-balanced business model, as well as reasonable capitalisation and funding. NBO is the third-largest bank in
SIB
SIB's Long-Term IDR is driven by its VR and is underpinned by potential support from the Omani authorities. The bank's VR reflects its sound market shares, particularly in corporate banking, and strong government links, with the latter adding to its business flows and supporting its deposit-gathering ability. It also reflects a more concentrated business model compared with some peer banks, single name and sector concentrations exposing the bank to event risk, and only moderate capital buffers.
SIB has started the process to merge with
ABO
ABO's Long-Term IDR is driven by its VR and is underpinned by potential support from the Omani authorities. ABO's VR reflects its more limited franchise than peers, with a smaller albeit growing branch network, weaker capitalisation and funding profile than peers, and high concentrations on both sides of its balance sheet, exposing the bank to event risk.
GSR
The sovereign's ability to support the banking system has moderately improved, as reflected by its recent upgrade, but remains limited, in Fitch's view. The sovereign's net foreign assets remain negative and are expected to turn marginally positive in 2022, after deteriorating dramatically to -9% of GDP in 2020 from 53% in 2014. In addition, medium-term funding requirements remain sizeable and
Nonetheless, Fitch believes the Omani authorities' propensity to support the banking sector 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.
BD, NBO, SIB, ABO
Fitch considers these four banks to be D-SIBs and their GSRs are therefore in line with the Omani D-SIB GSR of 'b+'.
BM
Given its flagship status in
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Unless stated, the negative sensitivities are as outlined in the RACs referenced above.
BM
IDRs
A downgrade of the sovereign rating and in turn the operating environment score would lead to a downgrade of BM's VR and therefore its Long-Term IDR. This is not our base case given the recent upgrade of the sovereign rating.
The senior unsecured EMTN programme and debt ratings are rated in line with the bank's IDRs and are therefore subject to the same sensitivities.
GSR
BM's GSR is sensitive to a negative change in Fitch's view of the creditworthiness of the Omani authorities or on their propensity to support the banking system or the bank. This is not currently anticipated given the recent upgrade of the Omani sovereign rating.
HBON
IDRs
HBON's Long-Term IDR and SSR are sensitive to a negative change in Fitch's view of
A downgrade of the sovereign rating would likely lead to a downgrade of HBON's IDRs. This is unlikely given the recent upgrade.
ABO, SIB, BD, NBO
IDRS, GSRs
Given that ABO's and SIB's VR and GSR are at the same level, a downgrade of these banks' Long-Term IDRs would result from a downgrade of their GSRs and a downgrade of their VRs. ABO's and SIB's GSR are sensitive to a negative change in Fitch's view of the creditworthiness of the Omani authorities and on their propensity to support the banking system or the banks.
BD's and NBO's IDRs are sensitive to a downgrade of their VRs. BD's and NBO's GSR are sensitive to a negative change in Fitch's view of the creditworthiness of the Omani authorities and on their propensity to support the banking system or the bank.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
BM
IDRs, VR
As BM's VR and IDRs are capped at the sovereign rating, positive rating action would require an upgrade of the sovereign rating and in turn of the operating environment score, while maintaining strong financial metrics.
GSR
An upgrade of BM's GSR would be driven by an upgrade of the sovereign rating. However, this is not our base case scenario given the recent upgrade. Further improvement in the sovereign's balance sheet through lower levels of debt and higher sovereign net foreign assets could see a narrowing of the notches between the sovereign and the GSR.
HBON
IDRs
An upgrade of
VR
An upgrade of HBON's VR would require further improvement in the bank's asset quality while maintaining reasonable profitability and capitalisation.
NBO and BD
IDRs
An upgrade of NBO's and BD's VR and therefore IDRs would require further improvements in the banks' financial profiles, in particular asset quality, profitability, and capitalisation.
ABO and SIB
IDRs
An upgrade of ABO's IDR could come from an upgrade of its GSR or an upgrade of its VR.
SIB
An upgrade of SIB's IDR could come from an upgrade of its GSR or an upgrade of its VR. The latter could stem from a strengthening of its business profile and financial profile, which could come from the merger with
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
BM's senior unsecured debt ratings are aligned with its IDR as they represent unconditional, unsubordinated and unsecured obligations of the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
BM's senior unsecured debt ratings are sensitive to changes in its IDR.
VR ADJUSTMENTS
The Operating Environment score of 'bb' has been assigned below the 'bbb' category implied score for
HBON's Business Profile score of 'bb-' has been assigned above the 'b' category implied score due to the following reason: Group Benefits and Risks (positive).
Other VR adjustments are as outlined in the previous RAC on each bank, as 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 '
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
HBON's IDRs are linked to
The GSRs of BM, BD, NBO, SIB, and ABO are linked to the Omani 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, visit www.fitchratings.com/esg
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