The individual rating reflects SHB’s corporate banking franchise, cost efficiency and improved asset quality.
It also considers its significant concentrations on both sides of the balance sheet and its moderate capitalization compared to peers.
SHB’s profitability recovered in 2010, mainly due to significantly lower loan impairment charges in corporate banking.
Loan and securities impairment charges moderated to 33.7 percent of SHB’s pre-impairment operating profit in 2010.
In the low interest rate environment, SHB’s net margin declined to 2.7 percent.
Fitch expects the Saudi economy to grow by 4.2 percent in 2011, which should lead to a further improvement in the operating environment.
Also on Monday, Fitch affirmed Samba Financial Group’s (Samba) long-term Issuer default rating (IDR) at “A+,” short-term IDR at “F1,” individual rating at “B/C” and support rating at “1.”
The support rating floor is affirmed at “A+.” The outlook for the long-term IDR is stable.
Samba’s IDRs are support-driven and reflect Fitch’s view of an extremely high probability of support being provided by the Saudi authorities, if ever required, owing to the bank’s systemic importance and the state’s 50.3 percent stake in the bank.
The individual rating reflects Samba’s standalone strengths, including its strong commercial franchise, business model and robust earnings combined with healthy liquidity and capital ratios. It also takes into account the recovering credit environment in Saudi Arabia.
Samba’s asset quality remained broadly unchanged with a non-performing loan (NPL) ratio of 3.7 percent in 2010.
Fitch is comfortable that further risks to asset quality are limited and manageable given the bank’s healthy core earnings, the high loan loss reserve coverage and general operating environment.
Fitch also highlights Samba’s strong funding profile and solid liquidity and capital adequacy ratios, which are key rating drivers.
In a separate statement, Fitch affirmed Riyad Bank’s (RB) long-term IDR at “A+” with a stable outlook.
The agency has also affirmed RB’s short-term IDR at “F1,” individual rating at “B/C,” support rating at “1” and support rating floor at “A+.”
RB’s Long- and Short-term IDRs and support rating reflect the extremely high probability that support would be forthcoming from the Saudi authorities in case of need, given the bank’s large franchise and the state’s substantial (indirect) ownership.
RB’s strong franchise and large customer base will ensure profits from its core banking businesses are sufficient to absorb any additional loan impairment charges, if any sizable loan impairments arise in the future.
Liquidity is comfortable, assisted by the marked slowdown in loan growth.
In addition, Fitch gains comfort from the bank’s large portfolio of government, and other highly-rated securities, and interbank placements.
Capital ratios are sound, with a Fitch core capital ratio of 17.9 percent at end-2010.
