Fitch affirms Arab National Bank at 'A'; Outlook Stable

The Long- and Short-term IDRs and Individual rating reflect the bank's large domestic franchise, good profitability and very strong asset quality ratios. The ratings also reflect loan and deposit concentrations. The bank's Support rating and Support Rating Floor reflect the high probability of support from the Saudi authorities, should it be required.

Fitch's view of support is based on the size of the bank's domestic franchise and the strong history of support provided by the Saudi Arabian Monetary Agency (SAMA). There is also a moderate probability of support from Jordan's Arab Bank ('A-' (A minus)/Stable), which owns 40% of ANB and is well-established throughout the region.

Profitability is good despite a 1.7% dip in net income in 2007 followed by a modest increase of 4.6% yoy in Q108. Growth in core operating income was countered by lower stock market-related income. Additionally, the bank charged impairments on its investment portfolio (relating to capital notes in SIVs) of SR210m and SR163m in 2007 and Q108, respectively. The bank's strong focus on cross-selling and recent joint-venture businesses in housing finance, equipment leasing and bancassurance should provide increased revenue diversification.

ANB's asset quality ratios are very strong with NPLs amounting to 0.4% of gross loans and a coverage ratio of 439% at end-Q108. It should be noted, however, that ratios benefited from significant write-offs in 2006. Additionally, the loan book is concentrated by borrower, although this is not unusual for banks in the GCC. Loan growth of 23% in 2007 was broadly in line with that of its peers and was most visible in the corporate sector.

Funding remains predominantly sourced from customer deposits (91% of non-equity funding at end-2007), which are broadly split between retail and corporate customers. Further use of the $850m EMTN programme (under which $500m has already been drawn) and syndicated loans will be subject to market conditions. Capital ratios have fallen following the implementation of Basel II and the resulting capital charges for operational and market risks as well as Pillar 2. At 14.2% at end-Q108, however, Fitch views total regulatory capital ratios as still acceptable.

ANB was established in 1979 and is listed on the Saudi Stock exchange. Its principal shareholder is Arab Bank (40%) and the remaining 60% is held by Saudi investors. ANB was the seventh-largest bank in Saudi Arabia by total assets at end-2007, with a market share of about 10% of loans and deposits. ANB has a strong domestic franchise, with a network of 125 branches, plus one branch in London.