Al Rajhi Bank: Fitch boosts outlook to 'Stable' on resilient metrics

Profitability outlook is strong on low funding cost

  
Riyadh, Saudi Arabia: Al Rajhi Bank Head office - the world's largest Islamic bank by capital - sharia-compliant finance - Al Akaria office complex on Olaya Street.Image used for illustrative purpose

Riyadh, Saudi Arabia: Al Rajhi Bank Head office - the world's largest Islamic bank by capital - sharia-compliant finance - Al Akaria office complex on Olaya Street.Image used for illustrative purpose

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Fitch Ratings agency has revised Saudi Arabia’s Al Rajhi Banking and Investment Corporation's outlook to ‘Stable’ from ‘Negative’, while affirming the bank's 'A-' Long-Term Issuer Default Ratings (IDR).

The ratings agency assessed that pressures on the bank from the operating environment from the pandemic and lower oil prices have eased sufficiently, and that the financial metrics of the lander have been resilient in the past quarters, despite these pressures.

The agency has also assigned the Saudi bank a National Long-Term Rating of 'AA+(sau)' with Stable Outlook.

“Our assessment of its franchise is underpinned by the bank's position as Saudi Arabia's leading retail bank and its Islamic status also enables it to capture a large proportion of stable non-profit-bearing deposits,” the agency said in a report.

The bank’s funding profile is very strong with 87 percent coming from stable non-profit-bearing deposits at end-1Q21, most of it being sourced from retail customers owing to the dominant retail franchise. This reduces funding concentration risk, stabilises the funding base and results in the lowest cost of funding among Saudi banks (0.1 percent in 2020), Fitch said.

Due to this, profitability is strong too. “Financing-impairment charges (FICs) remain contained and absorbed a low 13 percent of pre-impairment operating profit in 1Q21, extending a declining trend from 21 percent in 3M20, when pandemic-related additional expected credit losses were large.”

The impact of the pandemic on the bank's operating profitability was moderate, as operating profit/ risk-weighted assets fell to 3.7 percent in 2020 from below 4.2 percent in 2019 before improving to 4.3 percent in 1Q21, on the back of higher financing volumes and contained FICs, according to the report.

(Writing by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com

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