Fitch affirms National Commercial Bank at 'A+'/'F1'; outlook stable

The Support Rating Floor is affirmed at 'A+'.

NCB's Long-and Short-term IDRs and Support Rating reflect the extremely high probability of support from the Saudi authorities, should it be required. Fitch's view of support is based on the strong history of support provided by the Saudi Arabian Monetary Agencies (SAMA), the Saudi government's majority stake and the bank's large franchise in Saudi Arabia ('AA-' (AA minus)/Stable).

The Individual Rating reflects the bank's leading domestic franchise, strong profitability and sound capitalisation. It also considers the risks inherent in the Saudi operating environment and concentrations on both sides of the balance sheet.

NCB's profitability remains strong, due to an increase in core business volumes. However, its net income in 2007 suffered from a drop in stock market-related income and impairments on the securities portfolio. In H108, NCB reported a modest increase of 3.7% in net income yoy to SR3.7bn. The main driver of the increase in revenue was net special commission income (up 18% yoy) and core banking fees (up 24% yoy). These, however, were partly offset by a significant increase in impairment charges on the investment portfolio (H108: SAR162m; H107: nil). Additional write-downs and/or impairments might be reported by NCB in H208, though these are not expected to significantly affect the bank's risk profile.

NCB's asset quality is still adequate, despite an increase in the absolute levels of non-performing loans (NPLs). Large write-offs and strong loan growth in 2007 and H108 helped to maintain the bank's asset quality ratios at comfortable levels. Following the implementation of Basel II and the acquisition of Turkiye Finans Katilim Bankasi (assets: $4.8bn, equity: $504m at end-2007), one of the leading participation (Islamic) banks in Turkey, NCB suffered a significant decline in its capital ratios. However, with the bulk of the capital base in the form of Tier 1, the total regulatory and the Fitch eligible capital ratios were still sound at 13.2% and 12.2%, respectively, at end-H108.

NCB was established in 1953 and the main shareholders are the Ministry of Finance's Public Investment Fund (69%) and the General Organisation for Social Insurance (10%), with the remainder owned by Saudi investors. It is the only domestic bank that is not listed on the Saudi stock market.

NCB is the largest bank in Saudi Arabia in terms of assets and equity, with market shares of approximately 15% and 19% in loans and deposits, respectively, at end-2007. NCB operates one of the largest retail networks in Saudi Arabia with 276 branches, 1,207 ATMs and 11,024 point-of-sale terminals. Internationally, the bank has branches in Bahrain and Beirut and representative offices in London, Seoul, Singapore and Tokyo. On 31 March 2008, NCB acquired a 60% stake in Turkiye Finans Katilim Bankasi.