Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the ratings of The National Commercial Bank (NCB), based in Jeddah, Saudi Arabia. In view of the Bank’s strong liquidity, improving asset quality, steady profitability at several levels and strong franchise, the Financial Strength Rating (FSR) is maintained at ‘AA-’, with a ‘Stable’ Outlook.
The rating is constrained by the Bank’s higher than average cost structure, its relatively low (compared to its peers) capital ratios, and to some extent the levels of concentration in its loans and in its funding.
Because of the Bank’s prominent position in the Saudi banking sector and its majority government ownership, official support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Level remains at ‘1.’ Supported and constrained by the same factors as for the FSR, the Long-Term Foreign Currency Rating of ‘AA-’ and the Short-Term Foreign Currency Rating of ‘A1+’, both constrained by the ratings assigned to the sovereign (‘AA-’/‘A1+’/‘Stable’), are affirmed with a ‘Stable’ Outlook.
NCB has historically displayed a robust ability to gather demand deposits, and commands a loyal customer deposit base. The Bank’s leading position in customer deposits has become less so recently, although the Bank continues to hold significant advantages over its peers in respect of demand deposits. Overall, the Bank’s liquidity profile – despite some softening in recent years as the Bank gradually deploys that strong liquidity – is the best in a very liquid banking sector. However, some concentration on both the loan and deposit sides is evident. While not of serious concern, it was a factor in the troubles NCB (like other Saudi banks) experienced several years ago.
Over the past half-decade the Bank had been making steady progress in the improvement of its asset quality, but in Q1 2015 the first warnings signs may have appeared of a more difficult path in the near future. The Bank has responded by raising loan-loss reserves (but reducing coverage in Q1 2015), while retaining a sound capital base. While that base is the largest in the Kingdom, it is smaller in relation to the Bank’s balance sheet than is the case for Saudi banks on average. Moreover, that is also the case for the Bank’s medium/long-term funding, so that the combination is relatively small; nevertheless, it is sufficient to provide the Bank with one of the sector’s highest effective non-performing loan coverage ratios.
Net special commission income has been growing steadily, driven by a stable net special commission margin, combined with the flexibility the Bank has to grow its loan book. At the same time, success in growing core fee and commission income has supported a modest growth in non-special commission income. Although the Bank’s cost structure is slightly higher than that of its peers, costs are controlled and those ratios are continually improving. The result has been growing operating profit not significantly impaired by provisioning expense. While net profit continues to grow, balance-sheet growth has reduced ROAA (return on average assets) − which is still on a par with or better than that of the Bank’s peers.
As of 31 December 2014, the Bank’s assets totaled SAR434.9 billion (equivalent to USD116.0 billion) – a market share of almost 21%. The Bank’s capital totalled SAR46.9 billion (equivalent to USD12.5 billion), making it the Kingdom’s largest bank by both measurements. At year end 2014, the Bank’s four million customers were served through its network of 333 branches (2013: 312), including nine corporate service centres, 14 retail service centres, over 2,500 ATMs and over 15,000 POS terminals.