One of the affiliates of HSBC Holdings, Saudi British Bank or SABB, aims to sell an Islamic bond before the end of 2013 to increase its capital base. This was confirmed by two banking sources knowledgeable of the matter last Monday.
HSBC advised SABB for a possible riyal-denominated sukuk to increaae its Tier 2 capital foundation. The sources who shared the information declined to be identified as the matter was not yet made public.
The total capital ratio of SABB combined core Tier 1 and supplementary Tier 2 capital is one of the lowest ranked among all the banks in Saudi Arabia as of June 2013, garnering just 14.78%. While this is aboive the minimum capital adequacy ratio, which is the benchmark of the financial strength of a banking institution. The Saudi Arabian Monetary Agency sets the benchmark at 8%.
SABB is Saudi Arabia's third largest lender in terms of market value. HSBC owns 40% of the bank. While banks in the kingdom are well capitalized, the massive government spending policy recently undertaken has put pressure on the capital positioning of the banks.
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