DUBAI (Standard & Poor's) April 1, 2016--Standard & Poor's Ratings Services
considers that Saudi banks face heightened economic and industry risks and
weaker credit conditions. On March 31, we consequently took mainly negative
rating actions on the eight Saudi banks we rate.
We lowered our long-term counterparty credit ratings on five banks:
We affirmed our long- and short-term counterparty credit ratings on three
banks:
For our rationales behind these rating actions, please see our research
updates on each bank in Related Research below.
In our view, the drop in oil prices has a marked and lasting impact on Saudi
Arabia's fiscal and economic indicators, resulting in difficult operating
conditions for the banking sector. Given the limited business sector
diversification in the Saudi economy and the small number of large
corporations, Saudi banks are exposed to structurally high concentration risk.
We expect credit conditions for Saudi banks will deteriorate through a
correction cycle, leading to increased nonperforming loans and credit losses,
as well as a decline in profitability. Consequently, we think that the
economic risks for banks based in Saudi Arabia have increased.
We also see increasing industry risk for Saudi banks, based on our view that
banks will have lower capacity to generate earnings to cover risks, at a time
when they will continue to support infrastructure projects and the real estate
sector, which could be affected by the current difficult operating
environment. Still, our view on the framework of the Saudi regulator, the
Saudi Arabian Monetary Agency, as conservative; and the funding support
domestic banks derive from a large, low-cost customer deposit base remain
strong mitigating factors.
We have therefore revised our Banking Industry Country Risk Assessment (BICRA)
on Saudi Arabia to group '4' from group '3', on a scale of '1' to '10', with
group '10' indicating the highest-risk banking systems. This also follows our
downgrade of the Kingdom of Saudi Arabia on Feb. 17, 2016 (see "Ratings On
Saudi Arabia Lowered To 'A-/A-2'; Outlook Stable" published on RatingsDirect).
We now view the trends for both economic and industry risks for Saudi banks as
stable, versus negative previously.
Our assessment of the stable trend in economic risks includes our expectation
of a decline in lending opportunities and higher risks in some sectors, such
as construction. Still, we think the impact on Saudi banks will be manageable
thanks to their high loan-loss reserves and strong capitalization.
As regards the stable trend in industry risks, we continue to see the Saudi
banking system as concentrated and subject to strong regulation and
supervision. Although we expect a gradual slowdown in deposit formation due to
low oil prices, banks' funding profiles are not likely to fundamentally change
and continue to benefit from a low-cost domestic deposit base with limited
reliance on external debt.
BICRA SCORE SNAPSHOT*
Saudi Arabia To From
BICRA Group 4 3
Economic risk 5 4
Economic resilience High risk High risk
Economic imbalances Limited impact Low risk
Credit risk in the economy Intermediate risk Intermediate risk
Trend Stable Negative
Industry risk 3 2
Institutional framework Low risk Low risk
Competitive dynamics Intermediate risk Low risk
Systemwide funding Low risk Low risk
Trend Stable Negative
*Banking Industry Country Risk Assessment (BICRA) economic risk and industry
risk scores are on a scale from 1 (lowest risk) to 10 (highest risk). For more
details on our BICRA scores on banking industries across the globe, please see
our latest "Banking Industry Country Risk Assessment Update," published
monthly on RatingsDirect.
RELATED CRITERIA AND RESEARCH
Related Criteria
Related Research
Rating actions published on March 31, 2016:
Only a rating committee may determine a rating action and this report does not
constitute a rating action.
Standard & Poor's Ratings Services, part of McGraw Hill Financial (NYSE:
MHFI), is the world's leading provider of independent credit risk research and
benchmarks. We publish more than a million credit ratings on debt issued by
sovereign, municipal, corporate and financial sector entities. With over 1,400
credit analysts in 26 countries, and more than 150 years' experience of
assessing credit risk, we offer a unique combination of global coverage and
local insight. Our research and opinions about relative credit risk provide
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