RIYAD BANK
Fitch Ratings has affirmed
Fitch has also affirmed RB's Viability Rating (VR) at 'bbb+'.
Fitch has withdrawn RB's Support Rating of '2' and Support Rating Floor of 'BBB+' as they are no longer relevant to the agency's coverage following the publication of our updated Bank Rating Criteria on
Key Rating Drivers
The 'BBB+' Long-Term IDRs of RB are driven by its standalone credit profile, as indicated by its VR, and are underpinned by a high probability of support from the Saudi Arabian authorities. Its 'F2' Short-Term IDR is the lower of two options mapping to a Long-Term IDR of 'BBB+' as per our bank rating criteria. This is because a significant proportion of Saudi banks' funding is related to the government and they would likely need support at a time when the sovereign itself is experiencing some form of stress.
RB's VR reflects the bank's well-established and improving company profile, sound capitalisation, strong profitability and healthy funding and liquidity. It also captures sound asset quality, though weaker than that of larger peers, and high concentration risk.
RB's National Rating reflects the bank's creditworthiness relative to that of other issuers in
Easing Pressures from Pandemic: Pressures from the pandemic and lower oil prices have largely eased and Saudi banks' financial metrics have been very resilient in the past quarters. Strong financing growth will continue to support banks' financial metrics in 2022.
Well Established Domestic Franchise: RB is the third largest bank in
Risk Profile in Line with Sector: Our assessment of RB's risk profile considers the pre-dominance of large public- and private-sector companies in the bank's loan book, appropriate underwriting standards, and strong growth in the lower retail mortgage segment.
Sound Asset Quality: Asset quality is sound but slightly weaker than at larger peers. Non-performing loans (NPLs) fell to 1.6% of gross loans at end-3Q21 from 1.9% at end-2020. Reserve coverage of NPLs remained healthy at 126% but would likely be weaker when considering Stage 3 loans. Low-risk investment securities accounted for 18% of total assets at end-3Q21.
Strong and Improving Profitability: RB enjoys strong core earnings generation, underpinned by loan growth, strong fee income and an improving franchise. In particular, faster growth in higher-yielding retail mortgages has supported net interest margin (NIM) in recent years. NIM was maintained at a sound 3% in 9M21, not significantly below its pre-pandemic levels.
Sound Capitalisation: RB's capitalisation has remained strong despite the pandemic. The bank's common equity Tier 1 (CET1) ratio of 16% at end-3Q21 was close to its pre-pandemic levels (end-2019: 16.3%) despite rapid lending growth in 3Q21.
Strong Funding; Good Liquidity: RB's strong franchise and large network help attract low-cost retail deposits. Nonetheless, deposit concentration is high, due to large deposits from government entities. While the Fitch-calculated gross loans/customer deposits ratio (105% at end-3Q21) is at the higher end of the sector, liquidity is sufficient with high-quality liquid assets equivalent to 16% of total assets and covering 26% customer deposits at end-3Q21.
Sovereign Support: The Saudi authorities have strong ability and willingness to provide support to domestic banks irrespective of size, franchise, funding structure and level of government ownership. High contagion risk among domestic banks is an added incentive for the state to provide support to any Saudi bank if needed, to maintain market confidence and stability.
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of RB's IDRs would require a downgrade of the VR and GSR. The latter would be triggered by a sovereign downgrade. RB's VR could be downgraded in case of a sharp or sustained deterioration in asset-quality and profitability metrics, leading to the bank's CET1 ratio falling sustainably below 14%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of the IDR could come from an upgrade of the bank's VR or an upgrade of the GSR. A VR upgrade is unlikely without a material improvement in the Saudi Arabian operating environment.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
RB's debt and trust certificate issuance programme are housed under
The
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Senior debt and the trust certificate issuance programme housed under
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Senior debt and the trust certificate issuance programme housed under
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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