Saudi SABB’s FSR Affirmed At ‘A’

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the ratings of The Saudi British Bank (SABB), based in Riyadh, Saudi Arabia. The Financial Strength Rating of ‘A’ is supported by the Bank’s sound and improving asset quality, by the full coverage of its non-performing loans (NPLs) and by its sound profitability.

The Long-Term Foreign Currency Rating of ‘A+’ and the Short-Term Foreign Currency Rating of ‘A1’ are affirmed for the same reasons, as well as by virtue of the Bank’s ownership. Ratings are constrained by the Bank’s low capital and liquidity profiles compared to those of its peers. In view of ongoing improvements in the areas of asset quality and profitability, and in the expectation that these will continue without further weakening of the Bank’s capital or liquidity profile, a ‘Positive’ Outlook is assigned to all ratings. In light of the Bank’s ownership, support from its major shareholders is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support level remains at ‘2’.

In 2011, SABB concluded a two-year exercise in improving its asset quality, following a sharp rise in NPLs in 2009. Write-offs, collections, sound growth in net loans and the completion of the provisioning process conspired to give SABB an NPL ratio lower than the peer-group average and to return the NPL portfolio to full coverage. Due to the reduction in the need for loan-loss provisioning, the improving asset quality also had a beneficial effect on the Bank’s net profit, which grew at one of the fastest rates in the sector. The Bank posted 2011’s strongest rate of growth in operating profit of the ten largest Saudi banks, so that its operating profitability was very close to the average displayed by its peers. Moreover, the reduction in loan-loss provisioning expense was not the sole reason for the increase in net profit. In 2011, the improvement was attributable to a small increase in gross income, but mostly to continuing cost control and a decrease in operating expenses – the only such decrease reported among Saudi banks in 2011.

While the Bank’s capital ratios are generally adequate in a global context, they are low compared to those of other Saudi banks. Most ratios improved marginally in 2011 as the Bank reduced an already moderate cash dividend and raised SABB’s rate of internal capital generation to near the sector’s best. Likewise, the Bank’s liquidity profile is generally sound, but when compared to other Saudi banks it is relatively tight, especially in its loan-based ratios – the result of a high share of the balance sheet accounted for by the loan book.

By total capital, SABB is the seventh-largest of the twelve locally incorporated commercial banks in Saudi Arabia; by total assets it ranks sixth. Among the four joint-venture banks, it is the second-largest by total assets and third-largest by capital. At year-end 2011, its assets totaled SR138.7bn, representing a market share of 9.2% by total assets.

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