Fitch Ratings upgraded Saudi National Bank's outlook from negative to stable, citing its resilient financial metrics and an improving operating environment.
The credit rating agency also affirmed the lender’s long-term issuer default rating at "A-". It assigned a national long-term investment grade rating of "AA+(sau)" with a stable outlook.
“The revision of the outlook reflects our view that pressures on the operating environment from the pandemic and lower oil prices have eased sufficiently, and that the financial metrics of the bank have been resilient in the past quarters, despite these pressures,” Fitch said.
“Strong financing growth will continue to support the bank’s metrics in 2021.”
The lender's first-quarter net profit jumped 20 per cent to 3.4 billion Saudi riyals ($907 million), boosted by higher fee income and lower impairment charges as the kingdom’s economy recovers from the Covid-19 pandemic.
Brent, the international benchmark for up to two thirds of the world’s oil, rose by 0.59 per cent to close at $73.51 on Friday, the end of trading week. West Texas Intermediate, the gauge for US crude, was up 0.84 per cent to close at $71.64.
Fitch said SNB’s "A-" viability rating, which represents its view of the lender’s creditworthiness, was underpinned by “a strong company profile supporting well-diversified and resilient earnings, strong funding and liquidity, as well as sound asset quality and capitalisation”.
SNB, Saudi Arabia's biggest lender, was created through the merger of National Commercial Bank and smaller rival Samba Financial Group. It began to operate on April 1 and has more than 896bn riyals ($239.2bn) in assets.
The bank's exposure to the retail segment fell from 50 per cent to 39 per cent of total loans at the end of last year as a result of Samba’s strong corporate focus, the credit rating agency said.
SNB's retail loans are expected to rise between this year and 2022 due to a high appetite for that segment, supported by a strong domestic franchise, said Fitch.
“We believe the strengthening of the franchise, fostering non-interest bearing customer deposits and rapid loan growth in the high-yielding mortgage segment will support SNB’s earnings generation,” the rating agency said.
In addition to improving business conditions, this should support a recovery in the core profitability measure by 2022, it said.
The Public Investment Fund, the kingdom’s sovereign wealth fund, is the biggest shareholder in SNB with a 37.2 per cent stake. The Public Pension Agency has 7.4 per cent and the General Organisation for Social Insurance owns 5.8 per cent of the lender.
Saudi Arabia said last week that it is merging general insurance and public pension funds to create a public sector entity with $29bn in domestic and foreign stock holdings.
The combination of the two state-run funds is an extension of “continuous reforms” and part of an organisational restructuring process, in line with the kingdom’s Vision 2030 objectives, Minister of Finance Mohammed Al Jadaan, said on Thursday.
