Moody’s Investors Service (Moody’s) has concluded its review for downgrade on the ratings of 11 Saudi banks initiated on March 7 by downgrading the long-term deposit ratings of nine banks and confirming the ratings of two banks. All ratings carry a stable outlook. The latest rating actions on the banks follow Moody’s downgrade of Saudi government issuer rating on May 14, 2016 to A1 (stable) from Aa3, which concluded the review for downgrade of the sovereign rating that was initiated on March 4, 2016.
The sovereign action reflects the ongoing negative impact of lower oil prices on Saudi’s fiscal position and economic strength. The rating downgrades of nine Saudi banks reflect, to differing degrees, a combination of: 1) the reduced fiscal capacity of the Saudi government to provide support to the banks in times of stress, if needed; and 2) an assessment of each bank’s resilience to the weakening domestic operating environment, which Moody’s expects will dampen funding, asset quality and profitability in the coming quarters.
The nine banks are SAMBA Financial Group (SAMBA), Banque Saudi Fransi (BSF), Saudi British Bank (SABB), Arab National Bank (ANB), Riyad Bank (Riyad), Saudi Hollandi Bank (SHB), Saudi Investment Bank (SAIB), Bank AlBilad (BAB) and Bank Al-Jazira (BAJ). In addition, Moody’s also confirmed the deposit ratings of Al-Rajhi Bank (ARB) and National Commercial Bank (NCB), reflecting the rating agency’s expectation of the resilience of the banks’ deposit ratings at their current levels to the aforementioned pressures.
Moody’s, meanwhile, confirmed the long-term ratings of five UAE banks.
The short-term issuer ratings of one bank were also confirmed. In addition, all the banks’ ratings have been placed on negative outlook. Moody’s decision to confirm the ratings of five UAE banks is underpinned by the continued capacity and willingness of the government to provide support to the banks in times of stress as indicated by the confirmation of the Aa2 rating.
The negative outlook mirrors the negative outlook on the sovereign rating and captures UAE’s fiscal pressures, which may weaken its capacity to provide support over time. The affected entities are: National Bank of Abu Dhabi (NBAD), Abu Dhabi Commercial Bank (ADCB), Union National Bank PJSC (UNB), Al Hilal Bank PJSC (AHB) and Abu Dhabi Islamic Bank (ADIB).
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