(The following statement was released by the rating agency)
Aug 09 - Fitch Ratings has affirmed Bank Dhofar's (BD) Long-term Issuer Default
Rating (IDR) at 'BBB+' with a Stable Outlook and Short-term IDR at 'F2'. Simultaneously, the
agency has downgraded BD's Viability Rating (VR) to 'bb' from 'bb+'. A full list of rating
actions is at the end of this rating action commentary.
RATING DRIVERS AND SENSITIVITIES - IDRs, SUPPORT RATING AND SUPPORT RATING FLOOR
BD's IDRs, Support Rating and Support Rating Floor reflect the high probability
of support from the Omani authorities, in case of need, given the government's
strong supportive stance towards the domestic system and the bank's systemic
As the IDRs are at their Support Rating Floor, they would be sensitive to
changes in Fitch's perception of the willingness or ability of the state of Oman
to support BD
RATING DRIVERS AND SENSITIVITIES - VR
The downgrade of the VR reflects Fitch's expectation that the bank's
capitalisation will continue to weaken because of the forecast high loan growth,
with only moderate internal capital generation. Furthermore, BD's capitalisation
has to be considered in the context of high borrower concentrations, which
exposes the bank to significant event risk. Despite the downward trend, the
bank's regulatory capital ratios remain above CBO requirements.
Excluding a large one-off charge in 2011, operating profitability remained
stable in 2011. With a cost/income ratio of 42% at end-Q112, expenses remain
well controlled compared with peers.
BD's asset quality improved in 2011, as the bank's NPL ratio fell to 3.6% and
the level of restructured loans moderated. However, strong loan growth in recent
years gives rise to a high and increasing proportion of unseasoned loans on BD's
book. BD's relatively high real estate exposure could also put some pressure on
Customer deposits accounted for a high 90% of non-equity funding at end-H112 but
are highly concentrated, with the 20 largest depositors accounting for 58% of
the total. The largest deposits were mainly from the government and government
pension funds, which have proven sticky in the past, but also link the
robustness of the bank's funding profile to the Omani sovereign.
Fitch believes the bank's VR remains sensitive to greater than expected pressure
on capital, deriving from its expansion strategy during a period when the
government of Oman is increasing spending. On the other hand, a reversal in
capital trends, combined with a permanent reduction in risk concentrations could
result in an upgrade in the VR.
The rating actions are as follows:
Long-term foreign currency IDR affirmed at 'BBB+'; Outlook Stable
Short-term foreign currency IDR affirmed at 'F2'
VR downgraded to 'bb' from 'bb+'
Support Rating affirmed at '2'
Support Rating Floor affirmed at 'BBB+'