Monday 24, April 2017 by Nabilah Annuar

CI affirms Saudi Investment Bank’s ratings with a stable outlook

Capital Intelligence Ratings (CI Ratings or CI) has affirmed the ratings of Riyadh-based Saudi Investment Bank (SAIB). The Financial Strength Rating (FSR) is affirmed at ‘BBB+’, supported by the Bank’s solid capital profile, sound and liquid investment portfolio and continued successful limitation of growth in the balance sheet and in operating expenses.


According to a statement, the rating is constrained by the weak asset quality and continuing, albeit improving, levels of concentration, by declining profitability at several levels, and by the high dividend payout ratio, which impedes capital growth. Supported and constrained by the same factors, the Long- and Short-Term Foreign Currency Ratings are affirmed at ‘BBB+’ and ‘A3’, respectively. Official support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support Rating remains at ‘2’. The Outlook for all ratings is affirmed at ‘Stable’.


SAIB has been targeting the consumer sector in order to increase earnings and reduce concentration risk. It had been having a degree of success until the change in the operating environment in the past two years. The previous progress in demand and savings (CASA) deposits has continued, albeit at a slower pace, but time deposits have left the Bank—as was the case throughout the sector – in search of better yields elsewhere in the Gulf. The decrease in deposits, even considering that it was almost entirely in more volatile and more expensive time deposits, negatively impacted the Bank’s liquidity. In terms of the net loans to stable funds ratio and reliance on short-term funding, most of the impact was felt in 2015, and the liquidity profile improved somewhat last year. Moreover, the Bank’s sound and liquid investment portfolio provides the Bank with a very sound quasi-liquid asset ratio.


The operating environment further impacted the Bank in terms of asset quality, which suffered from a large increase in loans over 90 days ‘past due not impaired’ (PDNI) in 2015. Last year there was a shift from PDNI partly to IFRS-recognised non-performing loans (NPLs); both the total stock of NPLs and the NPL ratio enjoyed marginal improvements but the ratio remained among the sector’s highest. The decrease was accompanied by significantly increased loan-loss provisioning, which raised coverage, but that coverage was still far from complete. Owing to an improved capital profile, despite a dividend payout ratio which can be considered high given the circumstances, the Bank’s capital ratios and effective NPL coverage both improved and remain sound in a global context.


Despite continued control of operating expenses and of growth, operating profit declined again in 2016 and operating profitability dropped sharply. That metric was exacerbated at the net profit level as loan-loss provisioning was increased substantially. Both net profit and ROAA fell for the year, but adjustments in comprehensive income because of the dominance of available for sale securities in the Bank’s investment portfolio produced a more than doubling of comprehensive income.


Of the twelve locally incorporated banks in the kingdom, SAIB ranked tenth as measured by total assets and ninth as measured by total capital as of year end 2016. On that date its assets totalled SAR 94.4 billion (equivalent to $25.2 billion), representing a market share of 4.2 per cent. At year end 2016 it operated a system of 48 domestic branches (including twelve with ladies’ sections), almost all of which are Shari'ah-compliant, and a network of over 400 ATMs.



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