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TEXT-Fitch affirms Al Rajhi Bank at 'A+'
December 10, 2012 / 4:43 PM / 5 years ago

TEXT-Fitch affirms Al Rajhi Bank at 'A+'

Dec 10 - Fitch Ratings has affirmed Al Rajhi's (Al Rajhi) Long-term Issuer
Default Rating (IDR) at 'A+' with a Stable Outlook. At the same time, the agency
affirmed the Viability Rating (VR) at 'a'. A full list of rating actions is at
the end of this rating action commentary.

Al Rajhi'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 Al Rajhi's leading
retail franchise in the Kingdom and its systemic importance within the domestic
banking system.

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
for the Saudi authorities to provide timely support to Al Rajhi.

The affirmation of the VR reflects Al Rajhi's strong profitability, healthy
asset quality indicators and large retail deposit base, whilst also considering
some name concentration within the corporate loan portfolio, in line with other
Saudi banks.

Al Rajhi continues to report healthy profitability, with an operating ROAA and
ROAE of 3.4% and 23.7%, respectively, in 9M12. Revenues are supported by high
(albeit under increasing pressure) margins, robust growth in fee income and good
operating efficiency (9M12: cost/income ratio of 27%). The net profit margin
(9M12: 4.6%) benefits from extremely low funding costs from Al Rajhi's
significant pool of non-remunerated customer deposits. Fitch expects operating
profitability to remain strong in 2013.

Fitch notes the non-performing loan (NPL) ratio is on a mildly deteriorating
trend, but still compares well with peers' (9M12: 2.1%) and the reserve coverage
ratio remains strong at 130%. Fitch does not expect a material deterioration in
asset quality, due to the benign operating environment in Saudi Arabia. Al Rajhi
has an ample stock of liquid assets on its balance sheet, most of which are
placed with the Saudi Arabia Monetary Agency (SAMA). At end-9M12, the Fitch
calculated loans/deposits (L/D) ratio was healthy at 87%.

Al Rajhi has a substantial customer deposit base, representing about 95% of
total non-equity funding. Given that most of the deposit base consists of
current accounts, there is a large asset and liability maturity mismatch in the
'less than three months' bucket. However, Fitch takes comfort from the granular
nature of Al Rajhi's deposits, which have historically been very stable during
challenging market environments. At end-9M12, the regulatory Tier 1 and Fitch
core capital ratios were comfortable at 14.7% and 17.7%, respectively. These do
not include year-to-date 2012 profits.

Upside to the VR is somewhat limited, given its current high level. The VR could
be downgraded if the current volatile global economic backdrop affected the
Saudi Arabian economy, translating into notable deterioration in asset quality
indicators and/or capitalisation. Fitch does not view this as likely at present.

Al Rajhi is the largest Islamic bank globally and operates the largest branch
network in Saudi Arabia. The main shareholders are members of the founding Al
Rajhi family. The bank commenced operations in Malaysia through a wholly-owned
Islamic banking subsidiary in 2007 and more recently set up small operations in
Kuwait and Jordan.

The rating actions are as follows:

Long-term IDR affirmed at 'A+'; Stable Outlook
Short-term IDR affirmed at 'F1'
Viability Rating affirmed at 'a'
Support Rating affirmed at '1'
Support Rating Floor affirmed at 'A+'

Additional information is available on The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable criteria, "Global Financial Institutions Rating Criteria", dated 15
August 2012, is available at

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria

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