OIB's foreign currency long-term ratings upgraded

Capital Intelligence (CI), the international credit rating agency, yesterday announced that it has raised Oman International Bank's (OIB) foreign currency long-term and short-term ratings to BBB+ and A2 respectively, from BBB and A3.

The rating upgrade reflects CI's increased confidence that government support for the local banking sector will be high in case of need. The support rating is unchanged at 3 since ownership is largely in private hands. The financial strength rating is affirmed at BBB. The ratings reflect the bank's sizeable retail customer franchise, good liquidity, high capital adequacy ratio and sound earnings profile.

The bank's first half results showed a decline in net profit, but full year results are expected to improve on the back of strong recoveries and provision write-backs. The credit environment continues to be challenging - this could raise the risk provision charge this year. Other financial ratios in the first half of this year were good. A stable outlook has therefore been assigned to all the ratings.

Government spending
The economic slowdown and reduced demand from the private corporate sector led to a decline in OIB's net loans in 2009 and in the first half of 2010. In earlier years, the bank's conservative and cautious stance led to a much slower growth of its funded corporate credit portfolio compared to peers.

For the banking sector, opportunities to lend are likely to grow over the coming quarters as the pace of government spending on infrastructure and other projects increases. OIB has adequate capital to support a larger balance sheet and it is in a strong position compared to other local banks to expand its loan assets given its very good liquidity, which is far better than the industry average.
The bank also enjoys the lowest funding cost among local banks, which provides it with the option of offering competitive pricing to attract business. OIB's asset quality ratios are satisfactory, although key ratios weakened slightly last year with the increase in non-performing loans (NPLs).

The bank's profitability continues to be good, but the operating profit to average total assets ratio has declined over the years. Net profit fell last year due to substantially lower recoveries of previously provided NPLs and increased provision charges, which nevertheless continued to be low compared with peers.

Risk provision
In fact, OIB's risk provision charges have been low for several years, underpinning its good profitability. The bank's remedial management department has made contributions to its net profit over the years through high recoveries.

OIB was established in 1984. With total assets of $2.59 billion at end 2009, it is the fourth largest bank in the country.

The bank has the second largest branch network in Oman with 83 branches. It also operates the country's largest independent ATM network. The bank offers a wide range of products and services to companies and individuals. It is one of the largest issuers of credit cards in the country. Customers include multinational enterprises active in Oman and the Gulf, as well as leading local contracting, manufacturing and trading companies.