Company Profile of the Saudi British Bank
SABB was founded in 1978 and started operating after six months in the same soon after acquiring another bank in the Middle East by the name The British Bank (Sabb.com). SABB is a Joint Stock Company that has a strong financial trend which is a custom that extends back to the time it was founded; SABB is an allied firm of HSBC Group, the world’s chief financial and banking services group that operates in 83 nations and regions across Asia-Pacific, Europe, Middle East, America and Africa (Sabb.com). This has helped SABB’s customers to enjoy HSBC resources, expertise, and worldwide network; SABB is headquartered in Riyadh and runs 99 branches, and has employed 3115 personnel as of the end of the year 2010 of which 86.1% of the 3114 employees are Saudi nationals (Sabb.com).
The bank’s vision is “We aim to be the leading Financial Services Group in Saudi Arabia for Customers, Shareholders, and staff” (Sabb.com). SABB offers a wide range of products to clients, which include; Corporate, Commercial, Islamic, Private, and Personal banking (Sabb.com). They also offer financial services such as treasury and trade, investment, credit cards, and ATMs cards; SABB’s customers can utilize online services such as telephone, internet, and electronic banking anywhere and anytime (Sabb.com). The bank customer service uses SMS (Short Message Services) and telephone know-how to communicate with clients (Sabb.com).
At the end of the years 2010 and 2009, the bank assets were SAR 125.4 billion and SAR 126.8 billion respectively, at the same period the bank’s profits were SAR 1883 million and SAR 2032 million in 2010 and 2009 respectively (Sabb.com).
The bank paid-up funds are SAR 7,500 million which is split into two with the Saudi nationals taking up 60% while the HSBC Holdings BV, taking the remaining 40% (Sabb.com).
Risk analysis
Risk Management
The financial and banking industry is prone to risk, therefore, financial institutions must attempt to achieve a trade-off between the return and risk, and all employees in the bank must participate in the risk management process (Sabb.com). To manage risk the treasurer must identify risks, quantify and measure them and finally use the appropriate tools or instruments to mitigate the exposure; SABB is exposed to credit risk, operational risk, reputational risk, market risk, liquidity risk, and sustainability (Sabb.com).
The board of directors is responsible for risk management; to manage risk the bank has deep-rooted risk ownership and governance structure, which ensures that there is accountability and effectual risk management (Sabb.com). The BOD (Board of Directors) institutes the Risk Appetite Statements, appoints and delegates authority for risks to senior officers, and develops internal controls (Sabb.com). In 2010 the Risk appetite structure was improved and the framework illustrates the kind of risk the bank is equipped to tackle when carrying out its strategy (Sabb.com).
Market and credit risks are managed by the bank together through an independent Credit Risk Department. The department’s main responsibility is to devise the bank’s credit policies that comply with regulations, to give guidance to another department on SABB’s risk appetite on the market and credit risk coverage to precise sectors of the market, and assess the products offered by the bank (Sabb.com).
The department also controls risk exposure to self-governing bodies, financial institutions, and banks; finally, it embarks on self-governing review and objective examination of risk (Sabb.com).
Integration of functions within the bank helps the bank to increase operational risk responsiveness and add to employees’ training on risk. The bank is embarking on the advancement of the ORMS (Operational Risk Management System) that will be capable of supporting businesses, managing and controlling the material exposure (Sabb.com).
The funding and liquidity risk structure responds to changes in the business mix and the effect of global occurrences on the bank’s liquidity position (Sabb.com). The framework will advance as SABB incorporates the information from the market and regulatory proposal on liquidity (Sabb.com).
Financial Forecasting
Financial forecasting or planning encompasses a number of elements such as sales forecast, asset requirements, cash budget, new financing, forecasted financial statements, and anticipation of changes in the economy (Microstrategy.com). The most commonly used method in approximating financial statements is the Percentage of Sales method (Microstrategy.com) as it presumes that some expenses, liabilities, and assets are stable; that is they retain a steady association to the sales level.
