Muscat: Fitch Ratings has affirmed ahlibank's long-term Issuer Default Rating (IDR) at 'BBB+' with a Stable Outlook. The Viability Rating (VR) has been affirmed at 'bb+.' ahlibank'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. The bank could also look for support from its 35 per cent-stakeholder Ahli United Bank, Bahrain, although this is not currently factored into the ratings.
The VR reflects ahlibank'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 the bank'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 ahlibank'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 in the first quarter of 2013, driven by healthy core earnings and good cost control. Performance is supported by net interest income, which benefited from stronger business volumes. The bank has one of the lowest cost/income ratios in the sector (30 per cent in the first quarter of 2013), 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 ahlibank's other shareholders, hence Fitch considers them to be stable, mitigating liquidity risk. In addition, the bank'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 per cent at end-2012, with a Tier 1 ratio of 13.5 per cent.
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 ahlibank is able to continue developing its franchise, while maintaining sound asset quality.