Global Arab Network | Saudi Investment Bank rating reflects probability of authorities support

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Saudi Investment Bank rating reflects probability of authorities support

Global Arab Network - - Rabih Serrai

Monday, 13 June 2011 13:18

Saudi Investment Bank rating reflect probability of authorities support

Global Arab Network - Fitch Ratings has affirmed The Saudi Investment Bank's (SAIB) Long-term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook. Fitch has also affirmed SAIB's Short-term IDR at 'F2', Individual Rating at 'C/D', Support Rating at '1' and Support Rating Floor at 'A-', Global Arab Network reports according to a press statement.

SAIB's Long- and Short-term IDRs and Support Rating reflect the extremely high probability of support from the Saudi authorities in case of need given the strong history of support for local banks as well as the Saudi government's (rated 'AA-') 38.8% stake in SAIB via government-related entities.

The Individual Rating reflects SAIB's sound capitalisation, ongoing de-risking of the investment portfolio and increased focus on the retail sector. The rating is constrained by its small franchise, high loan and deposit concentrations and the higher risk nature of its loan book when compared with peers.

SAIB has made progress in implementing its new strategy, which focuses on building its retail banking operations and enhancing the contributions from strategic partnerships with its subsidiaries and joint ventures. To extend its reach and in order to improve its service quality, the bank has modernised its branch network and enhanced its IT-based service offerings.

Fitch expects SAIB's profitability to improve in 2011, driven by moderating loan impairment charges. On a pre-impairment basis, profitability is expected to be broadly in line with 2010 as the low interest-rate environment, the bank's limited access to unremunerated deposits, subdued credit growth and intense competition are likely to continue to put pressure on margins.

The bank's asset quality ratios remained broadly unchanged in Q111, as more than 90% of non-performing loans related to one prominent Saudi family-owned group. Asset quality should also benefit from the significant de-risking of the investment portfolio, of which three-quarters of exposures are now investment grade. Risks from high levels of borrower concentrations, the bank's exposure to share financing and commercial real estate remain.

SAIB's funding and liquidity position is adequate. Fitch expects the bank to attract more retail deposits as the network expands. SAIB's Fitch calculated loans/deposit ratio was comfortable at 86% at end-Q111. The bank is soundly capitalised and reported a Fitch core capital ratio of 18% at end-Q111.

SAIB is the ninth-largest bank in Saudi Arabia by total assets. The bank offers commercial and retail banking as well as investment management and brokerage through subsidiaries. SAIB has also entered into a number of joint ventures with regional and international partners. The bank's largest shareholder is the Saudi government via the General Organisation for Social Insurance (21.5% stake) and a state pension fund (17.3%).

Global Arab Network

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