Moody's affirms ratings of seven Omani banks and changes their outlook to positive

The change in outlook from stable is in line with the sultanate's sovereign ratings

Bank Muscat is among lenders whose credit line assessment was reaffirmed by Moody's. Photo: Silvia Razgova / The National

Moody's Investors Service has affirmed the baseline credit assessments (BCAs) of seven Omani lenders and changed their outlook to positive in line with the sultanate’s sovereign credit ratings.

The affirmation of the banks' BCAs reflects that the lenders’ financial fundamentals “remain compatible with the current level of their BCAs following the affirmation of the sovereign ratings”, Moody’s said in a note on Tuesday.

“In the case of two banks, Bank Muscat and HBON [HSBC Bank Oman], their BCAs are in fact constrained at the level of the sovereign rating and these could be upgraded in the event of a sovereign rating upgrade,” the rating agency said.

Moody’s last week affirmed its Ba3 rating of Oman and changed its outlook to positive from stable as higher oil prices signal further improvement in the sultanate’s economy.

Bank Muscat, HBON, National Bank of Oman, Bank Dhofar, Oman Arab Bank, Sohar International Bank and Bank Nizwa are among the lenders in the sultanate whose outlooks were changed to positive from stable.

The rating agency said the affirmation of the Omani lenders' deposit ratings reflects Moody's unchanged opinion regarding the government's willingness to provide support to banks in case of need.

The likelihood of government support remains “high or very high, depending on the bank”, which reflects the importance of the country's banks in the domestic financial system and the significant government shareholdings and deposits in several financial institutions, Moody's said.

Oman’s economic recovery is gaining traction, supported by a revival of the hydrocarbon sector and the relaxation of Covid-19 restrictions, the International Monetary Fund said this week.

The economy is set to expand 4.3 per cent in 2022, supported by continued recovery of non-hydrocarbon economic activity, according to the fund.

The sultanate’s gross domestic product growth rebounded to 3 per cent last year, after a 3.2 per cent contraction in 2020.

Although Moody's expects oil prices to remain volatile and eventually decline, it expects crude prices to remain elevated for the next two years.

Oman’s non-oil economy has also bounced back strongly from the pandemic-driven slowdown that has eased operating conditions for lenders, who, like their GCC peers, are seeing a rise in profitability amid rising interest rates.

The country’s continued focus on expanding its non-oil economic base to cut its dependence on hydrocarbons is also expected to open up new business avenues for lenders in Oman.

The country, which recorded a budget surplus of 784 million rials ($2 billion) in the first half of this year on a more than 54 per cent jump in revenue to 6.72bn rials, aims to bring in more than 9bn rials a year from tourism by 2040 alone, according to government data released in August.