Credit Rating

Karachi, June 28, 2021: VIS Credit Rating Company Limited (VIS) has maintained the entity ratings of Samba Bank Limited (‘SBL’ or ‘the Bank’) at ‘AA/A-1’ (Double A/A-One). Outlook on the assigned ratings has been revised from ‘Stable’ to ‘Positive’. The long term rating of ‘AA’ signifies high credit quality; protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. The short term rating of ‘A-1’ signifies high certainty of timely payment; liquidity factors are excellent and supported by good fundamental protection factors. Risk factors are minor. Previous rating action was announced on June 23, 2020.

The revision in rating outlook takes into account change in sponsor profile. In H1’2021, the Samba Financial Group (SFG) of the Kingdom of Saudi Arabia (KSA) has merged with National Commercial Bank (NCB) in KSA, forming a new entity by the name of Saudi National Bank (SNB). Previously NCB was the largest bank in the Kingdom of Saudi Arabia (KSA), with an asset base of USD 160b approximately as at end of December 2020 i.e. more than twice the asset base of SFG.

The assigned ratings of SBL continue to factor in sound capitalization indicators and maintained market positioning. During the period under review, SBL posted moderate growth, which mainly emanated from an increase in borrowings, accompanied by comparatively low growth in deposit base. Akin to the industry, we have noted rationalization in ADR, albeit it continues to trend on the higher side vis-à-vis peers. Corporate segment remained the largest segment in SBL’s loan book, while growth during the period under review largely emanated from the Commercial & SME segments, with modest growth in consumer segment as well, which was auto-financing driven. Overall market share of the Bank in terms of advances and deposits has been maintained.

Overall, the NPLs of the Bank increased specifically as a large-sized client became non-performing, albeit the management has prudently provisioned for the same, keeping SBL’s net infection much lower than peer median. SBL’s profitability indicators depict further room for improvement, when compared to the AA rated banks. Cognizant of the effectiveness of branch banking model common across the industry, there are plans to open branches in the medium term. Even though this will push the operating overheads upwards in the short-term, in the longer term horizon it should allow the Bank to attract low cost funding and improve its net interest margin.

The revised outlook qualifies potential direction of assigned rating. An upgrade in SBL’s rating is contingent upon implementation of new strategy and translation in operating performance. VIS will continue to closely monitor the business & financial risk profile of SBL on quarterly basis.