SAUDI AWWAL BANK Fitch Ratings has upgraded eight Saudi banks' Long-Term (LT) Issuer Default Ratings (IDRs) to 'A-' from 'BBB+'.
The banks are
At the same time, Fitch has upgraded Government Support Ratings (GSR) of
The rating actions follow an action on the
A full list of rating actions is below.
Key Rating Drivers
The D-SIB GSR was upgraded to 'a-' from 'bbb+' on the sovereign rating upgrade. The authorities have a strong ability to provide support to the banking system given their large external reserves and increased access to external markets. There is a long record of support for Saudi banks and Fitch considers the authorities to still have a strong willingness to support the banking system to maintain stability in the domestic financial system.
GIB's IDRs are driven by its 'a-' GSR and reflect a high probability of support from the Saudi authorities if needed, despite the bank being licensed and headquartered in
GIBUK's IDRs are driven by its 'a-' GSR and reflect a high probability of support from the Saudi authorities, if needed, given the bank's indirect Saudi ownership. This reflects the Saudi authorities' strong ability and willingness to provide support to GIBUK.
The 'F2' Short-Term IDR for the banks is the lower of two options mapping to a LT IDR of 'A-' 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.
The National Ratings for Saudi banks reflect their creditworthiness relative to that of other issuers in
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A downgrade of
A downgrade of all Saudi banks' GSRs would be triggered by a sovereign downgrade.
As GIB's Long-Term IDR is not capped by
The banks' National Ratings are sensitive to a negative change in their Long-Term LC IDRs and the banks' creditworthiness relative to other Saudi Arabian issuers'.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of
An upgrade of all Saudi banks' GSRs would be triggered by a sovereign upgrade.
The banks' National Ratings are sensitive to a positive change in their Long-Term LC IDRs and the bank's creditworthiness relative to other Saudi Arabian issuers'.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The ratings of senior debt (sukuk) issued by the banks directly or through special purpose vehicles (SPVs) are in line with the banks' LT and ST IDRs because Fitch views the likelihood of default on any senior obligations (including issued through SPVs) as the same as that of the respective bank.
We use the banks' LT IDRs as the anchor rating for Tier 2 sukuk certificates as we believe that potential extraordinary sovereign support for
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The senior unsecured and subordinated debt and sukuk ratings are sensitive to change in the banks' LT and ST IDRs. The subordinated certificates are also sensitive to a reassessment of loss severity or incremental non-performance risk. A narrowing of notching to one from two currently below the anchor rating is unlikely in the near term without any precedent being set by the Saudi authorities through bank resolution or loss mitigation for Tier 2 subordinated notes.
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 '
Criteria Variation
Fitch has deviated from the criteria by assigning a support-driven LT IDR for GIB seven notches above
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.
Public Ratings with Credit Linkage to other ratings
The IDRs of
ESG Considerations
As Islamic banks, Alinma and BAJ need to ensure compliance of their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations, reporting and sharia audit. This results in an ESG Relevance Score of '4' for Governance Structure (in contrast to a typical relevance score of '3' for comparable conventional banks), which has a negative impact on their credit profiles and is relevant to their ratings in conjunction with other factors.
In addition, Islamic banks have an ESG score of '3' for Exposure to Social Impacts (in contrast to a typical ESG relevance score of '2' for comparable conventional banks), which reflects that Islamic banks have certain sharia limitations embedded in their operations and obligations, although this only has a minimal credit impact on the entities.
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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