September 7, 2017 / 8:15 AM / 2 years ago

Fitch Affirms SAMBA Financial Group at 'A-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, September 07 (Fitch) Fitch Ratings has affirmed SAMBA Financial Group's (SAMBA) Long-Term Issuer Default Rating (IDR) at 'A-'. It has also affirmed the bank's Viability Rating (VR) and Support Rating Floor (SRF) at 'a-' and 'A-' respectively. A full list of rating actions is at the end of this rating action commentary. The Outlook on SAMBA's Long-Term IDR is Stable. KEY RATING DRIVERS IDRS The IDRs of SAMBA reflect both its standalone creditworthiness as defined by its VR and an extremely high probability of support from the Saudi authorities. VR SAMBA's VR is highly influenced by the bank's strong capital ratios. The bank had a Fitch core capital (FCC) ratio of 19.2% at end-1H17, one of the highest in the sector. Capital is supported by measured loan growth, healthy pre-impairment earnings and consistently low loan impairment charges. However, the operating environment in Saudi Arabia remains depressed (growth of 1.4% in 2016 is likely to slow further to 0.1% and 0.8% for 2017 and 2018 respectively) with the kingdom proceeding with fiscal tightening. Opportunities for banks to finance infrastructure projects will therefore reduce 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 that any such deterioration will be gradual and therefore manageable. SAMBA's currently has a sound liquidity position, characterised by a low loan-to-deposit ratio and stable funding based on non-commission bearing customers' deposits. The bank also has a resilient franchise and stable business model. SAMBA's VR further factors in the bank's sound asset quality metrics, but also high single obligor concentration in the loan book. High concentration exposes the bank to event risk. SUPPORT RATING AND SUPPORT RATING FLOOR SAMBA's Support Rating (SR) of '1' and SRF of 'A-' reflect Fitch's view of an extremely high probability of support for SAMBA, if required, from the Saudi authorities. 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. SAMBA's SR and SRF also reflect the bank's systemic importance as the dominant retail franchise in the kingdom. RATING SENSITIVITIES IDRS, NATIONAL RATINGS AND SENIOR DEBT As SAMBA's IDRs reflect both the bank's VR and SRF, a downgrade of the IDR would require a simultaneous downgrade and downward revision of these ratings. An upgrade of SAMBA's Long-Term IDR could be driven by either an upgrade of its VR or an upward revision of its SRF. This is because under Fitch's methodology the IDR is the higher of the VR and SRF. VR The most likely driver of negative rating action on the VR for SAMBA is from a weakening operating environment, resulting in continued low loan growth and increased impact on earnings and profitability and asset quality metrics, ultimately leading to a reduction in capital ratios. SUPPORT RATING AND SUPPORT RATING FLOOR SAMBA's SR and SRF are sensitive to a change in the Saudi Arabian sovereign rating. As this is currently on Stable Outlook, we do not expect any change to the bank's SR or SRF in the short-term. A weaker propensity from the authorities to support the bank would also lead to a negative rating action, but this is unlikely in Fitch's view given the bank's systemic importance. The rating actions are as follows: SAMBA Financial Group Long-Term IDR affirmed at 'A-'; Outlook Stable Short-Term IDR affirmed at 'F1' Support Rating Floor affirmed at '1' Support Rating Floor affirmed at 'A-' Viability Rating affirmed at 'a-' Contact: Primary Analyst Andrew Parkinson Director +44 203 530 1420 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Nicolas Charreyron Analyst +971 44 24 1208 Committee Chairperson Alexander Danilov Senior Director +7 495 956 2408 Media Relations: 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 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. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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