Fitch Ratings has affirmed Al Rajhi Bank's Long-term Issuer Default Rating (IDR) at ‘A+' with a Stable Outlook and its Viability Rating at ‘a'. A full list of ratings is at the end of this comment. Al Rajhi's IDRs and Support Rating reflect Fitch's view that there is an extremely high probability that the Saudi Arabian authorities would support the bank, if required. This view is based on Al Rajhi's leading retail franchise in the Kingdom and its systemic importance within the domestic banking system. The affirmation of the Viability Rating reflects Al Rajhi's strong profitability, stable asset quality and large retail deposit base, whilst also considering some name concentration within the corporate loan portfolio in line with other Saudi banks. Al Rajhi's profitability ratios remained strong in 9 months of 2011, with operating ROAA and ROAE of 3.6 percent and 24.2 percent, respectively. Core revenue generation is strong, supported by healthy margins, robust growth in fee income and good cost efficiency. The lower interest rate environment in Saudi has squeezed asset spreads in recent years, but Al Rajhi benefits from low funding costs from its significant pool of non-remunerated customer deposits. The net interest margin (NIM) declined to 4.9 percent at end-September 2011 (2010: 5.8 percent), but remains higher than its peers, reflecting the bank's extremely low cost of funds. Fitch expects operating profitability to remain strong in 2011 and 2012. The bank's asset quality ratios compare well with peers, with an impaired loans ratio of 1.6 percent (2010: 2.2 percent), and healthy reserve coverage of 153 percent (2010: 125 percent). At end-September this year, liquid assets, consisting of cash, interbank placements and an investment portfolio - most of which is placements with the Saudi Arabia Monetary Agency (SAMA), accounted for 34 percent of total assets, or 42 percent of total deposits. Fitch views the bank's capitalization as sound, with regulatory Tier 1 and Fitch core capital ratios of 14.9 percent and 18.1 percent, respectively, at end-September 2011 (end-2010: 15.2 percent and 19.6 percent, respectively) Al Rajhi is the largest Islamic bank globally and operates the largest branch network in Saudi Arabia.
