Fitch IBCA affirms rating of Al Rajhi

In its new ratings report, Fitch IBCA, the international rating agency, affirmed its ‘BBB+’ Long-Term, and ‘2’ support ratings for Saudi Arabia’s Al Rajhi Banking and Investment Corporation (Al Rajhi).

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By  Massoud Derhally Published  October 3, 2001

In its new ratings report, Fitch IBCA, the international rating agency, affirmed its ‘BBB+’ Long-Term, and ‘2’ support ratings for Saudi Arabia’s Al Rajhi Banking and Investment Corporation (Al Rajhi). At the same time, the agency has assigned an Individual rating of ‘B’ and Short-term ‘F2’. The Long-term rating Outlook is Stable.

Al Rajhi, which was established by Royal Decree in 1988, has roots as a moneychanger as far back as the 1940s. Since then it has grown to become the fourth largest Saudi bank, with a 10% share of banking assets; it is the only purely Islamic bank operating in the sector. The bank remains majority owned by members of the founding family, who comprise most of the members of the board and executive committee. Saudi nationals hold the remaining shares. Al Rajhi has a powerful domestic franchise: its network of 366 branches and 590 ATMs is the largest in the Kingdom. Its activities are focussed on personal and corporate banking, including consumer finance, corporate finance, fund management, treasury services and securities broking.

Fitch’s ratings reflect Al Rajhi's strong franchise in the Saudi market, exceptional performance record, solid and stable funding base and very strong capitalisation. As one of the most profitable banks in the wider Gulf/Middle East region, Al Rajhi's performance has been remarkably stable over time and benefits from its Islamic principles whereby it does not pay interest on its customer deposits. It also derives significant revenues from its high volume niche foreign exchange remittance activities. Asset quality is sound and well reserved and the balance sheet is highly liquid.

In addition to affirming its positive rating of Al Rajhi, the rating agency also assigned ratings to two Saudi. Al Bank Al Saudi Al Fransi (ABASAFA) received a ‘BBB+’ for Long-term foreign currency; Short-term foreign currency was awarded ‘F2’, Individual ‘B/C’, Support ‘2’. ABASAF’s history dates back to 1949, when Banque De L’ Indochine (BDLI) opened a branch in Jeddah. In 1977, the Saudi operations were taken over by Banque Indosuez (BI), following the merger of BDLI with BI. In 1997, operations were taken over by Credit Agricole Indosuez (CAI) following its purchase of BI in Paris. CAI has a 31% shareholding in the bank, with the balance being held by Saudi nationals. ABASAF is a full service bank serving both retail and corporate customers.

ABASAF’s ratings reflect sound profitability, growing deposit base, strong asset quality and capital ratios. They also take into account the bank’s conservative and prudent approach to business, which is reflected in a remarkably consistent performance despite a potentially volatile operating environment.

Saudi Hollandi Bank (SHB) received a ‘BBB+’ for Long-term foreign currency, Short-term foreign currency received ‘F2’, Individual ‘B/C’, Support ‘2’ SHB’s operations began in 1977 when it took over the Saudi branches of ABN-AMRO. The latter’s operations in the Kingdom date back to 1926 when it was the only operating bank in the Kingdom. ABN-AMRO retains a 40% stake in the bank. Other significant shareholders include the Marwarid family (23%), a local business group, with the balance widely dispersed among Saudi nationals. SHB is a full service commercial bank serving both retail and corporate customers.

Fitch’s ratings reflect SHB’s sustained increase in profitability, growing deposit base, strong asset quality and adequate capitalisation. Ratings are balanced with potential concerns over the operating environment. Management has focused during the last few years on building relationships with large/medium sized local and multinational companies with a view to use it as a platform to cross-sell retail products and expand the range of products and services to high net worth individuals.

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