Capital Intelligence (CI), the international credit rating agency, today announced that it has affirmed the ratings of Samba Financial Group (SAMBA), based in Riyadh, Saudi Arabia.
In view of the Bank’s very strong capital ratios, strong liquidity and continually improving asset quality, the Financial Strength Rating is maintained at ‘AA-‘, on a ‘Stable’ Outlook. Ratings are constrained by the Bank’s still relatively low operating profitability – itself a function of a low net interest margin (NIM) and low levels of non-special commission income (NSCI) – 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 of ‘A1′, both constrained by the Sovereign Rating and carrying a ‘Stable’ Outlook. 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.’
Having repaired its balance sheet, last year SAMBA turned its attention to its P&L statement. While 2012 had been modestly successful in stemming a five-year pattern of generally declining profit at the levels of gross income, operating profit and net profit, 2013 represented a year of more significant improvement. Hampered by a still low NIM and a reduction in NSCI, gross income nonetheless posted an increase larger than that of the year before, although it remained below average compared to other Saudi banks. When coupled with the Bank’s traditionally good cost control and limited need for loan-loss provisioning expense, the result was an even greater improvement in operating profit and net profit. These increases were further enhanced by continued discipline in restraining balance sheet growth, so that both operating profitability and return on average assets (ROAA) ran contrary to the sector trend and rose for the year, with the latter exceeding the peer group average.
At the same time, these improvements in profitability had limited effects on the Bank’s balance sheet. Capital ratios remained among the best in the sector, as did loan-based liquidity ratios. Liquid asset ratios – both gross and net – remained strong, and use of the interbank market for funding dropped to a low level after a large reduction for the second consecutive year. Write-offs and a very low estimated non-performing loan (NPL) net accretion rate served to further reduce the NPL ratio, although that figure remained marginally high by Saudi standards. Continued sound provisioning and especially the Bank’s strong capital position, accorded SAMBA one of the highest effective NPL coverage ratios in a banking sector which on average displays excellent coverage.
As is common throughout the region, SAMBA’s balance sheet – as to both loans and customer deposits – is subject to concentration because of the presence of a number of very large government, quasi-government and private-sector institutions. In SAMBA’s case, that remains an issue on the asset side.
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 capitalised 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 49.6% held by Saudi government-related entities and the remaining 50.4% by the general public.
At year end 2013, SAMBA ranked as the Kingdom’s fourth-largest bank, with total assets of SAR205 billion (equivalent to $54.7 billion and a market share of about 11%). By total capital (SAR31.7 billion) the Bank ranked third in size among Saudi banks. At the close of the year, SAMBA operated a network of 72 branches and employed 3,306 full-time direct staff (2012: 3,329).
Senior Credit Analyst
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