Scientific Journal Of King Faisal University
Basic and Applied Sciences
Scientific Journal of King Faisal University / Humanities and Management Sciences
The Impact of Credit Rate on Profitability: An Applied Study on the Saudi Banking Sector
(Thamer A. Alnoeran and Hmood H. Banikhalid)Abstract
The objective of this research is to monitor the impact of credit rating agencies on different institutions, which constitutes one of the important variables in the contemporary business environment and cannot be overlooked. This study aims to examine the impact of credit rating on the profitability of banks. The focus of the study was the Saudi banking sector during the years 2009–2018, where the sample represented all Saudi banks that have a credit rating by Standard & Poor's agency. Standard & Poor's credit rating scores have been adopted as the credit rating representative, which is the independent variable, while the ROA and ROE have been adopted as indicators of profitability and are the dependent variables. The study has attained several findings, the most important being that Saudi banks witnessed a fluctuation in their credit ratings during the study years. This fluctuation in the levels of solvency ranged from the sufficient to the strong ability to pay long-term obligations in local currency. Moreover, the profitability of these banks was characterized by relative fluctuation despite their positive results. However, the econometrics study indicates that there is no statistically significant impact of credit rating on the profitability of banks. This can be explained by the recent conclusion that the decline in credit ratings in most of these banks, from strong to sufficient levels of repayment obligations, did not affect the confidence of customers, and therefore, did not negatively impact revenue.
KEYWORDS
Credit rating agencies, ROA, roe, Saudi banks, solvency, standard & poor’s
PDF
References
Abdul Salam, I. (2009). Almasarif al'iislamiat waltasnif alaytmany 'Islamic banking and credit rating'. In: Islamic Banking Conference and Stages for Valuation, Sudan, 20/02/2010. [in Arabic]
Al-Abdul-Wahab, H. (2016). Mutatalabat Altasnif Alaitimanii Lilbnwk, Dirasatan Tatbiqiatan Ealaa Albunuk Alkhalijia 'Banks' Credit Rating Requirements, An Applied Study on Gulf Banks, Group of Banking Studies'. Cairo, Egypt: Al-Rehab Library for Publishing and Distribution. [in Arabic]
Al-Aqra ', A. (2017). Altasnif Alaitmaniu Al'usus Walmubadi 'Credit Rating: Basis and Principles'. Cairo, Egypt: Sheikh Library. [in Arabic]
Al-Khowailed, S. (2010). Altasnif alaitimaniu lilmasarif 'Banking credit rating'. In: The Global Financial Crisis Conference and How to Address its Effects, Lebanon, 02/05/2010. [in Arabic]
Al-Nuaimi, A. and Al-Saqi, S.M. (2014). Al'iidarat Almaliat: Alnazariat Waltatbiq 'Financial Management: Theory and Practice'. 5th edition. Amman, Jordan: Dar Al Masirah. [in Arabic]
Al-Sahli, A.R. (2019) Alaiqtisad Alsaeudiu Waruyat 2030, 'Arqam Wahaqayiq 'Saudi Economy and Vision 2030, Figures and Facts'. Riyadh, Saudi Arabia: Najd for Publishing and Distribution. [in Arabic]
Al-Salieh, H. (2013). Altasnif alaitmaniu lilmasarif al'iislamiat wa'uthrat fi tatwir alsuwq almaliat al'iislamia 'The credit rating of Islamic banks and their impact on the development of the Islamic financial market'. In: The Symposium on Islamic Banks and the Challenges of Globalization, Oman, 09/11/2013. [in Arabic]
Al-Tamimi, A.S. (2010). Ahamiyat Altasnif Alaytmanii Fi Takhfid Almadyuniat Alkharijia 'The Importance of Credit Rating in Reducing External Debt'. Cairo, Egypt: Dar Al-Fekr Al-Jamai'a. [in Arabic]
Argaam, A. (2019). Financial Report. Available at: https://www.argaam.com/en/company/financial-pdf/3/2020 (accessed on 01- 10-2019)
Belazzouz, B.A. and Madani, A. (2010). Altasnif alaitmaniu bayn musabib lil'azmat almaliat alealamiat walbahth ean mukhrij lha 'The credit rating between the cause of the global financial crisis and the search for a way out'. In: An Introduction to the Fourth International Conference in Kuwait about the Global Economic Crisis from the Perspective of the Islamic Economy, College of Business Administration, Kuwait,15-16/12/2010. [in Arabic]
Gibson, H.C. (2013). Financial Statement Analysis. 13th edition. Mason, OH: South-Western.
