Moody's upgrades Banque Saudi Fransi's ratings

Both ratings now have a stable outlook. The bank's Foreign Currency Deposit Ratings remain unchanged at A1/P-1, with the A1 longterm rating carrying a positive outlook and being constrained by the relevant country ceiling.

Moody's BFSR upgrade recognises BSF's ability to capitalise on 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, BSF 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 24% and 31%, a cost-to-income ratio of between 21% and 31%, problem loans of just 0.7-1.2% and well covered by provision reserves, ample liquidity, and adequate capitalisation with the Tier 1 ratio ranging between 12.2% and 14.4%.

The rating also reflects BSF's well-established corporate and investment banking franchise, and beneficial association with CALYON, which has a 31.1% stake in the bank and provides management and technical expertise.

The relationship with CALYON also gives BSF access to the global network, expertise and technology of the Crédit Agricole Group (CALYON's ultimate parent company), and has been particularly beneficial in the fields of corporate banking, treasury operations, and risk management.

Moody's notes that the bank is also committed to strengthening its retail banking franchise, where its market share is well-below its natural levels; to this effect it is implementing a stringent segmentation of its clients and has set up a number of joint ventures to strengthen its expertise and product range in the areas of consumer finance, asset management and bancassurance.

BSF'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).

The bank's GLC deposit rating upgrade to Aa3 is primarily driven by the upgrade in the BFSR and is therefore supported by BSF's Baseline Credit Assessment of A2, as well as by the Aa3 local-currency deposit ceiling ratings of its underlying support provider, Saudi Arabia.

Moody's assessment of the probability of systemic support in the event of a stress situation is judged to be very high. This is based on BSF's 10% market share of customer deposits, and a track record which shows that the Saudi authorities have in the past supported banks in difficulties. The bank receives a two-notch uplift from its Baseline Credit Assessment.

Headquartered in Riyadh, Kingdom of Saudi Arabia, Banque Saudi Fransi reported total assets of SR111.3bn ($29.7bn) as of March 2008.