Moody's upgrades Saudi British Bank's BFSR to C+

The bank's global local currency (GLC) deposit rating remains unchanged at Aa3, while its Foreign Currency Deposit Ratings are also unchanged at A1/P-1, but with the A1 long-term rating carrying a positive outlook and being constrained by the relevant country ceiling.

Moody's BFSR upgrade recognises SABB's ability to capitalise from the robust economic environment derived from Saudi Arabia's status as the global leader in oil production, vastly improved government finances and a nominal GDP growth of 80% over the past five years, which have translated into announced infrastructure projects in excess of $350bn over the next ten years and substantial opportunities for the banking sector. Despite reduced stock-market-related fee income during 2007, SABB has nonetheless demonstrated strong financial indicators that are commensurate with even higher ratings. Specifically, over the past three years, the bank recorded an RoE that ranged between 25% and 33%, a cost-to-income ratio of between 30% and 33%, problem loans of just 0.3%-1.1% that are well-covered by provision reserves, ample liquidity, and adequate capitalisation with (Basel II) Tier 1 ratio of 11% as of March 2008.

SABB's BFSR also reflects the bank's beneficial relationship with HSBC Holdings, which has a 40% stake and a technical services contract. We consider this association to be particularly important for SABB's ratings, as it provides technical, operating, risk-control, and strategic planning support, as well as valuable access to HSBC Group's systems, and experienced senior staff seconded from HSBC. SABB has a well-established local franchise across all its main business lines, including corporate and investment banking -- the latter via its HSBC Saudi Arabia Limited joint-venture with HSBC, in Islamic Banking via its Amanah brand, and in retail banking, while also exploring new sectors such as insurance/ 'Takaful'.

In Moody's opinion, SABB's BFSR also reflects the large borrower and funding concentrations, the substantial growth in lending that may raise concerns about future asset quality, its lack of geographical diversification, the maturity mismatches in its asset and liabilities, as well as the increased competition within the investment banking sector following the new licenses issued by the Capital Market Authority (CMA).

SABB's long-term global local currency (GLC) deposit rating is set at Aa3, a two-notch uplift from the bank's A2 Baseline Credit Assessment. This is based on (1) Moody's assessment of a very high probability of systemic support in the event of need, and (2) Moody's assessment of a moderate probability of parental support (from HSBC).

Headquartered in Riyadh, Kingdom of Saudi Arabia, Saudi British Bank reported total assets of SR106.4bn ($28.4bn) as of March 2008.