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Capital Intelligence affirms ratings of Banque Saudi Fransi

: Wednesday, June 25 - 2014 @ 09:18

Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed the ratings of Banque Saudi Fransi (BSF), based in Riyadh, Saudi Arabia. The Financial Strength Rating (FSR) is affirmed at ‘A,’ supported by improvements in liquidity, including strong growth in demand deposits and continued high use of medium/long term (MLT) funding, and by the Bank’s cost ratios, which have historically been sound and which continue to be so.

For the same reasons, the Long-Term Foreign Currency Rating (FCR) is affirmed at ‘A+’ and the Short-Term FCR at ‘A1’. Ratings are constrained by last year’s increase in the level of non-performing loans (NPLs) and in the NPL ratio, and by the relatively low (by Saudi standards) capital ratios. Additional constraining factors involve profitability, which suffered last year at the levels of gross income, operating profit and net profit. All ratings carry a ‘Stable’ Outlook. In view of the Bank’s position in the Saudi banking sector, support from either official quarters or its shareholders, or both, would be expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Level remains at ‘2.’

Guided by new management (late 2011), in 2013, BSF completed the re-structuring of its retail banking business, which had involved addressing the retail loan portfolio and adopting a different marketing approach aimed at the middle/upper segment of the market. Having thereby made great improvements in asset quality in 2012, the Bank turned its attention to its corporate portfolio where increased recognition – the Bank has reduced its stock of ‘past due not impaired’ (PDNI) loans in each of the past two years – may have been partly responsible for a jump in NPLs and the NPL ratio which was contrary to the trend in the sector last year.

At the same time, the Bank continues to make improvements in its liquidity. The liquid asset ratio and the net liquid asset ratio have enjoyed healthy increases over the past three years, buoyed by rising levels of deposits – especially demand deposits. Loan-based liquidity ratios, having risen in 2012, were improved in 2013 and stand at generally sound levels. The key ratio in that respect – the net loans to stable funds ratio – benefits from the Bank’s high level of medium/long-term funding (EMTN borrowings, senior unsecured sukuk and a subordinated sukuk), which augment a capital profile which is adequate but among the lowest of Saudi banks.

A decreased estimated net interest margin (NIM) was largely responsible for a slow growth in net special commission income (net SCI), and with non-special commission income (NSCI) unchanged, the result was a flat performance by gross income. Fortunately, the Bank has traditionally displayed sound cost ratios, and that continued in 2013. However, with no effective change in gross income, cost control was not sufficient to maintain operating profit, which consequently fell. Despite a relatively small increase in balance-sheet size, operating profitability fell sharply, although the number remains adequate for a principally corporate bank. However, by more than doubling its provisioning expense the Bank assured that both net profit and ROAA would decline, which was indeed the case.

By total capital, BSF is the largest of the four foreign joint-venture banks in Saudi Arabia; by total assets, it is effectively tied for second place. Of all twelve locally incorporated banks in the kingdom, BSF ranked fifth by total capital and sixth by total assets as of year-end 2013. Its assets totalled SAR170.1 billion (equivalent to $45.3 billion), representing a market share of 9.1% by total assets. At year-end 2013 it operated 83 full domestic branches (2012: 86).

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Wednesday, June 25- 2014 @ 9:18 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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