Fitch changes Saudi Investment Bank's outlook to negative; Affirms 'A-'/'F2'

Fitch has also affirmed SAIB's Long-term IDR at 'A-' (A minus), Short-term IDR at 'F2', Individual rating at 'B/C' and Support rating at '2'. The Support Rating Floor is affirmed at BBB+.

The Outlook was changed to Negative from Stable due to the bank's planned acquisition of a 50% stake in Bahrain-based Albaraka Banking Group (ABG) via a share swap with ABG's parent. Fitch is uncertain at this stage how this acquisition would impact SAIB's future ownership structure, strategy and risk profile.

The agency is informed that the transaction is in the early stages of discussion and will be subject to approval from both SAIB's shareholders and the Saudi Arabian Monetary Agency. Fitch will review SAIB's ratings if and when the transaction is finalised.

The IDRs and Individual rating reflect SAIB's good corporate franchise, diversification strategy, and healthy asset quality and capitalisation. The ratings also consider the bank's small market share in Saudi Arabia and loan and deposit concentrations.

SAIB's results for 2006 were exceptional as the bank benefited from large one-off gains on investments and high levels of other stock market related fee income, a large proportion of which were unsustainable.

As expected, H107 net income fell sharply, by 61% yoy after a return to normalised revenues following the stock market correction, and by 26% excluding the one-off securities gains realised in 2006.

Importantly, core revenue (largely interest related) remains strong as the bank continues to benefit from increased corporate and retail lending opportunities in Saudi Arabia.

Operating ROAA and ROAE, although lower in H107 at 2.6% and 17.1%, respectively, remain acceptable.

The bank has very good asset quality with NPL ratios less than 1% at end-H107; provision coverage was one of the highest in the sector at 451%.

The bank has comfortable balance sheet liquidity and is soundly capitalised with Tier 1 and Fitch eligible capital ratios of 23.5% and 25.5%, respectively, at end-H107.

SAIB is the ninth-largest Saudi bank by total assets with a market share of around 5% at end-2006.

It is active in corporate and consumer lending, Islamic banking, brokerage and trade finance through a domestic network of 23 branches (13 are Islamic).

SAIB also provides cards, leasing, real estate, insurance and fund management through JVs with GCC and international partners. SAIB's largest shareholder is the Saudi government through the General Organisation for Social Insurance and a state pension fund with 21.5% and 17.1% respectively.