Jeppson, N. H., Geiszler, M. C. and Salerno, D. F. (2018). Firm credit ratings and financial analyst forecast performance. Economic and Business Review for Central and South-Eastern Europe, 20(3), 347–441. doi:10.15458/85451.69
Maarouf, N. (2013). Dawr Wikalat Altasnif Alaytmanii Fi Tafeil 'Ada' Albunuk Altijaria 'The Role of Credit Rating Agencies in Activating the Performance of Commercial Banks'. Master’s Dissertation, Al-Arabi Bin Mahidi University um Al-Bawaki, Algeria,. [in Arabic]
Madani, A. (2013). Dawr wikalat altasnif alaitmanii fi sinaeat al'azamat fi al'aswaq almaliat wamutatalabat 'iislahiha 'The role of credit rating agencies in crisis industry in financial markets and the requirements for their reform'. Academic Journal of Social and Human Studies, n/a(10), 53–61. [in Arabic]
Maghari, A.R. (2013). Dawr wikalat altasnif alaytmanii fi taqyim alqiam almaliat wa'athariha ealaa sayr al'aswaq almaliat alduwalia 'The role of credit rating agencies in evaluating financial values and their Impact on the progress of international financial markets'. Majallat Abād Iqtiṣādīyah, n/a(3), 33-66. [in Arabic]
Poon, W.P.H., Lee, J. and Gup, B.E. (2009). Do solicitations matter in bank credit ratings? Results from a study of 72 countries. Journal of Money, Credit and Banking, 41(2–3), 285–314. doi:10.1111/j.1538-4616.2009.00206.x.
Poon, W.P.H. and Firth, M. (2005), Are unsolicited credit ratings lower? International evidence from bank ratings. Journal of Business Finance & Accounting, 32(9–10), 1741–71. doi:10.1111/j.0306-686X.2005.00646.x
Rashid, A. (2017). Tahlil Al'ada' Almalii Lilmuasasat 'Analysis of Institutional Financial Performance'. 2nd edition. Beirut: Hafez Publishing House. [in Arabic]
Sama. (2019). Local Banks. Available at: http://www.sama.gov.sa/en-US/BankingControl/Pages/LocalBanks.aspx (accessed on 01/10/2019)
Siham, Z. (2017). Dawr wikalat altasnif alaitmanii fi hisab mueadal kifayat ras almal wfqaan limutatalabat lajnat bazal 'The role of credit rating agencies in calculating the capital adequacy ratio according to the requirements of the basel committee'. Journal of Economic and Financial Studies, University of the Martyr Hama Lakhdar, Algeria. 10(3), 89–101. [in Arabic]
Yung-Ho, C., Chun-Mei, M. and Ming-Yuan, S. (2010). Efficiency and credit rating in Taiwan banking: Data envelopment analysis estimation. Applied Economics, 42(20), 2587–600.
Zaatari, R. (2011). Altasnif Alaitmaniu Wafaq Tatbiqih Fi Alaiqtisad Alswry: Dirasat Tatbiqia 'Credit Rating and Prospects for its Application in the Syrian Economy: an Applied Study'. Unpublished Master’s Dissertation, University of Aleppo, Aleppo, Syria. [in Arabic]