Bank Muscat rating affirmation underscores stable Oman banking conditions

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Bank Muscat rating affirmation

Highlights

Fitch affirms Bank Muscat's Long-Term Issuer Default Rating at 'BBB-' with Stable Outlook, citing strong standalone strength and government support.
Bank Muscat retains sector dominance with 31% of assets, 32% of loans, Stage 3 ratio at 3.6%, CET1 at 14.1%, and robust liquidity and profitability metrics at end-H1 2026.
Fitch notes that rating upgrades or downgrades hinge on shifts in Oman's sovereign rating, asset quality (Stage 3 above 4%), and CET1 ratio falling below 13%.

Rating drivers and financial profile

As reported by Fitch Ratings, Bank Muscat SAOG's Long-Term Issuer Default Rating remains at 'BBB-' with a Stable Outlook, while its Viability Rating stays at 'bbb-'. The agency says the long-term rating is driven by the bank's standalone strength and supported by the potential for assistance from Omani authorities.

Fitch says Bank Muscat's credit profile reflects its leading position in Oman, giving it access to higher-quality borrowers and significant funding from the government and state-related entities. The agency also points to stable asset quality, profitability stronger than domestic peers, reasonable capital buffers, solid funding and healthy liquidity.

The bank holds about 31% of sector assets, 32% of loans and 30% of deposits at the end of the second quarter of 2026, reinforcing its dominant franchise in Oman. Fitch says the lender benefits from strong government links, long-standing customer relationships and the country's largest branch network, factors that support pricing power and a low-cost funding base.

Fitch describes Bank Muscat's risk profile as closely correlated with that of the Omani sovereign, with lending focused on lower-risk retail customers, government-related entities and leading domestic corporates. Retail lending accounts for 39% of gross loans at end-first half 2026, while exposure to real estate and construction stands at 5%, and loan growth reaches a moderate 6.1% in the first half.

Asset quality remains stable, with the Stage 3 loans ratio at 3.6% at end-first half 2026, the lowest among domestic peers, while specific reserve coverage of impaired loans stands at 87%. Fitch forecasts these metrics to remain stable in 2027 and says profitability continues to lead the Omani banking sector, with operating profit at 2.6% of risk-weighted assets in the first half and a net interest margin of 3.2%.

Capitalisation also remains sound, with a common equity Tier 1 ratio of 14.1% at end-first half 2026, above the regulatory minimum. Fitch expects the CET1 ratio to remain in the 14.5% to 15% range, while customer deposits account for 83% of total non-equity funding and liquidity metrics include a liquidity coverage ratio of 216% and a net stable funding ratio of 112% at end-second quarter 2026.

Support assumptions and rating triggers

Business conditions for Omani banks remain favorable, supported by high oil prices and the government's Vision 2040 diversification program, Fitch says. The agency expects the effect of the Iran war on the operating environment to remain contained, particularly because Oman is the Gulf Cooperation Council country most insulated from the conflict.

Fitch also assigns a high probability of government support to the banking system because of contagion risks and the sector's importance to the domestic economy. Still, it says the state's financial flexibility remains only moderate despite recent improvement, and Bank Muscat's Government Support Rating of 'bbb-' sits one notch above the 'bb+' assigned to other domestically systemic banks because of its exceptionally high systemic importance.

A downgrade of the bank's long-term rating would require both the Viability Rating and the Government Support Rating to be lowered, which could follow a sovereign downgrade. Fitch says the standalone rating could also come under pressure if asset quality weakens materially, with the Stage 3 ratio rising above 4%, and if the CET1 ratio falls below 13% on a sustained basis.

An upgrade of the long-term rating may follow a sovereign upgrade, which would also support an improvement in the Government Support Rating. Fitch says a higher Viability Rating would require a further improvement in Oman's operating environment while the bank maintains its current financial metrics.

We have previously detailed how geopolitical shocks and elevated public spending are straining sovereign ratings in a higher-rate environment.

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