Capital Intelligence (CI), the international credit rating agency, announced that it has affirmed the ratings of The National Commercial Bank (NCB), based in Jeddah, Saudi Arabia. In view of the Bank’s strong liquidity, sound asset quality and steady profitability, the Financial Strength Rating (FSR) is maintained at ‘AA-‘, with a ‘Stable’ Outlook. The rating is constrained by the Bank’s higher than average cost structure, its declining average capital ratios, and to some extent the levels of concentration in its loans and in its funding.
Supported and constrained by the same factors, the Long-Term Foreign Currency Rating of ‘AA-‘ and the Short-Term Foreign Currency Rating of ‘A1+’, both constrained by the Sovereign Rating, are affirmed with a ‘Stable’ Outlook. Because of the Bank’s prominent position in the Saudi banking sector and its majority government ownership, official support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Level remains at ‘1’.
NCB has historically displayed a robust ability to gather demand deposits, and that continues. At least in part because of its strong franchise, the Bank continues to outperform all other Saudi banks in the area of liquidity, as it posts the sector’s soundest liquidity ratios.
Last year, NCB continued the cautious loan growth it had begun in 2012. At the same time, the steady improvement in the Bank’s asset quality also continued. Write-offs of large corporate obligations (which had been fully provided) led to a sharp reduction in non-performing loans (NPLs) and in the NPL ratio, bringing both to very low levels.
NCB continues to make more than adequate provisions against its NPL portfolio, and in 2013, its more than full coverage by loan-loss reserves (LLRs) was near the best in the sector. Although most capital ratios are trending lower and are below average for the sector, they are still very sound in a global context and provide additional support. While there is some concentration in the loan book (as well as in the customer deposit base), it is not inordinate given the banking environment in the region, and from an asset perspective, the concentration risk is mitigated by the quality of those borrowers.
Although NCB’s strong liquidity has in the past hurt the Bank’s net special commission income (SCI), this was not the case in 2013 as a robust increase in demand deposits led to a significant decline in funding cost and a steady net interest margin (NIM). Cost ratios, although improving, remain higher than average, but NCB was able to combine strong growth in SCI and a low risk expense to produce operating profitability on a par with that of its peers and a return on average assets (ROAA) which is better.
As of 31 December 2013, the Bank’s assets totalled SAR377.3 billion (a market share of more than 20%), and its capital totalled SAR42.5 billion, making it the Kingdom’s largest bank by both measurements. At year end 2013, the Bank’s 7,119 employees served more than 3.5 million clients through its network of 329 branches (2012: 299), including 9 corporate service centres, 2,252 ATMs and over 15,000 POS terminals.
Senior Credit Analyst
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