Fitch Ratings has assigned Alinma Bank (Alinma) a Long-term Issuer Default Rating (IDR) of ‘A-‘ with a Stable Outlook, a Short-term IDR of ‘F2’, a Viability Rating (VR) of ‘bbb-‘, a Support Rating of ‘1’ and a Support Rating Floor of ‘A-‘.
Alinma’s IDRs, Support Rating and Support Rating Floor reflect Fitch’s view that there would be an extremely high probability of support from the Saudi authorities, if needed. Fitch’s opinion of support considers the authorities’ strong record of support for the Saudi banking system as well as their strong ability and willingness to support domestic banks. Fitch has also considered the state’s indirect 30.7% stake in Alinma and clear mandate for the bank in its ratings.
Any change in Fitch’s view of the willingness or ability of the Saudi authorities to support Alinma would be negative for its IDRs and its Support Rating and Support Rating Floor.
Alinma’s VR reflects its high capital ratios, good liquidity position, solid customer funding, improving profitability, lack of legacy problem assets as well as its clear strategy, capable management and the benefits of operating in a buoyant economy. The VR also considers risks to the bank associated with rapid loan growth, concentrations on both sides of the balance sheet, liquidity mismatch and short track record.
The VR is contingent on the bank maintaining strong capital ratios and would be sensitive to a quicker than expected decline of its core capital ratios. Fitch believes high capitalisation is considered necessary to maintain an investment grade rating given the bank’s potential sensitivity to concentration risk as well as its rapid growth strategy. The VR is also contingent on Alinma maintaining sound asset quality as well as diversifying the business and lending profile as the bank grows. A sharp rise in impairments and fall in profitability could also pressure the VR. Failure to diversify funding sources and satisfactorily address asset/ liability maturity mismatches over time could also pressure the VR.
Upside potential for the VR is limited in the short term given the bank’s short track record. A longer track record demonstrating achievement of stated strategies and forecasts as well as maintaining and improving key VR drivers would be required for an upgrade.
Alinma Bank started operations in 2008 as a joint stock company and offers Sharia-compliant retail and corporate Islamic banking across Saudi Arabia. Alinma accounted for 3% of total banking assets in Saudi at end-9M12. Alinma’s growth plans envisage the bank developing into a large universal bank, which is underpinned by the bank’s substantial capital base.
Alinma’s founding shareholders include three Saudi Arabian government entities (30.7%): the Public Pension Agency (PPA) 10.7%, Public Investment Fund (PIF) 10% and the General Organisation for Social Insurance (GOSI) 10%. The remaining shares are listed on the Saudi Arabian stock market and are widely held following the bank’s IPO in 2008.
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