Moody's Investors Service has upgraded the bank financial strength rating (BFSR) of the Saudi British Bank (SABB) to C+ from C, which translates into a baseline credit assessment of A2. The outlook on the BFSR is stable. The bank's global local currency (GLC) deposit rating remains unchanged at Aa3, while its foreign currency deposit ratings are also unchanged at A1/P-1, but with the A1 long-term rating carrying a positive outlook and being constrained by the relevant country ceiling. Moody's said its BFSR upgrade recognizes SABB's ability to capitalize from the robust economic environment derived from Saudi Arabia's status as the global leader in oil production, vastly improved government finances and a nominal GDP growth of 80 per cent over the past five years, which have translated into announced infrastructure projects in excess of $350 billion over the next ten years and substantial opportunities for the banking sector. Despite reduced stock-market-related fee income during 2007, SABB has nonetheless demonstrated strong financial indicators that are commensurate with even higher ratings. Specifically, over the past three years, the bank recorded a return on equity that ranged between 25 percent and 33 percent, a cost-to-income ratio of between 30 percent and 33 percent, problem loans of just 0.3 percent to 1.1 percent that are well-covered by provision reserves, ample liquidity, and adequate capitalization with Basel II tier one ratio of 11 percent as of March 2008. SABB's BFSR also reflects the bank's beneficial relationship with HSBC Holdings, which has a 40 percent stake and a technical services contract. Moody's said it consider this association to be particularly important for SABB'S ratings, as it provides technical, operating, risk-control, and strategic planning support, as well as valuable access to HSBC Group's systems, and experienced senior staff seconded from HSBC. SABB has a well-established local franchise across all its main business lines, including corporate and investment banking, the latter through its HSBC Saudi Arabia Limited joint-venture with HSBC, in Islamic banking through its Amanah brand, and in retail banking, while also exploring new sectors such as insurance and Takaful. In Moody's opinion, SABB's BFSR also reflects the large borrower and funding concentrations, the substantial growth in lending that may raise concerns about future asset quality, its lack of geographical diversification, the maturity mismatches in its asset and liabilities, as well as the increased competition within the investment banking sector following the new licenses issued by the Capital Market Authority (CMA). Headquartered in Riyadh, Saudi British Bank reported total assets of $28.4 billion as of March 2008.
