JEDDAH – Fitch Ratings has affirmed Saudi Hollandi Bank ‘s ( SHB) Long-term Issuer Default Rating (IDR) at ‘A-’ with a Stable Outlook and Viability Rating (VR) at ‘bbb’.



The statement Monday said SHB ‘s IDRs, Support Rating and Support Rating Floor reflect Fitch’s view that there is an extremely high probability that the Saudi Arabian authorities would support the bank, if needed.



This view is based on the Saudi authorities’ strong track record of support for the banking system and SHB ‘s well-established corporate and commercial banking franchise.



These ratings are therefore sensitive to a rating action on the Saudi sovereign rating (‘AA-’/Stable) or a change in Fitch’s assumptions around the propensity of the Saudi authorities to provide timely support to SHB .

The affirmation of the VR reflects SHB ‘s healthy asset-quality, improving profitability and sound liquidity position, while also considering the concentrations on both sides of SHB ‘s balance sheet and uncertainty relating to its future ownership. A 40 percent stake in SHB is currently held by the Royal Bank of Scotland N.V. The stake is considered non-strategic and is likely to be sold in due course.



In 9M12, net income grew 17 percent y-o-y and SHB continues to report healthy profitability ratios (operating ROAA of 2.1 percent and ROAE of 16.5 percent).



Operating revenues were supported by 16 percent loan growth during 9M12, good growth in fee income and well contained operating costs. Fitch expects operating profitability to continue its positive trend in 2013, supported by the benign operating environment and a pick-up in loan growth across the banking sector.



At end-9M12, the non-performing loan (NPL) ratio was low at 1.7 percent and the reserve coverage strong at 143 percent. NPLs will remain well contained in the short to medium term, in Fitch’s view. Customer deposits (up 18 percent in 9M12) represent about 95 percent of SHB ‘s total non-equity funding.



At end-9M12, the regulatory Tier 1 and Fitch core capital ratios were 11.4 percent and 13.0 percent, respectively. — SG