Fitch affirms Riyad Bank at 'A'; Outlook Positive

The Long- and Short-term IDRs and Support rating reflect the extremely high probability of support for RB from the Saudi authorities, in case of need. Fitch's view of Support is based on the size of the quasi-governmental institutions' stake and the bank's systemic importance to Saudi Arabia. RB's Positive Outlook reflects that on the sovereign rating.

The Individual rating reflects RB's strong commercial franchise, consistent profitability, satisfactory asset quality and solid capitalisation. It also reflects the risks inherent in the Saudi operating environment and RB's concentrations in loans and deposits.

Profitability remained strong and RB was the only bank in Saudi Arabia to experience y-o-y growth in bottom-line profit, as it has been less reliant than its peers on stock market-related income. Its Q108 results are also encouraging, with net income improving 5.4% despite some SR163m trading losses. Cost efficiency, although lagging its peers, is good and compares well internationally with a cost/income ratio of 35.1%.

Asset quality ratios are sound despite an upward trend in NPLs and write-offs. Market risks mainly arise from the FX, commission (interest) rate, and global equity and fund portfolios. However, following the large capital injection in May 2008 by some SR13bn, RB's total regulatory capital ratios doubled to around 24% (end-Q108: 11.7%). In Fitch's view, this solid capitalisation significantly improves RB's ability to grow and diversify its business while providing a buffer for any further NPLs and the trading portfolio, although excessive growth would be seen as a concern.

RB was established in 1957 and is listed on the Saudi Stock Exchange. The bank is 51.3% owned by quasi governmental institutions while the remaining 48.7% is held by Saudi investors. It is the fourth-largest bank in Saudi Arabia by total assets with market shares of 11%-12% each in loans and customer deposits at end-Q108. It operates the third-largest branch network, comprising 200 branches (with 110 dedicated Islamic branches) and 1,811 ATMs (the second-largest ATM network in Saudi Arabia).