Citigroup has downgraded Bank Muscat to "hold" from "buy", citing the significant rise in the company's stock price over the past 12 weeks and on concerns related to the outlook for asset quality.

The downgrade follows the Omani lender's disclosure that it has exposure to two struggling Saudi business groups Saad Group and Ahmad Hamad AlGosaibi andBrothers Co (Ahab).

The brokerage reduced its earnings-per-share estimates by 12 per cent for 2009 and by one per cent for 2010 to reflect higher forecast for non-performing loans for Bank Muscat due to the disclosure. Citigroup, however, raised its price target on the stock to $8.12 from $7.80, citing the potential gain from Bank Muscat's sale of its remaining 0.5 per cent holding in India's HDFC Bank.

Separately, NBK Capital maintained its "buy" rating on Bank Muscat, saying the bank is currently undervalued and its long-term growth prospects remain strong.

However, it cautioned against short-term pressure on the stock price.

In another development, Bank Muscat, Oman's biggest lender, said it raised OR7.9 million (Dh75.2m) from an auction of certificate of deposits on June 15.

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Citi downgrades Bank Muscat to 'hold' from 'buy'