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Rating Action:

Moody's affirms ratings of Saudi National Bank and Samba; ratings of Samba to be withdrawn

 The document has been translated in other languages

05 Apr 2021

Rating action follows the completion of the merger between the two banks on 1 April 2021

Limassol, April 05, 2021 -- Moody's Investors Service ("Moody's") has today affirmed the long-term and short-term local and foreign currency bank deposit ratings of Saudi National Bank (SNB and formerly known as National Commercial Bank) and Samba Financial Group (Samba) at A1/P-1. Moody's has also affirmed the long-term backed senior unsecured MTN program of Samba Funding Limited at (P)A1 and the backed other short-term debt at (P)P-1. The outlook on the banks' ratings remains negative. Subsequent to the action, Moody's also said that it will withdraw the ratings of Samba.

Today's rating action follows the completion of the merger between the two banks on 1 April 2021, where SNB remained as the surviving entity absorbing all the assets and liabilities of Samba which ceased to exist.

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL443688 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

SAUDI NATIONAL BANK (SNB)

The affirmation of SNB's ratings reflects Moody's view that the merger will not result in an immediate significant improvement in the enlarged group's financial fundamentals and that the benefits of the merger will take some time to be delivered. The rating agency however added that the merger strengthens SNB's number one position in the Saudi market, increasing its resilience against current operating environment pressures. Moody's expects the merged bank to maintain sound solvency and funding which support its current ratings. SNB's 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 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, also positioning it as one of the largest banking groups in the GCC region.

SNB'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 30% of total assets post completion of merger. The BCA also reflect the bank's strong solvency, which includes robust capitalisation with tangible common equity to risk weighted assets (TCE) of 15%, sound asset quality with nonperforming loans (NPLs) of 1.8% and resilient profitability with net income (adjusted for AT 1 cost) at 1.86% of total tangible assets as at December 2020. These strengths are moderated by SNB's borrower and funding concentrations and the agency's view of pressure on both profitability and asset quality in the next two years on the back of moderate oil prices, reduced government spending and the coronavirus-induced disruption.

NEGATIVE OUTLOOK

The negative is 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 pressure on the operating environment faced by the country's banks on the back of moderate 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 SNB's 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 SNB 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 bank's solvency or funding profiles.

SAMBA

Following the completion of the merger, Samba has ceased to exist and all its assets and liabilities have been transferred to SNB. Moody's has affirmed Samba's deposit ratings at A1/ P-1 and maintained the negative outlook. Samba's A1 long-term deposit ratings are at the same level as Saudi Arabia's issuer rating and capture the bank's solid 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. While profitability remains solid by global standards, higher loan-loss provisions have reduced bottom-line income. All of Samba's ratings and assessments will be subsequently withdrawn.

As part of the same rating action Samba's a2 Baseline Credit Assessment and Adjusted Baseline Credit Assessment are being withdrawn, given that the entity no longer exists.

Please refer to the Moody's Investors Service Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

AFFIRMATION OF SAMBA FUNDING LIMITED

Moody's has also affirmed the long-term backed senior unsecured MTN program of Samba Funding Limited at (P)A1 and the backed other short-term debt at (P)P-1, with negative outlook. Following the merger, all liabilities of this entity will be absorbed by SNB and hence, the foreign currency ratings assigned to the backed senior unsecured ratings are aligned with SNB's deposit ratings, reflecting that the instruments issued are direct, and unconditional obligations of SNB and rank equally with all other unsecured and unsubordinated obligations of SNB.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks Methodology published in March 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1261354. 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_ARFTL443688 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:

• EU Endorsement Status

• UK Endorsement Status

• 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_1243406.

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

Henry MacNevin
Associate Managing Director
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

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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