The ratings agency Standard & Poor’s has downgraded a slew of Saudi Arabian banks, following its cut to the kingdom’s credit rating earlier in the week.
The National Commercial Bank, Al Rajhi Bank, Samba Financial Group, The Saudi Investment Bank and Riyad Bank have all had their ratings cut as the low oil price threatens to hurt the health of banks’ balance sheets, the credit agency said.
These banks, plus Banque Saudi Fransi, Arab National Bank and the Saudi British Bank, were also placed on negative outlook, which means that the agency will consider whether to further downgrade their credit ratings within the next 24 months.
“Increased economic risks follows the marked deterioration in Saudi Arabia’s fiscal balance after the sharp drop in oil prices and its expected effect on the Saudi economy and domestic banks,” S&P said.
“We expect to see lower business volumes, higher cost of risk, weaker profitability and slower growth of deposits in the banking system. At the same time, we believe that Saudi banks have good cushions to limit the impact of this new operating environment.”
S&P cut the kingdom’s credit rating last week, as evidence of the impact of the low oil price on its fiscal position became clearer. The IMF now expects the kingdom to run a fiscal deficit of 21.6 per cent of GDP – larger than earlier predictions. This means that, at current rates of spending and without further policy changes, the kingdom could run out of financial reserves in less than five years.
The credit ratings agency Moody’s has not downgraded Saudi Arabia and has left the credit ratings of the Saudi banks it monitors untouched.
The collapse in the low oil price from about $110 per barrel in June 2014 to US$48 a barrel yesterday, has slowed deposit growth across the Gulf. The low oil price has hit revenues accruing to the Saudi government and government-related entities. That has led to slowdowns in public sector deposit growth, as the state deposits less money or liquidates deposits at Saudi banks.
Saudi Arabia’s oil sector accounts for about 90 per cent of its economy – and even the non-oil sector is strongly affected by changes in government spending and changes in the oil price, analysts say.
The ratings agency Fitch placed Saudi British Bank, Arab National Bank and Banque Saudi Fransi on negative outlook on Tuesday. Fitch cited “a tougher operating environment” and low oil prices as reasons for the change. Fitch had previous downgraded Al Rajhi, National Commercial Bank, Riyad Bank, and Samba.
Fitch noted that the Saudi government was almost guaranteed to intervene in case of financial sector stress, which lent support to banks’ credit ratings.
abouyamourn@thenational.ae
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