Fitch Ratings yesterday affirmed Saudi Arabia-based Arab National Bank's <1080.SE> (ANB) Long-term Issuer Default rating (IDR) at 'A' with Stable Outlook, Short-term IDR at 'F1', Individual rating at 'B/C', Support rating at '1' and Support Rating Floor at 'A-'.ANB's Long- and Short-term IDRs reflect its large domestic franchise, comfortable liquidity and well controlled market risks. They also reflect concentrations on both sides of the balance sheet and potential deterioration in asset quality, although from a strong base. The bank's Support rating and Support Rating Floor reflect the extremely high probability of support from the Saudi authorities, should it be required, in view of ANB's strong domestic franchise and the regulator's history of support to the banking system. Fitch also believes there to be a moderate probability of support from Jordan's Arab Bank <ARBK.AM> ('A-'/Stable), which owns 40% of ANB and is well-established throughout the region.
Growth in profitability flattened y-o-y in H109 as lower cost of funds was countered by a reduction in business volumes and higher loan impairment charges, due to a slowdown in the Saudi economy. While impaired loans are currently low, there is concern about the lack of transparency around some of the larger problematic exposures in Saudi Arabia. Fitch expects profitability to be adequate in FY09 and 2010 despite the high likelihood of additional credit costs. Impairments on investments, while significant in 2008, are not expected to be large in 2009 and should be easily absorbed by core revenues.
Credit risk remains the main risk for ANB and Fitch expects asset quality ratios to deteriorate further as loans season in a slowing economy. Borrower concentration is also a concern as a few problematic exposures could result in a significant decline in asset quality. Market risks appear to be well-controlled.
Funding is almost entirely sourced from customer deposits, which exposes the bank to contractual maturity mismatches, though core deposits (mainly from government and quasi-government institutions) tend to roll over. Liquidity is fairly comfortable as ANB benefits from a large portfolio of Saudi government bonds and Fitch also gains comfort from the Saudi authorities' support to liquidity in the banking system in the past. ANB is adequately capitalised with a Fitch-eligible capital ratio of 13.3% at end-H109. Fitch expects capital ratios to remain broadly at the same levels as lower internal capital generation should be offset by slower growth in risk-weighted assets as business volumes decrease.
ANB was established in 1979 and is listed on the Saudi stock market. ANB was the seventh-largest bank in Saudi Arabia by total assets at end-H109, with a market share of about 10% of loans and deposits. It is a full service bank with a well-established domestic franchise in corporate and personal banking, reports Reuters.