Fitch Ratings has affirmed Bank Dhofar’s (BD) long-term issuer default rating (IDR) at ‘BBB+’ and viability rating at ‘bb+’. The outlook on the long-term IDR is stable.
“BD’s long- and short-term IDRs reflect the high probability of support from the Omani authorities given the Central Bank of Oman’s (CBO) strong history of support and BD’s systemic importance as Oman’s third-largest bank by assets. BD is 28%-owned by the government through its pension funds. BD’s Viability Rating reflects its strong franchise, healthy profitability and adequate liquidity. It also reflects its high concentration on both sides of the balance sheet and overreliance on wholesale customer deposits,” Fitch explained.
“In 1H11, BD had a one-off expense of OMR26.1m due to a ruling on a legal dispute favouring Oman International Bank. As a result, the bank reported a net loss of OMR4.6m in 1H11. The legal dispute is still ongoing and the final ruling is still uncertain. Excluding this one-off expense, operating income remained stable y-o-y. Fitch expects BD’s revenue and loan growth to increase moderately in the short-term underpinned by government spending,” it added.
“Asset quality has stabilised. BD’s NPL ratio remained flat for the past year and a half at around 4.7%. Similar to other banks in Oman, BD’s NPL ratio is inflated by the large portion of interest in suspense. Excluding interest in suspense, the NPL ratio would equal 2.6% at end-H111, which is acceptable. Given the improving economic environment in Oman, Fitch expects asset quality to improve in the medium term. Funding was highly concentrated by name at end-2010. The largest deposits were mainly from government and pension funds, which Fitch believes are sticky. Despite the high loan/deposit ratio of 111% at end 1H11, BD is closely managing its asset and liabilities mismatch which improved its liquidity position,” it said.
“Capital adequacy ratios declined mainly due to the net loss in H111 but remained adequate for the risks the bank is taking.”