Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed the ratings of Riyad Bank (RB), based in Riyadh, Saudi Arabia. Supported by the improved asset quality, continued very sound capital profile and improved overall profitability, the Bank’s Financial Strength Rating (FSR) is affirmed at ‘AA-‘. Ratings are constrained by the fact that the growth in retail deposits slowed in 2013, the resultant liquidity ratios which are tighter than the Bank’s peers’, and the Bank’s still low operating profitability – which is largely due to its low level of non-special commission income. For the same reasons, the Long-Term Foreign Currency Rating is maintained at ‘AA-‘ and the Short-Term Foreign Currency Rating at ‘A1+’. Both are constrained by the Sovereign Rating. All ratings carry a ‘Stable’ Outlook. In view of the Bank’s prominent position in the Saudi banking sector, official support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Level remains at ‘2.’
In 2013, Riyad Bank’s expansion of its retail business continued on the asset side, but the deposits typically generated from that segment – demand deposits (non-interest-bearing deposits, or NIBs) were unchanged on the year. Nevertheless, the funding mix and the concentration which had existed in the customer deposit base were both improved with the raising of senior medium-term debt and the non-renewal of some large deposits for pricing reasons. While these moves, together with modest loan growth, tightened the Bank’s loan-based ratios, those ratios remain generally sound in a global context.
Last year, the Bank also made significant improvements in its asset quality (as did the sector as a whole). NPLs were sharply reduced, as was the NPL ratio. Coverage by loan-loss reserves was not complete, but was nearly so. In addition, coverage benefitted from the Bank’s traditionally strong capital profile, so that the effective NPL coverage ratio was very strong.
As to profitability, the Bank struggled with its level of non-special commission income last year, while better performance as to net special commission income (net SCI) served to keep gross income growth positive. Continued good cost control allowed Riyad Bank to report a narrowly higher operating profit, but it was the improvement in risk expense which boosted net profit to a record level and raised ROAA while that of the sector was declining.
In terms of total assets at year-end 2013, RB ranked as the kingdom’s third-largest bank (fourth-largest by total capital), with total assets of SR205bn (equivalent to $54.7bn and a market share of about 11%). At year-end 2013, the Bank operated a network of 134 conventional branches, 118 Islamic branches, 4 Private Banking Centers, 55 Golden Service Centers and a network of over 2,500 ATMs.