|23 May, 2019

Higher capital adequacy requirements weigh on Omani banks' profitability

Omani banks' earnings have been "somewhat lackluster," analyst says

Image for illustrative purpose only. An investor works on his computer above the trading floor of the Muscat Securities Market (MSM) in the Commercial Business District of Ruwi in Muscat

Image for illustrative purpose only. An investor works on his computer above the trading floor of the Muscat Securities Market (MSM) in the Commercial Business District of Ruwi in Muscat

REUTERS/STR New

Omani banks reported uninspiring first quarter (Q1) earnings for the current year, with profitability eroded by higher capital adequacy requirements, an analyst told Zawya.

“Earnings have been somewhat lacklustre,” Ayisha Zia Hassan Naseer, research analyst at Ubhar Capital, told Zawya by email on Thursday.

Bank Muscat, NBO (National Bank of Oman), HSBC, and Ahli Bank met our Q1’19 forecasts for net profit. BKDB (Bank Dhofar) missed our estimate by about 7 percent. Sohar International beat our estimate by a whopping 24 percent on lower provisions,” she added.

Bank Muscat’s Q1 2019 net profit rose 2.21 percent year-on-year (Read more here). NBO’s net profit dropped 0.8 percent, HSBC Bank Oman’s net profit was flat and Ahli Bank Oman’s earnings rose 4.22 percent (Read more here).

BKDB’s Q1 2019 net profit dropped 7.36 percent, while Sohar International Bank’s profit rose 14.61 percent.

“We believe that Oman banks have shown resilience in terms of maintaining profitability in spite of headwinds. However, higher capital adequacy requirements in the recent years as mandated under the Basel II and Basel III programmes have eroded profitability,” Naseer said.

The capital adequacy ratio (CAR) measures a bank's capital in relation to its risk-weighted assets. The minimum CAR as of 2019, under Basel III, has been set at 8 percent for banks. The Central Bank of Oman had set in 2018 the minimum CAR for banks at 11 percent.

“Credit growth is expected to remain at about 6 percent for the sector. Some banks with stronger risk appetite and capital to support will continue to outpace sector growth,” She said.

A Thomson Reuters index of Omani listed banks has dropped 2.18 percent so far since the start of 2019, data from Eikon shows.

(Reporting by Gerard Aoun; Editing by Michael Fahy)

(gerard.aoun@refinitiv.com)

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© ZAWYA 2019

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