CI raises financial strength rating of Saudi Hollandi Bank

Capital Intelligence (CI), the international credit rating agency, today announced that it has raised the Financial Strength Rating of Saudi Hollandi Bank based in Riyadh, Saudi Arabia.

That rating is raised to 'A-' from 'BBB+', supported by improvements in asset quality and capital adequacy. At the same time, the Outlook on the Financial Strength Rating reverts to 'Stable' from 'Positive'. The Long-Term Foreign Currency Rating is affirmed at 'A' and the Short-Term Foreign Currency Rating at 'A2', also with a 'Stable' Outlook. Ratings are constrained by the Bank's relatively tight liquidity and by the continued low level of gross income, the latter resulting in low rates of both operating and overall profitability. In view of the Bank's position in the Saudi banking sector, official support is expected to be forthcoming in the unlikely event it is needed. Consequently, the Support level remains at '2'.

SHB continued its recovery from the large increase in its NPL portfolio in 2009; the two-year remediation process has culminated in an NPL ratio which is now on a par with that of the rest of the sector, and which is sound in a global context. In addition, the Bank reached full coverage by loan-loss reserves of NPLs, including 'past due not impaired' loans more than 90 days past due.

Operating profit continues to be characterised by a relatively low level of gross income and continued good cost control. While the Bank's operating profit picture remains lacklustre, it improved marginally in 2011. A reduced need for loan-loss provisioning also contributed to a sharp rise in net profit and overall profitability, resulting in a considerable improvement in the Bank's capital ratios.

Liquidity (in terms of loan-based ratios) tightened slightly in 2011, owing to a greater rise (in absolute terms) in net loans than in customer deposits. However, because of changes in the composition of the Bank's liquidity, the liquid asset ratio was unchanged and the Bank's funding through purchased funds - while a high share would be expected of a bank which is principally corporate in nature - has decreased substantially in the past few years.

SHB is the smallest of the four foreign joint-venture banks in Saudi Arabia. Of all twelve locally incorporated banks in operation, it ranked eighth by total assets and ninth by total capital as of year-end 2011. Its balance sheet showed total assets of SR57.5bn and total capital of SR8.9bn, representing a market share of 3.8% by total assets. At year-end 2011, SHB operated 44 domestic branches (2010:44).