Fitch Ratings says in a new special report that the tougher domestic operating environment is putting pressure on the Saudi banking sector outlook.
“The performance and financial metrics of the Saudi banks remained sound in the first half of 2015, driven by business growth and lower impairment charges,” Fitch Ratings says. “Fitch calculated loan book growth slowed to an annualised 8.8 per cent in the first half, compared with 13.5 per cent in 2014, and forecasts 9 per cent for the full year. We expect credit growth to remain at 7 per cent to 8 per cent in 2016.”
Saudi banks continue to be well-capitalised, with an average Fitch core capital ratio of 16 per cent at end of the first half.
“Asset quality metrics are generally strong, but are likely to feel pressure over the next two years,” Fitch Ratings says. “Slower loan growth will mean that the loan portfolios start to season more quickly. Fitch expects banks to tighten underwriting standards, particularly in more stressed segments, such as contracting and construction, but also retail. High borrower and sector concentrations remain, which expose the banks to event risk.
The long-term issuer default ratings (IDRs) of The National Commercial Bank, Al Rajhi Bank, Riyad Bank, SAMBA Financial Group, Bank Aljazira, The Saudi Investment Bank, Saudi Hollandi Bank and Alinma Bank (ie, eight of the 11 Saudi banks rated by Fitch) are driven by expected support, if required, from the Saudi sovereign (AA/Negative/F1+).
The IDRs of Banque Saudi Fransi, Arab National Bank and Saudi British Bank are driven by their standalone strengths as expressed by their Viability Ratings.