Fitch revises outlook of 6 Saudi banks to ‘Stable’; Affirms rating at ‘BBB+’

By Amirtha P S, Desk Reporter
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American credit rating agency, Fitch Ratings has revised the outlook of six lenders in Saudi Arabia to stable from negative and affirmed the foreign currency and local currency long-term issuer default ratings (IDRs) at ‘BBB+’.

The ratings agency’s revision of Arab National Bank (ANB), Banque Saudi Fransi (BSF), Alinma bank (Alinma), Saudi Investment Bank (SAIB), Bank Aljazira (BAJ) and Gulf International Bank – Saudi Arabia (GIB SA) is based on authorities’ strong ability to support the kingdom’s banking system, given the large external reserves.

The revision also reflects a “long record of support for Saudi banks, irrespective of their size, franchise, funding structure and level of government ownership”, the rating agency said.

Earlier this month, Fitch revised Saudi Arabia’s outlook to “stable” from “negative” and affirmed “A” sovereign rating considering the higher oil prices and the government’s continued commitment to fiscal reforms.

According to the International Monetary Fund (IMF), Saudi Arabia’s economy is expected to grow by 2.4 percent this year and 4.8 percent in 2022, driven by a strong rebound in the kingdom’s non-oil sector and investment from its sovereign wealth fund, the Public Investment Fund (PIF).

Saudi Arabia’s budget deficit is expected to narrow to 3.3 percent of the gross domestic product (GDP) in 2021, better than the 4.9 percent target of the government budget, assuming oil prices average $63 a barrel this year, Fitch said this month.

The rating agency also sees “high contagion risk among domestic banks” due to the interconnected and smaller size of the market. “We believe this is an added incentive for the state to support any Saudi bank, if needed, to maintain market confidence and stability,” it said.

According to Fitch, Saudi Arabia’s real non-oil GDP growth is projected to average 3 percent from 2021 to 2023, while the IMF forecasts that the kingdom’s non-oil economy will grow by 4.3 percent this year.

Higher oil prices following the OPEC+ agreement and rising demand are expected to further support the economy. Brent, the international benchmark for two-thirds of the world’s oil, is currently trading above $74 a barrel.

The PIF is also investing in the country to boost its economic growth. Earlier this year, the Saudi fund unveiled a five-year strategy with the aim of doubling its assets to $1.07 trillion and investing a minimum of $40 billion a year into the domestic economy until 2025.

Related: Capital Intelligence affirms Qatar’s long term FCR, LCR rating at ‘AA-‘