Fitch affirms ratings of 7 Saudi banks at BBB+

Fitch Ratings revised its outlook on the Long-Term Issuer Default Ratings (IDRs) of seven Saudi-listed banks to Negative from Stable and affirmed their IDRs at 'BBB+'.  

The banks are Riyad Bank, Arab National Bank (ANB), Banque Saudi Fransi (BSF), Alinma Bank, Saudi Investment Bank (SAIB), Bank Aljazira, and Saudi British Bank (SABB).

The IDRs of the banks are driven by their Support Rating Floors (SRFs), except for that of Riyad, which is driven by its Viability Rating (VR) and underpinned by its SRF. 

Fitch also affirmed the 'A-' Long-Term IDRs of NCB, Al Rajhi Bank and Samba, removing them from Rating Watch Negative (RWN) and assigning them a Negative Outlook. 

The IDR affirmations reflect affirmations of the banks' 'A-' VRs, which are also removed from RWN. 

Riyad Bank's VR was also reaffirmed at 'BBB+' and The Saudi British Bank's (SABB) 'BBB+' VR was maintained on RWN.  

The 10 Saudi banks' VRs were placed on RWN in March 2020 to signal heightened risks of severe deterioration in the domestic operating environment following the sharp fall in oil prices and pressures from the coronavirus-related economic disruptions. 

The rating agency said the resolution of the RWN on the VRs of NCB, Al Rajhi, Samba and Riyad Bank follows the publication of their Q3 2020 financial results and reflects its view of a reduced short-term risk of a sudden sharp deterioration in their financial profiles.  

The negative outlooks on the IDRs reflect continued pressures on the operating environment resulting from lower oil prices and low growth in non-oil sectors. These are likely to persist in the medium term and put pressure on the banks' asset quality and profitability, Fitch added. 

Fitch maintained the RWN on SABB's 'BBB+' VR, reflecting its view that the bank's financial profile may deteriorate further in the near term. In particular, SABB's asset quality may weaken when forbearance measures are withdrawn from Q4 2020 onwards, causing stage 2 and 3 loans to increase. 

An upgrade of the banks' Long-Term IDRs is unlikely in the near term, given the negative outlooks on all banks. 

The outlooks on Riyad, Al Rajhi, NCB and Samba could be revised to Stable from Negative if Fitch takes the view that the operating environment has stabilised and the banks' asset quality and profitability metrics prove largely resilient during the current downturn.  

An outlook revision to Stable on the IDRs for Al Rajhi, NCB and Samba would additionally require the outlook on the Saudi sovereign rating to be revised back to Stable. 

The outlooks on the IDRs for SABB, ANB, BSF, Alinma, SAIB, and Aljazira would likely be revised back to Stable following a similar action for the Saudi sovereign rating. 

An improvement in Samba, SABB and Riyad's liquidity profiles could lead to upgrades of these banks Short-Term IDRs.