Fitch affirms Riyad Bank at 'A+'; outlook stable

The agency has simultaneously affirmed RB's Short-term IDR of 'F1', Individual Rating of 'B/C', Support Rating of '1', and Support Rating Floor of 'A+'. The agency has also affirmed the $500m senior unsecured notes, issued by RB, at 'A+'.

RB's Long- and Short-term IDRs and Support Rating reflect the extremely high probability that support would be forthcoming from the Saudi authorities in case of need. The Individual Rating reflects the bank's strong commercial franchise, consistent profitability and good capitalisation. It also reflects the risks inherent in the Saudi operating environment and RB's concentrations in loans and deposits as well as the market risks from the bank's investment portfolio.

RB continued to be strongly profitable in H109 despite a 15% y-o-y decline in net income. The 15% increase in net special commission income (NSCI, the equivalent of net interest income), RB's most important revenue source, was countered by impairments on investments and (to a lesser extent) higher loan impairment charges in H109. Fitch expects the downward trend in performance to continue when compared to 2008, particularly given Saudi Arabia's slowing economy and the bank's lower growth in business volumes. Nonetheless, the agency expects RB's strong franchise and large customer base to provide it with enough profits from its core banking businesses to absorb higher impairment charges.

RB's asset quality indicators remain satisfactory to date. However, Fitch notes that NPLs are on an upward trend as loans season, especially following the bank's recent rapid balance-sheet expansion. The agency also notes that it has some concern regarding borrower concentration, although this has remained fairly stable for some years. Market risks are moderate and arise from the bank's international and domestic equities and mutual fund portfolios.

Funding is primarily from customer deposits, which accounted for 84% of non-equity funding at end-H109. Despite being contractually short-term, these tend to be fairly stable in practice, although they are concentrated with a reliance on large quasi-governmental entities. RB's liquidity is also comfortable, given its large liquid government securities portfolio and the Saudi authorities' support to the banking system. Capitalisation is good with a Fitch eligible capital ratio of 16.8% at end-H109, although this has declined in the past year due to the bank's rapid loan growth.

RB, a full service bank, is 51.3% government/ quasi-government-owned and is listed on the Saudi stock market (Tadawul). It is the fourth-largest bank in Saudi Arabia in terms of total assets, with an approximate market share of 11% of system assets at end-2008.