CI Affirms Saman Bank’s Financial Strength in New Report

Capital Intelligence Ratings (CI), the international credit rating agency, has affirmed Saman Bank's both Financial Strength Rating as well its long- and short-term Foreign Currency Ratings at 'B'.

The outlook for the bank's ratings was revised to 'Stable' from 'Positive', reflecting Saman Bank's challenges in improving key financial metrics in light of the operating environment in Iran. The Support Rating remains at '4'.

According to CI's report, the privately-run bank's successful business model and market position in trade finance and retail banking, its solidly growing and resilient deposit franchise, and avoidance of undue concentration risks in the bank's financing portfolio and deposit base remain key supporting rating factors.

Saman Bank's ratings, however, remain primarily constrained by weak capital adequacy, asset quality and profitability, as a result of an extremely difficult operating environment in Iran over the past several years, which continue to affect the banking sector in general.

In the 2016 fiscal year end (ended March 20, 2016), the bank posted only relatively modest growth (in real terms), as net financial income in relation to average total assets turned negative.

At the same time, risk provisioning expenses continued to absorb an elevated proportion of operating profit. Bottom-line profitability also suffered, but the decline was somewhat mitigated by increased gains from the sale of foreclosed assets.

Positively, as the bank took a more active stance in the work out of problem exposures, non-performing financing declined and the NPF ratio improved.

Capital adequacy has further deteriorated and capital adequacy ratio fell to 8.1% at FYE 2016, thus remaining only slightly above the regulatory minimum requirement. CI expected these trends to continue during the fiscal year that ended March 2017.

Saman Bank's plans to address its tight capital position mainly focused on another revaluation of real estate during the current fiscal ending March 2018.

While helping to improve regulatory capital ratios, such a measure would further reduce the proportion of core equity within the bank's regulatory capital base.

The Support Rating of '4' indicates that only a moderate level of support is likely. Although the bank's shareholders have supported the bank's growth in the past, neither they nor the Central Bank of Iran are likely−under the current circumstances−to be able to provide further significant capital or liquidity support.

Outlook

The 'Stable' outlook indicates the likelihood that SB's ratings will remain unchanged within the next 12 months.

Progress in overcoming fundamental and structural weaknesses in the economy, following the lifting of international economic and financial sanctions related to Iran's s nuclear program, has slowed.

Major international financial institutions remain very cautious in financing Iran-related projects over concerns regarding the attitude of the new US administration under President Donald Trump.

To consider an outlook or a rating change, CI Ratings would need to see further improvements in the bank's asset quality metrics, sustainable recoveries of SB's capital position and profitability levels. This includes a final resolution of the bank's long-lasting disputes with Bank Saderat and CBI, without having a negative impact on its risk and financial profiles.

However, CI expects that a more positive economic, political and operating environment will gradually feed through the bank's credit fundamentals. In the near term, CI expects Saman Bank's financial strength not to improve significantly.

While another revaluation of the bank's properties in the current financial year is a possibility, a more substantial increase will most likely have to come from a broadening of the bank's shareholder base, eventually from a strategic foreign investor.

 Due to the tight capital base, the bank must continue to exert strong discipline in terms of balance sheet growth and intensify its active approach in managing its portfolio of NPFs. The bank will maintain a tight focus on strict cost management to mitigate the pressure on profitability.