Dubai:  UBS AG’s acquisition of Credit Suisse (CS) and a sharp decrease in CS’s share prices have a neutral impact on The Saudi National Bank’s (SNB) Long-Term Issuer Default Rating of ‘A-’, Fitch Ratings says. This is mainly driven by CS’s very limited contribution to SNB’s group assets, constituting less than 0.5% of total assets, less than 2% of the group’s investment portfolio, and about 3% of the CET1 capital base at end-2022, limiting the impact of mark-to-market losses on SNB’s regulatory capital ratios. CS’s shares are accounted at fair value through other comprehensive income, which means share price fluctuations impact the bank’s regulatory capital ratios, but not its earning metrics.

In November 2022, SNB’s investment in CS, representing a 9.88% stake, was valued at SAR5.5 billion. SNB views the investment in CS as purely a financial investment within its investment portfolio. Going above a 10% stake would entail a higher capital cost under Basel III rules as investments in banks (with a shareholding of 10% and above) must be fully deducted from regulatory capital ratios, amongst other things.

Under the terms of the UBS acquisition of CS, shareholders will receive one UBS share for every 22.48 CS shares held, equivalent to CHF0.76/share. CS’s stock price was over CHF3.5 at the date of acquisition in October 2022. The market price of CS shares dropped to CHF0.8 at the London Stock Exchange on 20 March. SNB recognised SAR1.8 billion of negative revaluation in its investment in SC in 2022 following the share price falling to CHF2.8 at end-2022. We estimate the year-to-date change in CS’s share price should result in about a further SAR2.8 billion negative revaluation through OCI.

We estimate this would have a negative 40bp impact on SNB’s end-2022 CET1 ratio of 16.1%. SNB estimates a 35bp negative impact on its end-2022 total regulatory capital adequacy ratio (19%). We view the impact as neutral for our ‘bbb+’ assessment of SNB’s capitalisation and leverage. The score considers the bank’s healthy asset quality, moderate credit concentration and healthy internal capital generation, which was equivalent to 140bp of risk-weighted assets in 2022. We expect SNB’s internal capital generation to improve in 2023, supported by higher rates, strong financing growth and continuing realisation of cost synergies. We do not expect SNB to change its capital ratio guidance after the devaluation of CS’s shares and we forecast its CET1 ratio to remain at about 16% at end-2023.

We view SNB’s funding and liquidity profile as strong with a score of ‘a-‘, one of the highest scores in the GCC. This is underpinned by a strong retail funding franchise and the highest share of current and savings accounts in Saudi Arabia, at 75% at end-2022. SNB’s liquidity coverage ratio was 278% at end-2022 and its Basel III high-quality liquid assets covered customer deposits by a strong 31% at end-2022.

Related research:

Fitch Affirms The Saudi National Bank at ‘A-‘; Stable Outlook, published 18 January 2023
The Saudi National Bank, latest rating report, published 1 February 2023

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Matt Pearson
Communications Associate, Corporate Communications
Fitch Group
30 North Colonnade
London
E14 5GN
E: matthew.pearson@thefitchgroup.com