Capital Intelligence announced that it has affirmed the ratings of Saudi Arabia’s Samba Financial Group.
In view of the Samba Financial Group’s very strong capital ratios, strong liquidity, continually improving asset quality, and sound profitability, the Financial Strength Rating is maintained at ‘AA-’, with a ‘Stable’ Outlook’.
Ratings are constrained by the bank’s still relatively low net special commission income and to some extent by the level of concentration among its individual borrowers and non-bank depositors.
For the same reasons, the Long-Term Foreign Currency Rating is maintained at ‘AA-’ and the Short-Term Foreign Currency Rating at ‘A1’, with a ‘Negative’ Outlook, reflecting the ‘Negative’ Outlook assigned to the Kingdom of Saudi Arabia’s sovereign ratings.
In view of the bank’s position in the Saudi banking sector, official financial support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Level remains at ‘2’.
In the current economic environment, Samba Financial Group (profile) has returned to a posture of caution in the past two years, limiting both loan growth and balance-sheet growth and maintaining a liquidity profile which is near the best in the sector.
However, as is the case throughout the sector, that profile could be threatened by possible disintermediation, as banks’ depositors move some of their deposits into government securities, which are being issued in greater numbers.
The slower loan growth has been contemporaneous with a good level of loan recoveries; together with increased write-offs, the result has been a continually improving asset quality. While the non-performing loan ratio is still above the very low average for the sector, it is very sound in a global context. Moreover, the bank’s very strong capitalization provides additional cover – over and above the full coverage by loan-loss reserves – so that Samba Financial Group displays a very high effective NPL coverage ratio.
The improved asset quality has led to a reduced risk expense, which has been a key component in the bank’s being able to post the peer group’s best return on average assets. Other contributing factors to that ratio include the maintenance of the Bank’s traditionally low cost structure, and to some extent improvement in non-special commission income. Gross income is however negatively impacted by weak performance in net special commission income – to a great extent a function of the bank’s business model, which favors corporate business on the asset side.
As is common throughout the region, Samba Financial Group’s balance sheet – as to both loans and customer deposits – is subject to concentrations because of the presence of a number of very large government, quasi-government and private-sector institutions in the customer base. In Samba’s case, that remains an issue.
About Samba Financial Group
SAMBA began operations in the kingdom in 1955 as two branches of US-based First National City Bank (later Citibank and then Citigroup). In 1980, in accordance with Saudi law, those branches were capitalized and converted into a joint-venture bank, and Citibank subscribed to the maximum permissible 40% stake. Citigroup reduced its stake in several stages, disposing of all of its interest in 2004. Currently, about 96% of the bank’s shares are held by Saudi shareholders, including 49.7% held by Saudi government-related entities and the remaining 50.3% by the general public.
With total assets of SAR 217.4 billion at year end 2014 (equivalent to USD 58.0 billion and a market share of about 10%), Samba ranked as the kingdom’s third-largest bank, both by total assets and by total capital.
Capital Intelligence (CI) ratings can be found at http://www.ciratings.com.