BANQUE SAUDI FRANSI
Fitch Ratings has affirmed
Fitch has also affirmed BSF's Viability Rating (VR) at 'bbb'.
Key Rating Drivers
BSF's 'A-' Long-Term IDRs are driven by potential support from the Saudi Arabian authorities, as reflected by its Government Support Rating (GSR) of 'a-'. The 'F2' Short-Term IDR is the lower of two options mapping to an 'A-' Long-Term IDR as per our Bank Rating Criteria because a significant proportion of Saudi banks' funding is related to the government and BSF would likely need support at a time when the sovereign itself is experiencing some form of stress.
BSF's VR reflects the bank's reasonable domestic franchise and balanced business model with good market shares, sound capitalisation, sound funding and liquidity and stable (albeit weaker than the sector average) asset-quality metrics. It also reflects high concentration risks and profitability below the sector average due to higher impairment costs.
BSF's National Rating is driven by potential support from the Saudi Arabian authorities.
Sovereign Support: The Saudi authorities have a strong ability and willingness to support domestic banks irrespective of size, franchise, funding structure and level of government ownership. High contagion risk among domestic banks is an added incentive for the state to provide support to any Saudi bank to maintain market confidence and stability. BSF's 'a-' GSR is in line with other Fitch-rated Saudi banks'.
Favourable Operating Environment: High oil prices, reduced risks from the pandemic, the government's strategy to diversify the economy as part of its Vision 2030, and solid GDP (including non-oil) growth provide Saudi banks with solid business-growth opportunities.
Strong Corporate Franchise: BSF has a strong corporate niche franchise; its long-standing presence in the sector results in stable relationships with a number of the country's largest corporates. Nevertheless, BSF's weaker retail franchise than peers' results in a less diversified business mix and a more concentrated and more expensive funding base.
Balanced Risk Profile: Our assessment of BSF's risk profile considers its well-established underwriting standards within the bank's chosen segments, although the bank is focusing on higher risk/return segments compared with peers'. It has a higher exposure to higher-risk medium-sized corporates, which results in a cost of risk that is above the sector average.
Stable Asset-Quality Metrics: BSF's Stage 3 loans ratio was stable in 2022 at 2.6% due to moderate generation of net impaired loans. Total reserves (3% of gross loans) provide sufficient coverage for impaired exposures. Stage 2 loans made up 7.4% of the bank's total loans at end-2022. We expect the stage 3 ratio to remain stable in 2023.
Moderate Profitability: BSF's operating profit was stable at 1.9% of risk-weighted assets (RWA) in 2022 but below larger peers'. The bank benefits from higher interest rates due a high share of non-interest-bearing deposits and a large share of corporate lending (which is largely on floating rates). We expect an operating profit above 2% of RWA in 2023.
Sound Capital Ratios: BSF's capital ratios are sound with adequate buffers above minimum regulatory requirements, and commensurate with its risk profile. BSF's common equity Tier 1 (CET1) ratio is in line with peers'; it declined to 16.6% at end-2022 from 17.5% at end-2021 as a result of RWA growth and negative mark-to-market valuation of its bond portfolio. We expect the CET1 to be within BSF's targeted range of 17%-18% at end-2023.
Sound Funding and Liquidity: Funding is sound and stable, though more concentrated than at peers due to BSF's smaller retail franchise. The bank's large stock of high-quality liquid assets (in line with the Basel III definition) covered 24% of deposits at end-2022, and the fairly stable nature of large government deposits mitigates concentration risk.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
A downgrade of BSF's IDRs would require a downgrade of its GSR. The latter would be triggered by a sovereign downgrade.
BSF's VR could be downgraded on a combined sharp and sustained deterioration in asset quality (impaired loans ratio exceeding 4%) and profitability (operating profit below 1.5% of RWA), leading to the bank's CET1 ratio being sustainably below 14%.
The bank's National Rating is sensitive to a negative change in its Long-Term Local-Currency IDR and in the bank's creditworthiness relative to other Saudi Arabian issuers'.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
An upgrade of BSF's IDRs would require an upgrade of its GSR. The latter would be triggered by a sovereign upgrade.
An upgrade of the bank's VR is unlikely without a material and sustained improvement in the Saudi Arabian operating environment.
The bank's National Rating is sensitive to a positive change in its Long-Term Local-Currency IDR and in the bank's creditworthiness relative to other Saudi Arabian issuers'.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The Long-Term ratings of senior debt issued by BSF through its special purpose vehicle BSF Finance are in line with the bank's Long-Term IDR because Fitch views the likelihood of default on senior obligations (including issued through SPV) as the same of the bank.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The senior unsecured debt ratings are sensitive to change in the bank's Long-Term IDRs.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
BSF's IDRs are linked to the IDRs of
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or to the way in which they are being managed by the entity. For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg.
(C) 2023 Electronic News Publishing, source
