Despite the global economic and financial maladies, Saudi Arabia's economy and industries were given a clean bill of health by Standard & Poor's Ratings Services in its revised Banking Industry Country Risk Assessment (BICRA) report Wednesday. It maintained the Kingdom's economic risk score at ‘3' and assigning an industry risk score of ‘2', while raising BICRA rating to group ‘2' from group ‘3'. A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group ‘1') to the highest-risk (group ‘10'). Other countries in BICRA group ‘2' include Australia, France, Germany, Norway, Singapore, and Sweden. The Kingdom's economic risk score of ‘3' means that Saudi Arabia has “intermediate risk” in “economic resilience,” “low risk” in “economic imbalances,” and “intermediate risk” in “credit risk in the economy,” S&P's said in the report. “Our ‘intermediate risk' assessment of ‘economic resilience' reflects the economy's dependence on the performance of the hydrocarbon industry and the challenges faced in integrating a young and fast-growing population,” it further said. Saudi Arabia is one of the biggest oil producers in the world and has huge proven reserves. High oil prices support the government's policies of modernizing infrastructure, promoting economic diversification, and supporting private sector growth through vast spending plans. Monetary flexibility is limited because the Saudi riyal is pegged to the US dollar, but this also provides stability for the economy. Our assessment also takes into account potential political and geopolitical risks over the long term. Moreover, the report said that there are no major economic imbalances, like a credit fuelled asset bubble, that pose a threat to the banking sector. Though the Saudi stock market has been highly volatile over the past five years, however, it has had no significant impact on banks apart from the sharp reduction of brokerage fees, the report noted. “ This is also true for Saudi Arabia's real estate market, which we see as being driven by real demand, especially in the residential segment,” it added. On the external side, Saudi Arabia has posted sizable current account surpluses during the last decade and we expect this to continue. Saudi banks have adequate lending practices and underwriting standards, as well as a good track record in maintaining strong asset quality indicators, the report noted. The Kingdom's industry risk score is ‘2', reflecting the “low risk” assessment of the “institutional framework,” “competitive dynamics,” and “system-wide funding,” S&P's said. The report noted that the Saudi Monetary Agency (SAMA) monitors the banking system efficiently, preventing banks from entering into high-risk strategies or dealing with complex products. “We believe that SAMA was instrumental in recent years in limiting the overall risk profile of banks by controlling credit growth, especially in the retail segment. We assess the regulatory track record as ‘intermediate.' SAMA has consistently favored the building-up of strong capital positions and provision buffers in recent years. Basel II regulations were implemented in 2008, leading to strengthened risk management practices, including the creation of a credit bureau,” it said.
