Fitch upgrades HSBC Oman to A+; outlook negative

Fitch Ratings has upgraded HSBC Bank Oman’s (formerly Oman International Bank) long-term issuer default rating (IDR) to A+ from BBB+.

The IDRs have been upgraded following the completion of the merger of Oman International Bank (OIB) and HSBC Bank Middle East’s (HBME) Oman operations. The combined entity, renamed HSBC Bank Oman SAOG (HBON) is 51% owned by HBME, an indirect wholly owned subsidiary of HSBC Holdings Plc (HSBC; ‘AA’/Negative/’F1+’). Fitch therefore considers potential support for HBON from its ultimate parent, HSBC.

The outlook has been revised to negative because of the negative outlook on HSBC’s long-term IDRs rating.

HBON’s IDRs and Support Rating are driven by Fitch’s belief that there is an extremely high probability that support would be provided by HSBC if required – as defined by the Support Rating of ‘1’ given HSBC’s strong commitment to the region. HBON’s ratings are therefore sensitive to a change in Fitch’s assumptions around the propensity or ability of HSBC to provide timely support to HBON.

Fitch has withdrawn the Support Rating Floor as HBON’s IDRs and Support Rating are driven by institutional support rather than sovereign support which had been the case for OIB.

The Viability Rating (VR) reflects HBON’s larger balance sheet post-merger, diverse earnings and healthy capitalisation. The VR also considers operational risks from the merger as well as the potential for HBME to recognise new problems in OIB’s loan book following a review based on HSBC group standards. Fitch has affirmed the VR and expects to undertake a full review of the new entity in early 2013.

“There is strong potential for the VR to rise over the longer term to reflect the significant benefits ensuing from being part of HSBC and the competitive and structural advantages this provides. To date, HBON has signed a technical services agreement with HSBC and shares common branding. Furthermore HSBC staff has taken several board and key management positions in the new entity, ensuring overall control,” Fitch in a statement said.

“Downside risk to the VR could arise from asset quality weakening faster than anticipated by Fitch. Furthermore, any significant operational risks affecting the bank’s performance and prospects or any failure to generate merger synergies could lead to a downgrade,” it added.

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