Fitch Ratings has affirmed
Fitch has also affirmed SAIB's Viability Rating (VR) at 'bbb-'.
Key Rating Drivers
The 'BBB+' Long-Term IDR of SAIB reflects a high probability of support from the Saudi Arabian authorities, which is underlined by a Government Support Rating (GSR) of 'bbb+'. Its 'F2' Short-Term IDR is the lower of two options mapping to a Long-Term IDR of 'BBB+' as per Fitch's Bank Rating Criteria. This is because a significant proportion of Saudi banks' funding is related to the government and they would likely need support at a time when the sovereign itself is experiencing some form of stress. The Positive Outlook reflects that on the sovereign.
SAIB's VR reflects the bank's modest franchise, weaker asset-quality metrics than those of peers, high balance-sheet concentrations and an adequate funding profile, albeit less stable than that of peers. The VR also incorporates strengthened capital ratios that now compare well with peers' and display adequate buffers above regulatory requirements, as well as the bank's resilient profitability.
SAIB's National Rating reflects the bank's creditworthiness relative to that of other issuers in
Sovereign Support: The Saudi authorities have a strong ability and willingness to support domestic banks irrespective of size, franchise, funding structure and level of government ownership. High contagion risk among domestic banks is an added incentive for the state to provide support to any Saudi bank if needed, to maintain market confidence and stability.
Operating Environment Sees Strong Rebound: Pressures from the pandemic have largely eased and higher oil prices stimulate a strong rebound of the Saudi operating environment. Strong financing growth continues to underpin solid financial metrics for the sector in 2022.
Modest Franchise: SAIB's company profile is modest. The bank's small market share across both retail- and corporate-banking results in limited pricing power.
Weaker Risk Profile Than Peers': SAIB's underwriting standards have improved in recent years, as expansion in retail helped reduce the bank's concentration risk. However, its overall risk profile remains weaker than peers', as reflected in the bank's weaker asset-quality metrics.
Weaker Asset Quality than Peers': The bank's Stage 3 loans ratio was stable at 4.5% at end-2021 compared with end-2020, but remains higher than that of larger peers. Its loan loss allowances/impaired loans ratio of 73% at end-2021 was stable compared with 2020, but remained lower than the peer average (end-2021: 111%).
Moderate but Resilient Profitability: Profitability is moderate but rebounded after the pandemic with operating profit 1.5% of risk-weighted assets (RWAs) (2019: 0.4%) and in line with its direct peers'.
Strong Capital Ratios: Capital ratios improved in 2021 on the back of increased net income and remain high. SAIB's common equity Tier 1 (CET1) ratio increased to 18.3% at end-2021 from 17.8% at end-2020 and is in line with larger peers'. SAIB's healthy total capital adequacy ratio of 20.8% at end-2021 (end-2019: 18.3%) was supported by Tier 1 qualifying sukuk.
Adequate Funding and Liquidity: Fitch does not view SAIB's deposit base as strong as that of larger peers given the bank's lower share of stable current and retail deposits. High-quality liquid assets, as defined under Basel III guidelines, equalled an adequate 14% of total assets and covered 24% of customer deposits at end-2021.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of SAIB's IDRs would require a downgrade of the GSR. The latter would be triggered by a sovereign downgrade, which is unlikely given the Positive Outlook on
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the IDR could come from an upgrade of the GSR. A VR upgrade is unlikely without a material and sustained improvement in the Saudi Arabian operating environment.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria listed below.
Public Ratings with Credit Linkage to other ratings
SAIB's IDRs are linked to the IDR of
ESG Considerations
The highest level of ESG credit relevance, if present, is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/esg.
(C) 2022 Electronic News Publishing, source