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Fitch Revises Outlook on Banque Saudi Fransi to Stable; Affirms at 'A-'
September 6, 2017 / 1:46 PM / 15 days ago

Fitch Revises Outlook on Banque Saudi Fransi to Stable; Affirms at 'A-'

(The following statement was released by the rating agency) LONDON, September 06 (Fitch) Fitch Ratings has revised the Outlook on Banque Saudi Fransi's (BSF) Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the IDR at 'A-'. Fitch has also affirmed the bank's Viability Rating (VR) at 'a-' and Support Rating Floor (SRF) at 'BBB+'. A full list of rating actions is at the end of this rating action commentary. The revision of the Outlook reflects Fitch's view that while the bank's operating environment remains challenging, the pressures of 2016 have eased significantly, not least liquidity. Fitch expects asset quality and earnings growth to remain under pressure, but not significantly enough to justify a Negative Outlook. KEY RATING DRIVERS IDRs AND VR BSF's IDRs reflect its standalone creditworthiness as defined by its VR. BSF's risk appetite has a high influence on its VR, reflecting that it is lower than peers and asset quality metrics are sound. Fitch considers BSF's underwriting standards to be among the most conservative and consistent in the sector, focused on large, high-quality domestic and international corporate borrowers. Single name concentrations exist, but are lower than peers, despite the bank's corporate-driven business model. Asset quality also highly influences BSF's VR. The bank has had consistently low loan impairment charges over a sustained period. Its impaired loans also compare well with peers. Asset quality has weakened, in line with peers and our expectations given the challenging operating environment, but BSF's impaired loans/gross loans ratio remains amongst the strongest in the sector. BSF's profitability is sound, although it is slightly weaker than some larger peers due to a less diversified business model and higher reliance on low risk, lower margin corporate clients. We expect earnings diversification to improve as the bank's retail growth gathers pace. The operating environment in Saudi Arabia remains depressed (growth of 1.4% in 2016 is likely to slow further to 0.1% and 0.8% for 2017 and 2018, respectively) with the kingdom proceeding with fiscal tightening. Opportunities for the banks to finance infrastructure projects will therefore reduce and Fitch forecasts overall sector loan growth of around 5% for 2017, marginally higher than 2016. Some weakening of the bank's performance or asset quality could also occur, although our base case expectation is that any such deterioration will be gradual and therefore manageable. SUPPORT RATING AND SUPPORT RATING FLOOR BSF's Support Rating (SR) of '2' and SRF of 'BBB+' reflect a high probability of support from the Saudi authorities in the event of need. Fitch's assessment takes into account a long track record of support for Saudi banks, continued government willingness to maintain stability in the domestic financial system and a strong ability to support the bank, given large external reserves and good access to external markets. BSF's SR and SRF also reflect Fitch's view that the large stake held by Credit Agricole and Investment Bank (CACIB: A+/Stable) could result in slightly lower, but still high, willingness of the sovereign to support the bank. The BSF Sukuk Ltd trust certificate issuance programme is rated in line with BSF's IDRs and is therefore subject to the same rating drivers. RATING SENSITIVITIES IDRs AND VR As BSF's IDRs reflect its VR, any change in the bank's IDRs would be driven by a change in its VR. Negative pressure on the VR may arise from further weakening of the operating environment causing tightening liquidity or a significant deterioration in asset quality metrics. A termination of the technical services agreement between BSF and CACIB could also be credit negative. The BSF Sukuk Ltd trust certificate issuance programme is subject to the same sensitivities as BSF. SUPPORT RATING AND SUPPORT RATING FLOOR BSF's SR and SRF are sensitive to any change in the Saudi Arabian sovereign rating. As this is currently on a Stable Outlook, any change is unlikely in the short term. A change in propensity from the authorities to support the bank could also lead to rating action, but this is not Fitch's base case. The rating actions are as follows: Banque Saudi Fransi Long-Term IDR affirmed at 'A-'; Outlook revised to Stable from Negative Short-Term IDR affirmed at 'F2' Support Rating Floor affirmed at '2' Support Rating Floor affirmed at 'BBB+' Viability Rating affirmed at 'a-' BSF Sukuk Limited Trust certificate issuance programme affirmed at 'A-' Contact: Primary Analyst Andrew Parkinson Director +44 20 3530 1420 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Marc Ellsmore Associate Director +44 20 3530 1438 Committee Chairperson Alexander Danilov Senior Director +7 495 956 2408 Media Relations: Rose Connolly, London, Tel: +44 203 530 1741, Email: rose.connolly@fitchratings.com; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Sukuk Rating Criteria (pub. 14 Aug 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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