September 6, 2017 / 1:48 PM / 10 months ago

Fitch Revises Outlook on Banque Saudi Fransi to Stable; Affirms at 'A-'

(The following statement was released by the rating agency) LONDON, September 06 (Fitch) Fitch Ratings has revised the Outlook on Banque Saudi Fransi's (BSF) Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at 'A-'. Fitch has also affirmed the bank's Viability Rating (VR) at 'a-' and Support Rating Floor (SRF) at 'BBB+'. A full list of rating actions is at the end of this rating action commentary. The revision of the Outlook reflects Fitch's view that while the bank's operating environment remains challenging, the pressures of 2016 have eased significantly, not least liquidity. Fitch expects asset quality and earnings growth to remain under pressure, but not significantly enough to justify a Negative Outlook. KEY RATING DRIVERS IDRs AND VR BSF's IDRs reflect its standalone creditworthiness as defined by its VR. BSF's risk appetite has a high influence on its VR, reflecting that it is lower than peers and asset quality metrics are sound. Fitch considers BSF's underwriting standards to be among the most conservative and consistent in the sector, focused on large, high-quality domestic and international corporate borrowers. Single name concentrations exist, but are lower than peers, despite the bank's corporate-driven business model. Asset quality also highly influences BSF's VR. The bank has had consistently low loan impairment charges over a sustained period. Its impaired loans also compare well with peers. Asset quality has weakened, in line with peers and our expectations given the challenging operating environment, but BSF's impaired loans/gross loans ratio remains amongst the strongest in the sector. BSF's profitability is sound, although it is slightly weaker than some larger peers due to a less diversified business model and higher reliance on low risk, lower margin corporate clients. We expect earnings diversification to improve as the bank's retail growth gathers pace. 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 the 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 is that any such deterioration will be gradual and therefore manageable. SUPPORT RATING AND SUPPORT RATING FLOOR BSF's 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. BSF's SR and SRF also reflect Fitch's view that the large stake held by Credit Agricole and Investment Bank (CACIB: A+/Stable) could result in slightly lower, but still high, willingness of the sovereign to support the bank. The BSF Sukuk Ltd trust certificate issuance programme is rated in line with BSF's IDRs and is therefore subject to the same rating drivers. RATING SENSITIVITIES IDRs AND VR As BSF's IDRs reflect its VR, any change in the bank's IDRs would be driven by a change in its VR. Negative pressure on the VR may arise from further weakening of the operating environment causing tightening liquidity or a significant deterioration in asset quality metrics. A termination of the technical services agreement between BSF and CACIB could also be credit negative. The BSF Sukuk Ltd trust certificate issuance programme is subject to the same sensitivities as BSF. SUPPORT RATING AND SUPPORT RATING FLOOR BSF's SR and SRF are sensitive to any change in the Saudi Arabian sovereign rating. As this 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. The rating actions are as follows: Banque Saudi Fransi Long-Term IDR affirmed at 'A-'; Outlook revised to Stable from Negative Short-Term IDR affirmed at 'F2' Support Rating Floor affirmed at '2' Support Rating Floor affirmed at '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 Alexander Danilov Senior Director +7 495 956 2408 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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