Capital Intelligence affirms National Commercial Bank ratings

The long-term foreign currency rating of AA-, the short-term foreign currency rating of A1+ and the financial strength rating of AA- are all unchanged, as is the support rating of 1. All ratings carry a Stable outlook.

NCB is Saudi Arabia's largest bank by total assets and by total capital, with a market share of about 17%. Historically a retail bank, NCB offers a broad range of products to all market segments. The bank's funding and profitability are generated largely from the consumer segment, while assets are concentrated in the corporate segment. Domestically, NCB operates a network of 275 branches, 1,400 ATMs and over 12,000 POS terminals. An ongoing strategy of the bank is to undertake limited expansion of its activities regionally; recent strategic moves include acquiring a majority stake of a bank in Turkey and full ownership of an investment management services company in the UAE.

The year 2008 was a difficult one for NCB, mostly because of losses related to its investment portfolio. Despite gains in some areas, the net loss included impairment and mark-to-market losses against both the income statement and capital. The effects on the bank's overall profitability, liquidity and capital adequacy were, however, modest and manageable. Boosted by large volumes of retail deposits, liquidity remains the best in the sector; the bank's capital ratios are near the best. NPLs are well covered, but the potential exists for write-offs, or at least workouts, relative to several large familyowned corporates. While these amounts may be significant, CI believes that they can be easily covered by the bank's operating earnings, even at current lower levels.

Despite a drop in both operating profit and operating profitability in 2008, mostly the result of losses related to its trading book, NCB's operating profitability remained very high compared to that of its peers, and is on track to post an increase for the full year 2009. In the meantime, the bank continues to make robust provisions to protect its loan and investment portfolios, but even so net profit for first half 2009 already exceeds that of full-year 2008.

Created out of a Jeddah-based money-changing operation which began in 1938, NCB was established as a joint liability partnership and the kingdom's first locally owned bank in 1951. It remained a familyowned and operated institution for the next five decades, until two state-controlled pension funds acquired a combined 79% of its shares in 1999. It is the only Saudi bank whose shares are not listed on the Tadawul (Saudi Stock Exchange).