Fitch Ratings has affirmed Oman-based Ahli Bank SAOG’s (ABO) ratings. A full list of rating actions is at the end of this comment.
ABO’s IDRs and Support Rating reflect Fitch’s view of the potential support available from the Omani authorities, in case of need, given the government’s strong history of support and the bank’s systemic importance. Fitch also considers a high level of support from ABO’s 35% shareholder Ahli United Bank, Bahrain (AUB).
ABO’s Viability Rating reflects the bank’s new commercial focus and the ensuing rising profitability and sound asset quality but high balance-sheet concentrations. 2010 operating profit rose by 66% yoy to OMR16m – a trend that continued into 1H11 – with profitability increasing by 23% (annualised). Non-performing loans (NPLs) increased slightly to (a still low) 0.6% of the gross loan portfolio at end-H111, with a reserve coverage level of 265% (including collective impairment reserves).
The Viability Rating also considers ABO’s funding profile. ABO is mainly funded by customer deposits (88% of non-equity funding at end-H111), the majority of which are regarded by the bank as stable.
ABO has managed to obtain more low cost retail deposits, while pension funds continue to account for a key share of total customer deposits. The bank now seeks to further diversify its funding sources, in turn reducing funding costs and maintaining a more stable deposit base.
Notwithstanding the reorganisation of operations and branch expansion, operating costs have remained well controlled, with the cost/income ratio trending downwards in H111 to 29% (2010: 35%) – one of the lowest in the sector.
The liquidity position is comfortable and, if required, ABO can draw on committed lines from AUB (OMR25m) and other banks. ABO recently boosted Tier II capital through an OMR40m subordinated debt issue.
“Capitalisation is acceptable at present. The capital adequacy ratio stood at 17.9% at end-H111, comfortably above the national minimum requirement of 12%. However, ABO’s Tier 1 ratio declined moderately to 12.3% at end-H111 on the back of higher risk weighted assets as the bank expanded its balance sheet. The Fitch core capital ratio stood at 13.1% at end 1H11. In addition, ABO’s Viability Rating is enhanced by relatively strong management, good risk management systems and practices ensuing from the entity being part of the AUB group,” Fitch added.