Fitch Downgrades 3 Saudi banks To Negative, Low Oil Prices Hobble Growth
$MCO, $OIL,
The long-term issuer default ratings of Saudi British Bank, Banque Saudi Fransi and Arab National Bank were revised to negative from stable
Ratings agency Fitch has downgraded the outlooks on 3 Saudi Arabian banks as low Crude Oil prices continue to plague the Kingdom’s economy.
The long-term issuer default ratings of Saudi British Bank, Banque Saudi Fransi and Arab National Bank were revised to negative from stable, Fitch said in a statement.
The revision was based on the tougher operating environment facing the Saudi Arabian banking sector, mainly due to the effect of lower Crude Oil prices on government spending and the filter down effect this has on the rest of the economy.
“The long-term IDRs of the 3 banks are driven by their ‘a’ viability ratings, which are capped at this level by the operating environment,” the ratings agency said.
A deteriorating operating environment will see “slowing loan growth, a reduction in earning and profitability growth, a deterioration in asset quality metrics, and subsequent impact on capital, as well as tighter liquidity,” it added.
Fitch upgraded the viability rating of Alinma Bank crediting the move to the lender’s growth, maturity and the track record of its franchise.
“Alinma has built a more significant Islamic corporate franchise in Saudi and is building a solid Islamic retail franchise. It is now a strongly recognised Islamic brand in the kingdom and a more mature bank, having finished the start-up and growth phase.
“It also reflects management’s strong track record of performance. The bank has performed well since start up and we expect this to continue,” the statement said.
Fitch confirmed that ratings for all the eight other banks were unchanged, with long-term IDRs remaining negative for Al Rajhi Bank, National Commercial Bank, Riyad Bank and SAMBA Financial Group.
Despite the slowdown in the economy, the agency said it anticipated a strong probability of support from the Saudi authorities, if required.
“Support has been demonstrated by the Saudi authorities’ long track record of supporting domestic banks, as well as close ties and ownership links with the government at a number of banks,” it said.
“Fitch’s view of support is also underpinned by the sovereign’s strong capacity to support the banking system supported by its sovereign wealth funds and on-going revenues mostly from its Crude Oil production, and the moderate size of the Saudi Arabian banking sector in relation to the country’s GDP (gross domestic product).”
Last week, a report by ratings agency Moody’s (NYSE:MCO) also predicted that the planned slowdown in public spending due to the lowered Crude Oil prices, in Saudi Arabia will prove credit negative for banks in the Kingdom.
Moody’s anticipates that government spending growth will slow to 2% in Y 2016 and 4% in Y 2017, from 14% on average between Y’s 2010 and 2014.
In turn, the rating agency expects credit growth to slow to around 8% in Y 2015 and around 5% in Y 2016, from 12% in Y 2014.
By Aarti Nagraj
Paul Ebeling, Editor
HeffX-LTN
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