S&P downgrades SAIB

TOUGHER TIMES: Riyadh-based SAIB sees declining profitability and a possible deterioration in its financial profile, according to ratings agency, Standard & Poor's. (Getty Images)

Ratings agency Standard & Poor's said on Tuesday it has revised its outlook on SAIB (The Saudi Investment Bank) to negative from stable. However, it affirmed its 'A-' long-term and 'A-2' short-term counterparty credit ratings on the bank.

"The outlook revision mainly reflects a weakening in the bank's profitability as well as potential deterioration of its financial profile that could result from an increase in nonperforming loans and provisioning needs," said S&P credit analyst Paul-Henri Pruvost.

Historically focused on the local corporate banking segment, the bank faces significant concentration risks. In particular, S&P expresses concern relative to SAIB's significant exposure to Gulf-based entities that have recently faced a sharp deterioration in their own financial profiles.

''Provisioning needs could therefore increase rapidly, putting further pressure on the bank's profitability,'' the agency said in its note.

It added that the current ratings on SAIB reflect its adequate liquidity profile and good capitalisation.

Negative rating factors however include the bank's limited customer franchise, significant concentration risks, and limited geographic diversification.

The long-term rating on SAIB is one notch above the bank's stand-alone credit profile reflecting S&P’s expectation of support from the Saudi Arabian government (AA-/Stable/A-1+) in case of need.

S&P added that it classifies SAIB as a government-related entity under its own methodology. The bank is 90% owned by Saudi shareholders, including a 38.7% stake held by the government through public institutions.

"The negative outlook reflects the pressure on the bank's financial profile, given its less supportive economic environment and concentration risks," said Pruvost.

''We could lower the ratings if asset quality and profitability were to deteriorate materially over the medium term or if the bank's funding profile weakened.

''We would revise the outlook back to stable if the operating environment improved and the bank's financial profile proves resilient, with capitalization and profitability remaining adequate,'' he added.

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