Affirmations follow the banks' agreement to merge
NOTE: On November 10, 2020, the press release was corrected as follows: In the Regulatory Disclosures section, the color coding disclosure was removed, and the List of Affected Ratings accessible via hyperlink from this press release was corrected to remove the color coding for the Credit Rating Assessments for National Commercial Bank. Revised release follows.
Limassol, October 21, 2020 -- Moody's Investors Service ("Moody's") has today
affirmed all ratings and assessments of National Commercial Bank (NCB)
and Samba Financial Group (Samba), including their long-term
and short-term deposit ratings at A1/P-1, and Baseline
Credit Assessments (BCA) at baa1 and a2 respectively. The outlook
on the long-term deposit ratings for both banks remains negative.
Today's rating action follows the official public announcement that
the two banks have entered into a binding merger agreement on October
11, 2020. The merger remains subject to regulatory and shareholder
approvals and is expected to be completed in the first half of 2021.
Upon completion, NCB will remain as the operating entity and will
acquire all of Samba's liabilities and assets in exchange for new
NCB shares issued to Samba's shareholders.
Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL434443
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and identifies each affected issuer.
RATINGS RATIONALE
NATIONAL COMMERCIAL BANK (NCB)
The affirmation of NCB's ratings reflects the agency's expectation
that the merger will reinforce and eventually strengthen NCB's number
one position in the market, and increase its resilience against
current operating environment pressures. The rating agency notes,
however, that the merger with Samba will not result in a significant
shift in NCB's business mix or solvency given that NCB is about
twice the size of Samba. Moody's expects the merged bank
to maintain sound solvency and funding which support its current ratings.
NCB's long-term deposit ratings are at the same level as
Saudi Arabia's A1 issuer rating and capture the bank's solid Baseline
Credit Assessment (BCA) of baa1 and a three-notch uplift based
on our expectation of a very high likelihood of government support which
is reinforced post-merger as the entity increases its market share
and become more domestically important.
NCB's baa1 BCA reflects the bank's strong funding and liquidity,
underpinned by its position as Saudi Arabia's largest bank with a market
share close to 19% of total assets as at June 2020. The
BCA also reflect the bank's strong solvency, which includes
robust capitalisation with tangible common equity to risk weighted assets
(TCE) of 14.2%, sound asset quality with nonperforming
loans (NPLs) of 1.8% and resilient profitability with net
income (adjusted for AT 1 cost) at 1.7% of total tangible
assets as at June 2020. These strengths are moderated by NCB's
borrower and funding concentrations and the agency's view of continued
pressure on both profitability and asset quality metrics in the next two
years on the back of lower oil prices, reduced government spending
and the coronavirus-induced disruption.
SAMBA
Moody's affirmation of Samba's ratings also reflects Moody's expectations
that the bank's operations, standalone profile and probability of
government support will not likely change until the merger is completed.
Samba's A1 long-term deposit ratings are at the same level
as Saudi Arabia's A1 long-term issuer rating and capture the bank's
solid Baseline Credit Assessment (BCA) of a2; and a one-notch
uplift based on our expectation of a very high likelihood of government
support.
Samba's a2 BCA is underpinned by its strong funding and liquidity profile;
and strong solvency, with a tangible common equity at 15.4%
of tangible assets as of June 2020. While profitability remains
solid by global standards, higher loan-loss provisions have
reduced bottom-line income. We expect continued pressure
on both profitability and asset quality metrics in the next two years
on the back of lower oil prices, reduced government spending and
the coronavirus-induced disruption. Risks are accentuated
by high credit concentrations, while the bank also has high funding
concentrations in common to most Saudi banks.
The A1 foreign currency ratings assigned to the backed senior unsecured
ratings issued by Samba Funding Limited are aligned with Samba's deposit
ratings, reflecting that the instruments issued are direct,
and unconditional obligations of Samba and rank equally with all other
unsecured and unsubordinated obligations of Samba.
NEGATIVE OUTLOOKS
The negative outlooks for both banks are driven by 1) the potential weakening
of the government's capacity to support the Saudi banks as indicated by
the negative outlook on the government's A1 long-term issuer
rating; 2) the deteriorating operating environment faced by the country's
banks on the back of lower oil prices, spread of coronavirus and
reduced government spending.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the negative outlook, any upgrade to the banks' ratings is
unlikely in the near future. The outlook on the long-term
deposit ratings could be moved back to stable if the sovereign's outlook
moves back to stable and Moody's assesses that the risks in the operating
environment remain broadly stable.
The ratings of the banks could be downgraded if 1) the sovereign rating
is downgraded, indicating a lower government capacity to provide
support; and/ or 2) Moody's sees or expects to see a deterioration
in the operating environment that would lead it to lower Saudi Arabia's
macro profile or significant deterioration in the banks' solvency
or funding profiles.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks Methodology
published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147865.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Moody's National Scale Credit Ratings (NSRs) are intended as relative
measures of creditworthiness among debt issues and issuers within a country,
enabling market participants to better differentiate relative risks.
NSRs differ from Moody's global scale credit ratings in that they are
not globally comparable with the full universe of Moody's rated entities,
but only with NSRs for other rated debt issues and issuers within the
same country. NSRs are designated by a ".nn"
country modifier signifying the relevant country, as in ".za"
for South Africa. For further information on Moody's approach to
national scale credit ratings, please refer to Moody's Credit rating
Methodology published in May 2016 entitled "Mapping National Scale Ratings
from Global Scale Ratings". While NSRs have no inherent absolute
meaning in terms of default risk or expected loss, a historical
probability of default consistent with a given NSR can be inferred from
the GSR to which it maps back at that particular point in time.
For information on the historical default rates associated with different
global scale rating categories over different investment horizons,
please see https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1216309.
The local market analyst for National Commercial Bank ratings is Ashraf
Madani, +971 (423) 795-42.
REGULATORY DISCLOSURES
The List of Affected Credit Ratings announced here are a mix of solicited
and unsolicited credit ratings. Additionally, the List of
Affected Credit Ratings includes additional disclosures that vary with
regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL434443
for the List of Affected Credit Ratings. This list is an integral
part of this Press Release and provides, for each of the credit
ratings covered, Moody's disclosures on the following items:
• Endorsement
• Rating Solicitation
• Issuer Participation
• Participation: Access to Management
• Participation: Access to Internal Documents
• Disclosure to Rated Entity
• Lead Analyst
• Releasing Office
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social
and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Christos Theofilou, CFA
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Sean Marion
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Cyprus Ltd.
Porto Bello Building
1, Siafi Street, 3042 Limassol
PO Box 53205
Limassol CY 3301
Cyprus
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
