September 22, 2017 / 1:20 PM / a year ago

Fitch Upgrades Banque Saudi Fransi's Support Rating to '1'; Revises Up SRF to 'A-'

(The following statement was released by the rating agency) LONDON, September 22 (Fitch) Fitch Ratings has upgraded Banque Saudi Fransi's (BSF) Support Rating (SR) to '1' from '2' and revised up its Support Rating Floor (SRF) to 'A-' from 'BBB+'. This follows an announcement by BSF's largest shareholder, Credit Agricole Corporate and Investment Bank (CACIB: A+/Stable) that it has completed the sale of a significant proportion of its 31.1% stake in BSF to Kingdom Holding Company, a Saudi-based investment holding company, with effect from 20 September 2017. Following the sale, CACIB retains a 14.9% stake in BSF. The transaction requires CACIB to maintain an equity stake of at least 9.9% for a minimum of one year following the completion of the initial sale. CACIB has stated that it remains open to disposing of a further 5% of its stake during the intervening period, subject to market conditions. A full list of rating actions is at the end of this rating action commentary. KEY RATING DRIVERS SUPPORT RATING AND SUPPORT RATING FLOOR The respective upgrade and upward revision of BSF's SR and SRF is driven by Fitch's belief that the willingness of the Saudi authorities to support BSF will be higher following the sale, given its largely domestic ownership. It also reflects our belief that the exit of CACIB as BSF's largest shareholder removes any uncertainty over the timeliness of support from the authorities. BSF's SRF of 'A-' is at the Saudi banks' Domestic Systemically Important Banks's (D-SIB) SRF of 'A-', in line with other large rated banks that do not have a significant overseas shareholder. This factors in BSF's largely domestic ownership post-sale and systemic importance relative to other banks in the banking system reflecting, among other things, market share (9%-10% by most measures) and franchise. KEY RATING DRIVERS IDRs and Viability Rating Following the upward revision of BSF's SRF to 'A-', the IDRs reflect the bank's standalone creditworthiness as defined by the Viability Rating (VR), and are underpinned by an extremely high probability of support from the Saudi authorities. The upward revision of the SRF has not impacted the bank's IDRs, which are affirmed. The VR of BSF has also been affirmed following the sale as we do not expect BSF's company profile, strategy or financial metrics to alter significantly as a result of the change in ownership structure. BSF's ratings were previously affirmed on 6 September 2017 (see "Fitch Revises Outlook on Banque Saudi Fransi to Stable; Affirms at 'A-'" on www. Although BSF operates on a standalone basis it benefits from a number of service level agreements between itself and CACIB covering risk management and global markets. BSF also benefits from the regular secondment of senior management from CACIB, which include BSF's Chief Executive and Chief Risk Officer. Although we expect CACIB's involvement in the management, governance and strategy of BSF to reduce following the sale, we believe that this will be gradual. The sound risk framework already embedded in BSF will also mean that, in Fitch's opinion, there is unlikely to be sufficient deterioration in the bank's standalone creditworthiness to negatively affect BSF's VR. Following the completion of the sale, Fitch will monitor developments around the bank's strategy and risk appetite. The BSF Sukuk Ltd trust certificate issuance programme is rated in line with BSF's IDRs and is subject to the same rating drivers and is therefore also affirmed. RATING SENSITIVITIES SUPPORT RATING AND SUPPORT RATING FLOOR BSF's SR and SRF are sensitive to a change in the Saudi Arabian sovereign rating. As the sovereign rating is currently on a Stable Outlook, any change is unlikely in the short term. A change in propensity from the authorities to support the bank could also lead to rating action, but this is not Fitch's base case. IDRs AND VR A change in the bank's IDRs would require a simultaneous downward revision of the SRF and downgrade of the VR. Negative pressure on the VR may arise from further weakening of the operating environment causing tightening liquidity or significant deterioration in asset quality metrics. BSF's VR could be downgraded if the bank demonstrates a higher risk appetite following the sale or if a change in strategy occurs which would, in our view, change the stability of the business model. This could be in the form of counter-cyclical growth, expansion into higher-risk segments or weakening risk controls. If management is able to demonstrate consistent implementation of strategy post-sale and risk controls are not adversely affected by the reduced involvement of CACIB (currently our base case), we would expect the VR to stabilise at its current level. We view upside for the VR as limited given BSF's high ratings relative to peers', less diversified earnings and a challenging operating environment. The BSF Sukuk Ltd trust certificate issuance programme is subject to the same sensitivities as BSF's IDRs. The rating actions are as follows: Banque Saudi Fransi Long-Term IDR affirmed at 'A-'; Outlook Stable Short-Term IDR affirmed at 'F2' Support Rating upgraded to '1' from '2' Support Rating Floor revised to 'A-' from 'BBB+' Viability Rating affirmed at 'a-' BSF Sukuk Limited Trust certificate issuance programme affirmed at 'A-' Contact: Primary Analyst Andrew Parkinson Director +44 20 3530 1420 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Marc Ellsmore Associate Director +44 20 3530 1438 Committee Chairperson Eric Dupont Senior Director +33 1 4429 91 31 Media Relations: Rose Connolly, London, Tel: +44 203 530 1741, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Sukuk Rating Criteria (pub. 14 Aug 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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