The board of directors of Bank Sohar in January approved that the bank shall increase its capital by RO40mn by way of rights issue in 2018. On April 1, Bank Sohar announced that its shareholders had approved an increase in the bank’s authorised capital to RO400mn from RO200mn at an extraordinary general meeting.
‘The higher authorised capital will allow the bank this year to complete a RO40mn rights issue that will increase its capital buffer by around 150 basis points, a credit positive. The rights issuance will also support the bank’s liquid resources amid a relatively tight funding environment in Oman’, Moody’s said in an issuer comment report.
Moody’s estimates that the rights issuance will strengthen Bank Sohar’s regulatory tier-1 capital ratio to around 15.4 per cent on a pro forma basis, from 13.9 per cent as of year-end 2017. The 15.4 per cent tier-1 capital ratio would exceed the 11.5 per cent minimum (including a capital conservation buffer) that the Central Bank of Oman will impose at the beginning of next year as part of its gradual implementation of Basel III capital requirements, it said.
‘The additional capital also will support the bank’s loan growth, which we expect will be around seven per cent in 2018, lower than in previous years owing to slower economic growth in Oman. The issuance increases the bank’s loss-absorption buffers amid a weakening operating environment as subdued economic growth and fiscal consolidation affect the creditworthiness of corporate and retail borrowers’, Moody’s said.
It added that the rights issuance will also support Bank Sohar’s modest liquidity buffers in the tight domestic funding environment. ‘The bank’s liquidity buffers are relatively modest, especially considering its high reliance on market funding and its funding concentration. As of
December 2017, Bank Sohar’s liquid assets were 21.5 per cent of tangible banking assets, in line with local peers, and market funds/tangible banking assets were a high 26.3 per cent, versus 11.5 per cent for local peers’, the ratings agency said.
According to Moody’s, Bank Sohar’s total assets of RO2.8bn as of December 2017 constituted a nine per cent market share in Oman by assets.