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