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Fitch affirms NCB at ‘A+’

Fitch Ratings has affirmed the National Commercial Bank’s (NCB) Long-term Issuer Default Rating (IDR) at ‘A+’ and Viability Rating at ‘a’. The outlook on the Long-term IDR is stable.
A Fitch statement said NCB reported higher net income mainly due to higher fee income from banking services in 9M12.
There has been a strong improvement in operating return on average assets and return on average equity in 9M12.
This was contained by strong competition and the low interest rate environment, which put pressure on margins.
The cost/income ratio has improved demonstrating solid cost containment, and is at a satisfactory level.
Fitch expects profitability to continue to improve for full-year 2012 and into 2013 due to the expected high loan growth and the higher proportion of non-interest income.
Fitch expects asset quality to continue to stabilize in the medium term, benefiting from the positive effect on the economy from increased government spending.
However, NCB’s high loan book concentration and fast loan growth, in particular in its Turkish subsidiary, could be a potential risk for the bank’s asset quality.
The Fitch Core Capital ratio stood at a high 16.0 percent at end-9M12, providing NCB with a sound capital buffer. However the capital ratio is decreasing due to strong asset growth.
NCB’s large investments in highly rated government and corporate securities enable it to comfortably manage liquidity risk.
The bank’s large customer deposit base is contractually short term, but it is very stable on a behavioral basis. Moreover, a large portion of customer deposits are non-special commission bearing deposits, which benefits the bank’s cost of funds.
NCB is the largest bank in Saudi Arabia and one of the largest in the Gulf Cooperation Council region.

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