Fitch affirms Samba Financial Group at 'A+'; outlook stable

Samba's Long- and Short-term IDRs, Support Rating, Support Rating Floor and senior debt rating reflect Fitch's view that there would be an extremely high probability of support from the Saudi authorities, if required.

This is based on the Saudi Arabian Monetary Agency's (SAMA) strong history of support, the Saudi state's (indirect) 49.3% stake in the bank, and Samba's systemic importance as one of the top three Saudi banks by deposits.

The ratings would be sensitive to a reduced perceived ability from the sovereign to support, such as through a sovereign downgrade. The ratings could also be sensitive to a lower propensity of the Saudi authorities to support the bank, a reduction in SAMBA's strong franchise or a reduced government shareholding. An upgrade of the Long-Term IDR would be driven by a multi-notch upgrade of the VR. This is extremely unlikely at present.

The VR reflects the bank's healthy financial profile, particularly its strong liquidity and capital position. The rating also considers Samba's resilient franchise and dominant market position. The rating is constrained by high concentration risks in both assets and liabilities (by sector and name) and some pressure on operating income.

Samba is one of the most profitable banks in the region. However, there has been moderate pressure on operating income from the low interest rate environment and investment income volatility. A resumption of loan growth, stable loan impairment charges and good cost containment should support earnings in 2013.

Fitch expects asset quality to remain healthy in the short to medium term, given the benign operating environment in Saudi Arabia. The non-performing loan ratio declined to 2.2% at end-2012 and reserve coverage is in excess of 100%. The majority of SAMBA's investments are low-risk Saudi government bonds. International investments are either in US treasury bonds or plain vanilla corporate and financial institution bonds.

As is common among Saudi banks, loans are highly concentrated by both sector and borrower. Although the former is difficult to avoid in this market, borrower concentration risk is a key concern. Concentration risk in deposits is less of an issue as several of SAMBA's largest depositors are related to the Saudi government.

A strong brand and franchise provide a solid customer deposit base (2012: 93% of non-equity funding). Over half of SAMBA's deposits are non-remunerated demand deposits, which provide a cheap source of funding. Saudi government-related entities maintain sizeable deposits with the bank, which tend to be stable. SAMBA remains highly liquid, reporting a comfortable loan/deposit ratio of 73%. Fitch views SAMBA's capital position as strong, with a Fitch core capital ratio of 19.0% at end-2012. Capital is sustained by high levels of retained earnings and provides a comfortable cushion to support business growth.

Negative pressure on the VR could occur if there was deterioration in the domestic operating environment and in the bank's asset quality, particularly as a result of rapid loan growth, or if there was a sharp reduction in capital or liquidity levels. Upward movement is unlikely considering the already high level of the VR and in view of SAMBA's concentrations in loans and deposits.

Established in 1980, SAMBA is a leading corporate and retail bank based in Saudi Arabia, 49.3% owned by the state (via three sovereign agencies). International operations comprise a branch in London, Dubai and Qatar and SAMBA Bank Limited, Pakistan (80.7% stake), which operates 28 domestic branches.

The rating actions are as follows:

Long-term IDR affirmed at 'A+', Outlook Stable

Short-term IDR affirmed at 'F1'

Viability Rating affirmed at 'a'

Support Rating affirmed at '1'

Support Rating Floor affirmed at 'A+'

EMTN Programme affirmed at 'A+'/'F1'