Moody’s affirms seven Omani banks' ratings and changes outlook to stable

Moody's Investors Service affirmed the deposit ratings of seven Omani banks and changed the outlook to stable from negative on Monday, saying the action reflected its expectation of continued improvements in the lenders’ operating environment.

Moody's said it affirmed the long-term local and foreign currency deposit ratings of Bank Muscat, HSBC Bank Oman, Bank Dhofar, National Bank of Oman, Sohar International Bank, Oman Arab Bank and Bank Nizwa.

Moody's also affirmed the Baseline Credit Assessments (BCAs) and Adjusted BCAs of the seven Omani banks.

The rating agency highlighted the affirmation of the Omani government’s Ba3 issuer rating and change in outlook to stable from negative as a basis for its action on the banks.

This, Moody’s said, reflects a large reduction in external vulnerability and government liquidity pressures, mainly as a result of significantly higher oil prices since the middle of 2020, and its expectation that oil prices will average above $60 a barrel during the next several years, increasing the likelihood that these pressures will remain contained.

Higher oil prices and continuing implementation of the government's medium-term fiscal adjustment programme will also underpin a steady decline in the direct government debt burden to the pre-pandemic level, according to Moody’s.

Oman's economy is projected to grow by 2.5 per cent this year after a contraction of 2.8 per cent in 2020, the International Monetary Fund said last month.

The affirmation of the Omani government's Ba3 ratings reflects Moody's view that Oman's structural vulnerability to potential future declines in oil demand and prices will remain high, exposing the sovereign to reversals of the expected improvements mentioned beforehand and to a sudden re-emergence of government liquidity and external vulnerability pressures, the rating agency said.

Moody's said it expects that the government's willingness to provide support to banks in case of need will remain high or very high, depending on the bank, reflecting the importance of the country's banks in the domestic financial system and the significant government shareholdings and deposits in several banks.

It noted that downward pressure on Omani banks' ratings could develop through a deterioration in the sovereign's credit profile, or a material deterioration in the banks' solvency and liquidity.