Ratings of Alawwal Bank lowered; Outlook is â€˜Stableâ€™
The recent change in the Sovereign Ratings of the Kingdom of Saudi Arabia has caused CI Ratings to lower the Financial Strength Rating (FSR) and the Long-Term Foreign Currency Rating (FCR) of Alawwal Bank (formerly Saudi Hollandi Bank), based in Riyadh, Saudi Arabia.
The Long-Term FCR is lowered to ‘A-’ from ‘A’ and the Short-Term FCR remains unchanged at ‘A2’. At the same time, the Outlook is changed to ‘Stable’ from ‘Negative’.
The change in the Sovereign Ratings also affects the Bank’s FSR, which is lowered to ‘A-’ from ‘A’. The Outlook for this rating is also changed to ‘Stable’ from ‘Negative’.
The ratings are supported by continuing improvement in asset quality, strong growth in customer deposits (with consequent improvement in loan-based liquidity ratios and reduction in reliance on more volatile short-term funding), and the Bank’s sound franchise in trade finance. The ratings are constrained by the high share of loans in the balance sheet and a high level of sector concentration, by the still relatively tight loan-based liquidity ratios, and by the falling ROAA, which is partly the result of a higher cost of risk.
While official support in some form is expected to be forthcoming if needed, the Bank is not systemically important to the Saudi banking system and the ability and willingness of the foreign parent to support the Bank in extremis is not a certainty. Accordingly, the Support Rating remains at ‘3’.