Global Arab Network | Fitch Affirms Saudi-based Riyad Bank Rating with Stable Outlook

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Fitch Affirms Saudi-based Riyad Bank Rating with Stable Outlook

Global Arab Network - - Rabih Serrai

Monday, 07 March 2011 21:52

Fitch Ratings has affirmed Saudi Arabia-based Riyad Bank's (RB) Long-term Issuer Default Rating (IDR) at 'A+' with a Stable Outlook, Global Arab Network reports according to a press statement. The agency has also affirmed RB's Short-term IDR at 'F1', Individual Rating at 'B/C', Support Rating at '1' and Support Rating Floor at 'A+'.

RB's Long- and Short-term IDRs and Support Rating reflect the extremely high probability that support would be forthcoming from the Saudi authorities in case of need, given the bank's large franchise and the state's substantial (indirect) ownership. The Individual Rating reflects the bank's strong commercial franchise, consistent profitability and healthy capitalisation. It also reflects RB's concentrations in loans and deposits.

In recent weeks, there has been a marked increase in political risk in the Middle East and North Africa region. While there has not been any particular unrest in Saudi Arabia to date, the agency will be monitoring developments, which could have a negative impact on Saudi ratings in the future.

RB's profitability and performance ratios continued their slight downward trend in 2010. Margins came under pressure, reflecting lower interest rates and increasing competition. The bank was also affected by significantly higher loan impairment charges, although these were largely offset by a marked improvement in investments (both net gains and a reversal of earlier impairment charges). Fitch expects improved growth in Saudi Arabia's economy in 2011, which should assist growth in business volumes. RB's strong franchise and large customer base will ensure profits from its core banking businesses are sufficient to absorb any additional loan impairment charges, if any sizeable loan impairments arise in the future.

Asset quality indicators remain sound to date. Non-performing loans increased in 2010 to 1.7% of gross loans (end-2009: 1.2%), but remain lower than the regional average. Loan loss reserve coverage remains ample. Restructuring of various corporate loans has reduced the previously high level of loans that were past due but not considered impaired. Market risks remain limited.

Funding continues to be primarily sourced from short-term customer deposits, reflecting RB's substantial branch network. The bank is exposed to contractual asset/liability maturity mismatches, although the bulk of deposits tend to be stable. Liquidity is comfortable, assisted by the marked slowdown in loan growth. In addition, Fitch gains comfort from the bank's large portfolio of government, and other highly-rated securities, and interbank placements.

Capital ratios are sound, with a Fitch core capital ratio of 17.9% at end-2010.

RB was established in 1957 and is listed on the Saudi stock exchange. The bank is 52.3% owned by Saudi public-sector entities. It is the fourth-largest bank in Saudi Arabia in terms of total assets, with market shares of 13%-14% in loans and customer deposits.

Global Arab Network

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