Complex Made Simple

CI affirms ratings of The Saudi Investment Bank

Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the ratings of The Saudi Investment Bank (SAIB), based in Riyadh, Saudi Arabia. In view of the strong growth in the Bank’s profitability at the operating and net levels, the sound and liquid investment portfolio, continued improvement in the non-performing loan (NPL) ratio and ongoing good coverage, as well as the Bank’s sound capital ratios, the Financial Strength Rating (FSR) is maintained at ‘A-‘. Ratings are constrained by the Bank’s tightened liquidity, continued concentration in the loan book, deposit base and contingent accounts, and by the possibility that rapid loan loan growth could lead to a higher cost of risk. For the same reasons, the Long-Term Foreign Currency Rating is maintained at ‘A’ and the Short-Term Foreign Currency Rating at ‘A2’. In the last report, a ‘Positive’ Outlook was appended to all the ratings in light of continuing improvement in asset quality and profitability; those conditions still apply and the FSR and Foreign Currency Outlooks remain ‘Positive.’ However, it was also stated that a possible upgrade was contingent upon a significant improvement in liquidity without deterioration in other areas, an improvement which has not occurred. At the next review cycle, the ‘Positive’ Outlooks will most likely be removed, whether or not the ratings are raised. Official support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Level remains at ‘2.’

In an effort to increase earnings and decrease concentration risk, SAIB has altered its business model to include more retail business and in the process has grown both its balance sheet and its profitability at a robust pace. While concentration remains high as to both loans and nonbank depositors, there has been a modest improvement in both and in the latter case the risk is significantly mitigated by the identities of the depositors.

The Bank’s efforts have also been successful in generating deposits, although loan growth continues to be such that loan-based liquidity ratios tightened once again. Moreover, the slow growth in capital and medium/long-term funding required the Bank to resort to the sector’s highest (relatively) use of the interbank market for funding, resulting in the peer group’s lowest net liquid asset ratio at year end 2013. That circumstance is mitigated however by the Bank’s high quasi-liquid asset ratio – the result of a large stock of sound and liquid private-sector marketable securities. While capital ratios remain sound, they are low compared to those of the Bank’s peers.

The loan growth of the past two years has not produced any significant deterioration in asset quality. Although the stock of NPLs ticked up in 2013, the strong loan growth overwhelmed that and produced another drop in the NPL ratio to about the peer group average, which is low by most standards. Related-party exposure is the highest among Saudi banks, but consists principally of unfunded exposure resulting from trade transactions with its foreign bank shareholders (mostly JP Morgan Chase).

Of the twelve locally incorporated banks in the Kingdom, SAIB ranked ninth by total capital and was effectively tied for eighth-largest by total assets as of year end 2013. On that date, its assets totalled SAR80.5 billion (equivalent to USD21.5 billion), representing a market share of 4.3%. At year end 2013, it operated a system of 48 domestic branches (including eleven with ladies’ sections), almost all of which are Shari’a-compliant.


Primary Analyst
Tom Kenzik
Senior Credit Analyst
Tel: +357 2534 2300
E-mail: [email protected]

Secondary Analyst
Rory Keelan
Senior Credit Analyst
E-mail: [email protected]