Fitch Ratings has affirmed Oman-based Ahli Bank SAOG’s (ABO) long-term issuer default rating (IDR) at BBB+ with a stable outlook. The Viability Rating (VR) has been affirmed at ‘bb+’.
ABO’s IDRs, Support Rating and Support Rating Floor reflect Fitch’s view of the high probability of support from the Omani authorities, if required, given the government’s strong supportive stance towards the domestic banking system.
These ratings are sensitive to a change in Fitch’s view of the willingness or ability of the Omani state to provide support.
The VR reflects ABO’s sound and consistent profitability, strong cost efficiency especially in the local context and good asset quality, which compares well with the bank’s peers. It also takes into account ABO’s close integration with, and importance to, the AUB group, benefiting it from both a business and a risk management perspective. This is to some extent offset by ABO’s growing but still relatively small size, and fairly high concentrations on both sides of the balance sheet (although these are in line with or lower than those of its peers in the region).
Operating profit continued to rise strongly in 2012 and Q113, driven by healthy core earnings and good cost control. Performance is supported by net interest income (NII; the main contributor to earnings), which benefited from stronger business volumes. ABO has one of the lowest cost/income ratios in the sector (30% in Q113), which it will endeavour to maintain.
Funding mainly comprises customer deposits, the majority of which are institutional. Accordingly, depositor concentration, although falling, is very high. However, larger deposits are mainly from cash-rich government and related entities and ABO’s other shareholders, hence Fitch considers them to be stable, mitigating liquidity risk. In addition, ABO’s liquidity position is supported by committed credit lines, including from the AUB group, and a moderate stock of liquid assets. Capital adequacy is adequate and compares well with that of domestic peers. The Fitch core capital ratio was 14.7% at end-2012, with a Tier 1 ratio of 13.5%.
The VR is sensitive to any weakening of capitalisation, or deterioration of the bank’s asset quality, neither of which Fitch considers to be likely. An upgrade would be possible if ABO is able to continue developing its franchise, while maintaining sound asset quality.
AUB is based in Bahrain, where it is the third-largest domestic operation. The group also has extensive operations outside Bahrain. Aside from Oman these are mainly Kuwait and the UK and also Egypt. The State of Kuwait (AA/Stable), through the Public Institution for Social Security, is AUB’s largest shareholder with an 18.5% stake.