Fitch Ratings has affirmed Saudi Arabia-based Riyad Bank’s (RB) long-term issuer default rating (IDR) at ‘A+’ with a stable outlook and its Viability Rating (VR) at ‘a’.
RB’s Long- and Short-term IDRs, Support Rating and Support Rating Floor reflect the extremely high probability that support would be forthcoming from the Saudi authorities if required, given the authorities’ long track record of support for the banking sector, the bank’s large franchise and the state’s substantial (indirect) ownership. The VR reflects the bank’s strengths: strong commercial franchise, consistent profitability and sound liquidity, asset quality and capitalisation. The VR also takes into account certain weaknesses, including some concentration in loans and deposits, which is common across the region, and decreasing capital ratios, although these remain high by international standards.
RB’s operating profit improved in 2011, benefiting from stable net special commission income despite the low interest rate environment, higher fee income and lower loan impairment charges. Fitch expects further growth in the Saudi economy in 2012, which should support some growth in business volumes. RB’s strong franchise and large customer base are expected to generate solid profits from its core banking businesses.
Asset quality indicators remain strong. The non-performing loan ratio of 1.63% of gross loans at end-2011 was lower than the regional average. Loan loss reserve coverage declined to a nevertheless sound 106%, following significant write-offs. Some loans have also been restructured to resolve temporary cash-flow difficulties. Market risks are limited.
Reflecting its substantial branch network, funding is primarily sourced from short-term customer deposits. As a result, the bank is exposed to contractual asset/liability maturity mismatches, although the bulk of deposits are stable. Liquidity is supported by the bank’s large portfolio of government and other highly-rated securities and placements with banks and the Saudi Arabian Monetary Authority.
Considering modest asset growth, capital ratios have declined, but continue to be sound with a Fitch core capital ratio of 16.7% at end-2011.
Listed on the Saudi stock exchange, the bank is 52.4% owned by Saudi public sector entities. It is the fourth-largest bank in Saudi Arabia in terms of total assets, with leading market shares in some business lines. The bank also has operations in London, Singapore and Houston, which focus on business related to Saudi Arabia and the oil sector.