Fitch Ratings has affirmed Saudi Arabia-based The Saudi Investment Bank’s (SAIB) Long-term Issuer Default Rating (IDR) at ‘A-‘, Short-term IDR at ‘F2’,Viability Rating (VR) at ‘bbb-‘, Support Rating at ‘1’ and Support Rating Floor at ‘A-‘. The Outlook for the Long-term IDR is Stable.
SAIB’s IDRs are support-driven and reflect Fitch’s belief that there is an extremely high probability of support from the Saudi authorities if ever required, given its systemic importance and the state’s indirect 38.8% stake in the bank.
Fitch believes that the Saudi authorities have the willingness and ability to support the banking sector. SAIB’s IDRs are therefore sensitive to any changes in Saudi Arabia’s sovereign ratings (‘AA-‘/Stable) and Fitch’s view of support in the Kingdom.
The VR reflects SAIB’s good corporate franchise, comfortable balance sheet liquidity and strong capitalization. The rating is constrained by high lending concentrations, the relatively high non-performing loan (NPL) ratio and still weak revenue generation as the new retail and SME-focused strategy is being deployed. The rating is sensitive to any delay in SAIB addressing issues surrounding weak earnings and asset quality, specifically in further reducing risk concentrations in lending.
High, albeit improving, single name borrower concentration in the loan book remains negative for the VR, although Fitch recognizes that SAIB successfully reduced some of its largest loans in 2011 as a key part of its strategy. SAIB’s NPL ratio rose to 6.1% at end-2011, which is high by Saudi standards, although 90% of its total NPLs relate to a single problem loan, highlighting Fitch’s concerns about concentration risks. If past due (over 90 days) but not impaired loans, which increased YOY, are added to NPLs, the NPL ratio would rise to around 8%, which in Fitch’s opinion is a better reflection of asset quality. Any further deterioration in asset quality could also be negative for its VR.
The bank is well funded by customer deposits, although it attracts a lower proportion of lower cost current and savings deposits due to its small, but growing, retail franchise. Fitch remains comfortable with SAIB’s liquidity position given its manageable loans/deposits ratio and sizeable holdings in liquid assets (primarily Saudi government bonds).
SAIB is solidly capitalized with a Fitch core capital ratio of 19% at end-2011, which provides a strong defense against the concentration risks in its lending. Fitch expects current capital ratios to be maintained.
Established in 1976, to provide medium term financing for local industrial corporates, SAIB is now a full service bank with 48 domestic branches. The franchise is complemented by several subsidiaries and associates offering financial services. Listed on the Saudi stock market, the state (via three public agencies) is the largest shareholder.
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