In 2011 the Saudi economy is expected to retain 2010 performance, which means the banks will approximately make the same profit in 2011 as was 2010; in 2010 for instance the bank operating revenue decreased by 6.22% compared to 2009 (Sabb.com). In 2010 the bank efficiently controlled operating expenses which were reduced by 5.57% compared to 2009; the forecasted financial statements for 3 years as shown in the spreadsheet, assume that in 2011 the operating income and expenses increases by 5% and 2% respectively (Sabb.com).
After forecasting the balance sheet does not balance because the bank needs more funds that are external financing of SAR 375 million, SAR 847.501 million, and SAR 1,181.400 million in 2011, 2012, and 2013 respectively (Sabb.com).
Profitability ratios
The profitability ratio measures the administration’s effectiveness in controlling the cost of production and operators (Drake 32). Return on shareholders’ fund indicates the company’s efficiency with which the firm uses owners’ funds to generate a return to shareholders has dropped from 25.10% in 2008 to 15.58% in 2009 this trend continued in 2010 and dropped down to 12.41% (Sabb.com); this means that the firm was not profitable and the firm was not able to generate a return to shareholders. Return on capital employed was worst in 2010 compared to 2009 and 2008 as it dropped from 8.26% to 2.52% (Sabb.com); this may be as a result of an increase in operating cost as time passed.
Liquidity ratio
Liquidity ratios measure the firm’s ability to meet its short-term maturity obligation as and when they fall due; they measure the liquidity risk of the firm, whereby the lower the liquidity ratio the higher the liquidity risk (GoldmanSachs.com).
The company liquidity has remained the same in 2010 and 2009 at 0.22 (Sabb.com); this means that current assets cannot fully cover current liabilities. The current ratio is less than 1 which indicates that it is below the margin of safety for creditors (which is above one).
Gearing ratio
Gearing ratios, on the other hand, measures the extent to which a firm uses the assets which have been financed by non-owners supplied funds i.e. they measure the financial risk of the company (Drake 48). The lower the ratio, the lower the financial risk of the firm. A firm should then have an appropriate mix of debt and equity (Microstrategy.com). In 2010 the gearing ratio was at 79.23% compared to 2009 and 2008 which had a ratio of 45.75% and 49.23% respectively. This means that the company was highly geared in 2010 has a ratio is more than 50%.
Investment ratios
The investment ratios are used to calculate the overall performance of the company and are used to determine the company’s dividend policy, the effect of a proposed finance option, and also to predict the effect of the right issue on the company (Meir 46). The shareholders expect to generate SAR 2.51 per share in 2010 which is lower than in 2009 and 2008 (Sabb.com); this means that in 2010 every share invested in the bank earned SAR 2.51. In 2009 and 2008 every share invested earned SAR 2.71 and SAR 3.89 respectively (Sabb.com). In 2010 if the bank was liquidated and all assets sold at the book value, the shareholder would receive SAR 20.23 per share held, which is higher than in 2009 and 2008.
Asset-Liability management
Asset management
According to graph 1 in the spreadsheet, in 2008 the bank had a lot of assets both non-current and current compared to 2006, 2007, 2009, and 2010 (Sabb.com). In 2010 the asset held by the firm were lower compared to 2009 (Sabb.com); this may be due to more loans and advances that were lend to the customers in 2009 compared to 2010.
Graph 2 indicates that the bank had more assets inform of loans and advances lend to customers followed by cash and balances in 2010 (Sabb.com); this explains why the firm is facing liquidity risk, since it has more non-current assets with the customers than they have in hand.
Liability management
According to Graph 3 the company is holding more customers’ deposits than any other liability (Sabb.com). This means that if the customers were to withdraw their deposits today the bank would be left with less liability; this means that the bank will lack funds to lend to borrowers and may in turn lead liquidity crisis in the bank.
Works Cited
GoldmanSachs.com. “BRICs”, 2011. Web.
Drake, P. “Financial ratio analysis”, 2009, Web.
Meir, L. “Financial ratio analysis”, 2008, Web.
Microstrategy.com. “Financial Analysis”, 2011, Web.
Sabb.com. “About us”, 2011, Web.