JEDDAH – Fitch Ratings has affirmed 11 Saudi Arabian banks and revised the Outlook of three banks to Stable from Negative as part of a peer review of the Saudi banking sector, the international ratings agency reported Tuesday. The revised Outlooks reflect Fitch's reassessment of the intrinsic strengths and weaknesses of Saudi British Bank (SABB), Banque Saudi Fransi (BSF) and Arab National Bank (ANB) in comparison with their peers. Although the banks have fairly lower capital ratios compared with larger Saudi peers and, in the case of SABB and BSF, higher large customer exposures relative to equity, Fitch recognizes that all three banks have low non-performing loan (NPL) ratios, high loan loss reserve coverage and strong profitability. This indicates that the banks' capital bases are unlikely to need to absorb losses in the foreseeable future. In addition, in Fitch's opinion, the three banks have generally lower risk investment portfolios than several larger peers. The EMTN Program ratings of National Commercial Bank (NCB) and Riyad Bank have been affirmed and simultaneously withdrawn, as they are no longer required. There is no outstanding issuance. The banks all benefit from a favorable operating environment, a conservative and hands-on regulator and high barriers to entry into the Saudi Arabian banking market. Saudi Arabia (AA- /Positive) is the largest economy in the Gulf Cooperation Council (GCC), with solid growth prospects supported by significant government spending on infrastructure projects, high oil prices and an expanding non-oil private sector. Al Rajhi's viability rating (VR) reflects the bank's leading domestic retail franchise, lower concentrations than peers, strong profitability, sound capital ratios and asset quality, lower appetite for market risk than peers, and a large and stable retail deposit base. The VR also considers higher loan impairment charges relative to peers in recent years. National Commercial Bank's (NCB) VR reflects the bank's leading domestic franchise, strong profitability, solid capital and stable funding, but also high lending concentrations it has to large corporate borrowers and rising risk appetite for international investments. Asset quality ratios have improved but the impaired loan ratio is still one of the highest in Saudi Arabia. Riyad Bank's VR reflects the bank's strong commercial franchise with leading market shares in some business lines, consistent but lower profitability ratios than the largest Saudi banks, and sound asset quality and capitalization, but also moderate concentration risks in assets and liabilities. SAMBA Financial Group's (SAMBA) VR reflects the bank's strong liquidity and sound capital position. The rating also considers SAMBA's resilient franchise and strong market position. The rating is constrained by high concentration risks in both assets and liabilities (by sector and name) and fairly weak earnings growth. Asset quality ratios have improved. The issuer default rating (IDR) of ANB, BSF and SABB reflect the intrinsic creditworthiness and financial strength of each issuer. Where an issuer's VR is equal to or above its Support Rating Floor, the IDRs reflect the VR. ANB's VR reflects strong liquidity, sound asset quality, consistently sound profitability, a stable deposit base and the benefits of being an associate bank of Arab Bank Plc (A-/Rating Watch Negative). It also considers some concentrations on both sides of the balance sheet. The VR also reflects ANB's lower capital ratios compared with larger peers in Saudi Arabia, in an operating environment of potentially high loan growth, although this is partially mitigated by a high level of collective loan loss reserves. ANB's loan growth has been limited in 2013 and, as a result, its capital ratios have strengthened. BSF's VR reflects strong asset quality with one of the lowest impaired loan ratios in Saudi Arabia, a stable deposit base, and sound profitability. It also considers the bank's strong corporate banking franchise and performance track record. The VR also considers the benefits of being an associate bank of Credit Agricole Corporate and Investment Bank (CACIB, A/Stable), with whom BSF has a technical services agreement. The VR also reflects BSF's weakening profitability, lower capital ratios compared with larger peers in Saudi Arabia, and significant large customer exposures relative to equity (in excess of larger Saudi peers), in an operating environment of potentially high loan growth. However, in Fitch's opinion, BSF's large exposures and its investment portfolio are fairly low risk. – SG
