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Fitch Affirms Saudi Investment Bank at 'BBB+'; Outlook Stable
September 14, 2017 / 4:16 PM / in a month

Fitch Affirms Saudi Investment Bank at 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 14 (Fitch) Fitch Ratings has affirmed Saudi Investment Bank's (SAIB) Long-Term Issuer Default Rating (IDR) at 'BBB+'. It has also affirmed the bank's Viability Rating (VR) and Support Rating Floor (SRF) at 'bbb-' and 'BBB+' respectively. A full list of rating actions is at the end of this rating action commentary. The Outlook on SAIB's Long-Term IDR is Stable. KEY RATING DRIVERS IDRs, SUPPORT RATING AND SRF SAIB's IDRs, Support Rating (SR) of '2' and SRF of 'BBB+' reflect a high probability of support from the Saudi authorities in the event of need. Fitch's assessment takes into account a long track record of support for Saudi banks, continued government willingness to maintain stability in the domestic financial system and a strong ability to support the bank, given large external reserves and good access to external markets. The SR and SRF also factor in the lower systemic importance of SAIB relative to the larger banks, due to its smaller size, market share, franchise. The SR and SRF also take into account the domestic ownership of the bank. The Stable Outlook reflects that on Saudi Arabia's 'A+' sovereign rating. VR The operating environment in Saudi Arabia remains depressed (growth likely to slow further to 0.1% and 0.8% for 2017 and 2018, respectively, from of 1.4% in 2016) as the kingdom proceeds with fiscal tightening. Opportunities for banks to finance infrastructure projects will therefore be reduced and Fitch forecasts overall sector loan growth of around 5% for 2017, marginally higher than 2016. Some weakening of the bank's performance or asset quality could also occur, although our base case expectation is that any such deterioration will be gradual and therefore manageable. SAIB's VR also reflects the bank's small franchise across both retail and corporate banking and subsequent modest pricing power. SAIB's profitability metrics are considerably weaker than larger peers' with a Fitch-calculated net interest margin of 221bps at end-1H17, reflecting a lower proportion of non-remunerative retail deposits. Fitch views underwriting standards at SAIB as weaker than peers' due to past rapid loan growth and more niche target markets. Nonetheless, asset quality metrics remain sound although they have been deteriorating recently, in line with peers and our expectations given the more challenging operating environment. The bank's impaired loans/gross loans ratio (1H17: 1.8%) is slightly higher than the sector's 1.4%. SAIB's capital ratios have improved and are now in line with peers with a Fitch Core Capital (FCC) ratio of 17.0% at end-1H17 (end-2016: 15.5%). SAIB's regulatory capital ratios also improved significantly in 2016, aided by the issuance of a SAR500 million eligible Tier 1 sukuk in Q416 and a further SAR285 million in 2Q17. Fitch expects capital ratios to remain stable given the weak outlook for credit growth in Saudi. RATING SENSITIVITIES IDRs, SUPPORT RATING AND SRF As SAIB's IDRs reflect the bank's SRF, changes to the latter will be reflected in the bank's IDRs. SAIB's SR and SRF are sensitive to changes in the Saudi Arabian sovereign rating. As this is currently on a Stable Outlook, changes are unlikely in the short-term. A change in propensity from the authorities to support the bank could also lead to a rating action, but this is not Fitch's base case. VR Upside to SAIB's VR could result from continued sustainable loan growth, improving profitability and declining asset-quality cyclicality. Negative pressure on the VR could arise from a sharper-than-expected deterioration in asset quality, resulting in erosion of capital buffers. The rating actions are as follows: Saudi Investment Bank Long-Term IDR affirmed at 'BBB+'; Outlook Stable Short-Term IDR affirmed at 'F2' Support Rating affirmed at '2' Support Rating Floor affirmed at 'BBB+' Viability Rating affirmed at 'bbb-' Contact: Primary Analyst Andrew Parkinson Director +44 203 530 1420 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Marc Ellsmore Associate Director +44 203 530 1438 Committee Chairperson Alexander Danilov Senior Director +7 495 956 2408 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. 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