THE SAUDI INVESTMENT BANK
Fitch Ratings has affirmed
Fitch has also affirmed SAIB's Viability Rating (VR) at 'bbb-'.
Key Rating Drivers
SAIB's Long-Term IDR reflects potential support from the Saudi Arabian authorities, as expressed by a Government Support Rating (GSR) of 'a-'. Its 'F2' Short-Term IDR is the lower of two options mapping to a Long-Term IDR of 'A-' as per Fitch 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 is itself experiencing stress.
The bank's VR reflects its modest franchise, weaker asset-quality and earnings and profitability metrics than those of peers, high balance-sheet concentrations and an adequate funding profile, albeit less stable than peers'. The VR also incorporates adequate capital ratios with sufficient buffers above regulatory requirements, as well as strengthened profitability.
SAIB's National Rating is driven by potential support from the Saudi Arabian authorities.
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 to maintain market confidence and stability. SAIB's 'a-' GSR is in line with that of other Fitch-rated Saudi banks.
Favourable Operating Environment: High oil prices, reduced risks from the pandemic, the government's strategy to diversify the economy as part of their 'Vision 2030', and solid GDP (including non-oil) growth provide Saudi banks with solid business-growth opportunities.
Modest Franchise: SAIB's company profile is modest with a market share of 3%. 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 concentration risk. However, SAIB's overall risk profile remains weaker than peers', as reflected by the bank's weaker asset-quality metrics. Lending growth was strong at 18% in 2022, while we expect a moderation in 2023.
Weaker Asset Quality than Peers': Asset quality has improved with the bank's Stage 3 loans ratio down to 3.6% at end-2022 from 4.5% at end-2021. Problem loans (Stage 2 + Stage 3) accounted for a moderate 8.2% of gross loans but this remains above peers'. The specific loan loss allowances/Stage 3 loans ratio was low at 44% at end-2022. We expect the Stage 3 ratio to be 3%-5% in 2023.
Weaker Profitability than Peers': SAIB's operating profit improved to 1.7% of risk-weighted assets (RWAs) in 2022, but is still below the sector average. Performance was supported by loan growth, higher interest rates and lower impairment charges. We expect the ratio to improve to around 2% in 2023-2024 on the back of a favourable operating environment, stronger margins and lower RWA density post implementation of the final
Lower but
Adequate Funding and Liquidity: Fitch views SAIB's deposit base as weaker than that of larger peers given the bank's lower share of stable current and retail deposits and weaker franchise. High-quality liquid assets accounted for an adequate 14% of total assets and covered 21% of customer deposits at end-1Q23, which partially mitigates risks arising from high deposit concentration. We expect the loan-to-deposit ratio to remain between 95% and 100% in 2023.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of SAIB's Long-Term IDRs would require a downgrade of the GSR, which would be triggered by a sovereign downgrade.
SAIB's VR is primarily sensitive to capitalisation levels and could be downgraded if the CET1 ratio falls below 14% on a sustained basis, or if the tangible equity-to-tangible asset ratio decreases below 10%.
The bank's National Rating is sensitive to a negative change in its Long-Term Local-Currency IDR and in the bank's creditworthiness relative to other Saudi Arabian issuers'.
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, which would be triggered by a sovereign upgrade.
An upgrade of SAIB's VR would likely require an improvement in the bank's company profile, which could be achieved through a significant increase in market shares. An improvement in asset quality and profitability metrics could also be credit-positive.
The bank's National Rating is sensitive to a positive change in its Long-Term Local-Currency IDR and in the bank's creditworthiness relative to other Saudi Arabian issuers'.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
SAIB's Long-Term (LT) Foreign-Currency IDR (xgs) is at the level of the VR. The LT Local-Currency IDR (xgs) is in line with the LT Foreign-Currency IDR (xgs).
The Short-Term (ST) Foreign-Currency IDR (xgs) is in accordance with the LT Foreign-Currency IDR (xgs) and Fitch's short-term rating mapping, while also considering the bank's funding and liquidity factor score.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
SAIB's LT IDRs (xgs) could be downgraded if the VR is downgraded. The ST Foreign-Currency IDR (xgs) is primarily sensitive to changes in the LT Foreign-Currency IDR (xgs) and could be downgraded if the latter is downgraded and the new LT rating maps to a lower ST rating in accordance with Fitch's criteria.
An upgrade of SAIB's LT IDRs (xgs) would require a VR upgrade. The ST Foreign-Currency IDR (xgs) is primarily sensitive to changes in the LT Foreign-Currency IDR (xgs) and could be upgraded if the latter is upgraded and the new LT rating maps to a higher ST rating in accordance with Fitch's criteria.
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.
Public Ratings with Credit Linkage to other ratings
SAIB's IDRs are linked to the IDRs 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.
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