Capital Intelligence Ratings has affirmed the ratings of Samba Financial Group in view of its very strong capital ratios, strong liquidity, strong and continually improving asset quality, and sound net profitability.
Samba Financial Group’s Financial Strength rating is maintained at ‘AA-’ with a ‘Stable’ Outlook.
The rating is constrained by the bank’s still relatively low net special commission income, by the level of concentration among its individual borrowers and non-bank depositors, as well as by the current operating environment.
For the same reasons, the Long- and Short-Term Foreign Currency Ratings (FCRs) are maintained at ‘AA-’ and ‘A1’, respectively, with a ‘Negative’ Outlook. The latter reflects the Outlook Rating assigned to the Kingdom of Saudi Arabia (AA-/A1+/Negative).
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 Rating remains at ‘2’.
In the current economic environment, Samba Financial Group (profile) has returned to a posture of caution, 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.
While Samba Financial Group has been slowing its loan growth, it has also been writing off NPLs and has done a good job of limiting NPL accretion in its existing portfolio.
The result has been a steady improvement in asset quality, to the point where the bank now posts a very low NPL ratio that is below the already exceptionally low average for the sector. Coverage by loan-loss reserves (LLRs) is robust and continues to grow. That ratio as well is now better than the peer group average.
Layered on top of this profile is the Samba Financial Group’s strong capital profile, which includes some of the best ratios in the sector and its second-best Basel III CAR. That strong profile adds a great deal of additional comfort to the strong coverage of the portfolio by LLRs.
The slow loan growth has also served to preserve Samba Financial Group’s sound liquidity profile during a time when the banking system has been experiencing periodic liquidity squeezes.
While customer deposit growth has not been particularly robust, it has been strong enough to maintain the bank’s loan-based liquidity ratios, which include the sector’s best net loans to stable funds ratio.
The liquid asset ratio remains strong, and despite a somewhat high stock of interbank liabilities, the net liquid asset ratio is very sound and above the average for the peer group.
On both the lending and the deposit sides (especially the former), the bank is subject to the forces which prevail throughout the region – the presence of a number of very large government, quasi-government and private-sector institutions with a great need for either credit facilities or outlets for excess cash.
Notwithstanding the retrenchment of many of those institutions’ demands in the current economic environment, concentration remains an issue for Samba Financial Group and for most banks in the region. In fact, to a certain extent the liquidity crunch may have exacerbated the issue.
As asset quality has continually improved, the need for loan-loss provisioning has been reduced. Even so, the bank has been increasing its loan-loss coverage, but with minimal negative effect on its bottom line.
Leading up to that bottom line (the sector’s highest ROAA in 2015) are the components of operating profit, and Samba Financial Group acquits itself well in that respect.
A traditionally low cost structure is able to compensate for some perceived weaknesses in gross income.
That headline item, in turn, remains at a moderate level relative to the Bank’s size, and that is the case despite alternating robust declines or increases in net special commission income or in non-special commission income.
About Samba Financial Group
Samba Financial Group began operations in Saudi Arabia 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 235.2 billion at year-end 2015 (equivalent to USD 62.7 billion and a market share of almost 11%), Samba Financial Group ranked as the kingdom’s third-largest bank, both by total assets and by total capital.
Capital Intelligence Ratings (CI Ratings) can be found at http://www.ciratings.com.