Ratings of Riyad Bank Updated After Sovereign Action

(MENAFN- Capital Intelligence Ltd) Capital Intelligence Ratings (CI Ratings or CI) today announced that it has affirmed the Long-Term Foreign Currency Rating (LT FCR) and Short-Term Foreign Currency Rating (ST FCR) of Riyad Bank (RB or the Bank) at ‘A+’ and ‘A1’, respectively. At the same time, CI Ratings has affirmed RB’s Bank Standalone Rating (BSR) of ‘bbb+’, Core Financial Strength (CFS) rating of ‘bbb+’ and Extraordinary Support Level (ESL) of High. The Outlook for the LT FCR and BSR remains Stable.

The Bank’s LT FCR is positioned three notches above the BSR, which is the maximum uplift permitted under our criteria when the ESL is assessed as High. This reflects our view that the authorities exhibit a strong willingness to provide timely extraordinary support if needed – particularly given RB’s 32.2% combined ownership by the Public Investment Fund and the General Organization for Social Insurance. This willingness is underpinned by the sovereign’s very strong capacity to extend such support. Several of the domestic banks in Saudi Arabia, including RB, are designated as domestic systemically important banks. Saudi banks play a central role in financing the Kingdom’s development agenda, including in financing contractors involved in large-scale infrastructure and economic diversification projects under Vision 2030. Their strategic importance to the functioning and stability of the domestic economy underpins the authorities’ strong incentive to preserve confidence in the financial system. Reflecting this, the government has an established track record of supporting the banking sector and maintains substantial financial capacity to provide assistance should the need arise.

RB’s BSR is based on a CFS rating of ‘bbb+’ and an Operating Environment Risk Anchor (OPERA) of ‘bbb’. The Bank’s CFS rating is supported by strong asset quality, solid and above peer average profitability (despite margin pressure), stable funding, and good liquidity profile supported by a largely unencumbered portfolio of high-quality investment securities. Challenges include broader system-wide pressures stemming from tightening liquidity, which will continue to exert upward pressure on funding costs in the face of keen competition for deposits and loans. Further net interest margin (NIM) compression could weigh on profitability. Additional credit challenges are the likely concentration in both lending and deposits, in line with the Saudi banking sector (and the wider GCC), as well as geopolitical risks.

The OPERA for Saudi Arabia balances the economy’s limited diversification, low monetary policy flexibility and geopolitical risks against strong external buffers and substantial oil reserves. It also takes into account the banking sector’s strong capital buffers and a good funding structure, primarily consisting of domestic deposits, despite rising cross-border funding to meet the elevated credit demand associated with Vision 2030 projects. Saudi banks continue to benefit from strong access to capital markets.

RB is the third-largest commercial bank in terms of assets in Saudi Arabia, benefiting from a strong domestic franchise and meaningful government-related ownership. Its universal banking model is well-diversified across corporate, retail, treasury and investment services. The core corporate banking franchise is complemented by an extensive physical and digital retail distribution network. Strategic direction is articulated under management’s ‘Transformation 2025’ programme, which positions RB as a financial enabler of Vision 2030. The four strategic pillars – profitability, efficiency, customer-franchise development and digital leadership – are embedded across segments.

CI assesses RB’s risk profile as being good, supported by consistently strong loan asset quality metrics. NPLs remain very low at 0.87% at end-Q3 25, while Stage 2 exposures continue to decline, indicating limited latent credit risk. Credit loss-absorption capacity is strong, with loan-loss reserves providing more than full coverage, and resilient operating profitability and good capital offering additional buffers against potential credit stress. Non-credit asset quality is likewise robust, underpinned by a high-quality securities portfolio dominated by Saudi government and quasi-government exposures, which together accounted for around two-thirds of total investments at end-Q3 25.

Profitability is strong and remains above the high peer average. Earnings performance continues to be underpinned by solid operating profitability, supported by stable net interest income (NII) and strong cost efficiency, despite a more challenging NIM environment in 2025. Margin pressure from higher funding costs and competitive loan pricing has been largely offset by robust credit growth, enabling broadly stable NII generation. Earnings quality is further reinforced by strong and growing non-interest income, mostly comprised of recurring fee and commission income, despite volatile components (such as trading income) growing much faster in 2025. Provisioning costs remain low, benefiting from recoveries and sound asset quality metrics. Overall, RB’s earnings profile is resilient, well-diversified, and expected to remain strong over the medium term.

RB maintains a satisfactory deposit-based funding profile, although deposit growth has slowed and the mix has shifted further toward higher-cost interest-bearing balances. The funding base benefits from the Bank’s size, ownership structure, and extensive physical and digital footprint. With Vision 2030 credit demand outpacing system-wide deposit growth, and amid widening SAIBOR-SOFR spread, RB – in line with domestic peers – increased its utilisation of predominantly term, cross-border, foreign currency wholesale funding. This maintains the unweighted loan-to-deposit ratio above 100%, a level broadly reflective of prevailing liquidity conditions in the sector. Nonetheless, liquidity remains adequate, supported by a high-quality, largely unencumbered, securities portfolio dominated by Saudi government and other investment-grade exposures. Regulatory liquidity indicators remain sound, with both the liquidity coverage ratio and the net stable funding ratio comfortably above requirements.

RB’s capitalisation is satisfactory and underpinned by good-quality capital, with CET1 representing around three-quarters of regulatory capital. Although ratios softened in 9M 25 due to strong balance sheet expansion (and remain at the lower end of domestic peers in the context of a highly capitalised Saudi banking sector), they are considered adequate given the Bank’s risk profile. Capital formation benefits from solid profitability and active capital management, including recent AT1 and Tier 2 issuances. Capital flexibility is good, supported by robust internal capital generation, a disciplined dividend policy, and demonstrated access to both domestic and international capital markets. The government’s significant ownership stake also underpins capital flexibility, ensuring any additional capital requirements are met on a need basis. Over the medium term, further capital strengthening may be necessary to accommodate ongoing balance sheet growth and upcoming regulatory changes, including the planned countercyclical buffer and the implementation of more stringent requirements for interest rate risk in the banking book (IRRBB).

Rating Outlook

The Stable Outlook suggests that the ratings are expected to remain unchanged over the next 12 months. This reflects our assessment that the risk profile of RB is likely to remain steady.

Rating Dynamics: Upside Scenario

An upgrade over the next 12 months appears unlikely given that the Bank’s BSR is already at a strong level. Over the medium term, upward rating pressure could emerge from sustained improvement in financial metrics, further meaningful expansion of domestic market shares, or diversification beyond the domestic market that broadens the Bank’s revenue base without weakening asset quality.

Rating Dynamics: Downside Scenario

A downgrade of the Bank’s BSR or CFS rating would require a marked deterioration in asset quality, capital and/or liquidity metrics or lowering of the OPERA; these are not expected over the next 12 months.

Contact

Primary Analyst: Stathis Kyriakides, Senior Credit Analyst; E-mail: ...
Secondary Analyst: Darren Stubing, Senior Credit Analyst
Committee Chairperson: Morris Helal, Senior Credit Analyst

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