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Moody's changes to positive from stable the outlook on Riyad Bank's C- Financial Strength rating
- Saudi Arabia: Wednesday, June 14 - 2006 at 10:02
- PRESS RELEASE
Moody's Investors service has changed the outlook on Riyad Bank's C- Financial strength rating (FSR) to positive from stable.
Moody's explains that this rating action recognises Riyad Bank's strengthened franchise, improved financial fundamentals and strong capital base. Over the last few years, Riyad Bank has been implementing an internal restructuring. It has also upgraded its IT and operating infrastructure and placed increased emphasis on staff training and on expanding its distribution capabilities. Riyad Bank's extensive network of almost 200 branches allowed it to establish a strong presence in the (high-margin) consumer lending business, while also benefiting from low funding costs. The bank's internal restructuring, combined with the ongoing improvements in the domestic operating environment, triggered by the high oil prices and growing streams of infrastructure and developments projects, have boosted the bank's earnings and improved its efficiency and asset quality indicators. The bank's strong capital base, with shareholders' funds to total assets of 12.6% as of March 2006, as well as its sizeable provision reserves, allows it sufficient cushion against potential losses arising from the current stock market correction.
According to Moody's, future upward rating action is expected to be driven by Riyad Bank's ability to maintain its strong financial performance under a more challenging competitive environment, and to limit any material negative impact that may result from the exposure to the equity market while continuing to strengthen its risk management capabilities and growing and broadening its business franchise.
Challenges faced by the bank include increased competition from stronger domestic banks and newly licensed foreign banks, and concentration in funding and lending. Similar to many of its peers, the aggressive loan growth over the past three years is somewhat a cause for concern with regards to potential asset quality eterioration, but such concerns are largely mitigated by the fact that this growth has been in retail lending where a) the loans are secured by salary assignments, b) banks make use of the established credit bureau and c) abide by SAMA's regulations, effectively limiting a borrower's exposure to a manageable level.
Headquartered in Riyadh, Saudi Arabia, Riyad Bank reported total assets of SAR86.9 billion (US$23.2 billion) as of March 2006.
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