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Thursday, Jan 27, 2022

Saudi banks on recovery path but mergers more likely after Covid impact

Saudi banks on recovery path but mergers more likely after Covid impact

Despite low interest rates, higher net interest income and reduced impairments drove double digit profit, of 20.3 percent, for the top 10 banks in Q3
Saudi Arabia’s banking sector did not escape the pandemic-induced downturn but with growth projections rising and loans and advances up, the industry is on the recovery path, according to consulting firm Alvarez & Marsal.

“Saudi banks have continued to grow their business and profit alongside asset quality control,” said Asad Ahmed, managing director and head of Middle East financial services, who co-authored its Q3 report on the kingdom’s banking sector.

However, despite the positive performances, quarter-on-quarter growth for most metrics in the third quarter of the year was lower than the previous quarter.

According to the report, in the face of low interest rates, higher net interest income and reduced impairments drove double digit profit growth of 20.3 percent for the top 10 banks in the kingdom in Q3 while liquidity is expected to remain sound for the rest of the year.

Total loans and advances of the top 10 Saudi banks grew by 2.8 percent quarter-on-quarter in Q3, and deposits grew by 1.2 percent quarter-on-quarter. Consequently, loan-to-deposit ratio increased from 90 percent last quarter to 91.5. Operating income grew 2.9 percent from the second quarter to the third.

To ease the prolonged stress that Covid-19 has put on many businesses, the Saudi Central Bank has extended its deferred payment program for small and medium enterprises until the end of 2021.

“Moving forward we anticipate that digitalisation trends and fintech opportunities will likely stimulate merger and acquisition activity in the sector. New digital banks are well-capitalised and will introduce positive competition among Saudi banks to provide customer-centric focused services and products and to optimise operating costs.

“Concurrently, the arrival of ‘Open Banking’, expected to be a part of the Saudi banking landscape in 2022, will allow customers to access financial services independent of their primary bank,” Ahmed said.

One of the most high-profile mergers is that of National Commercial Bank and Samba Financial Group, to create Saudi National Bank, which was completed earlier this year to create the largest bank in Saudi Arabia with over SAR896 billion ($239bn) in total assets and SAR127bn ($34bn) in shareholders’ equity at the time.

Saudi Arabia’s growth projection in the third quarter of 2021 increased to 2.8 percent, up from the International Monetary Fund’s June forecast.
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