Banks in Saudi Arabia are expected to continue to prioritise their liquidity demands for the coming year despite enhanced earnings, through focusing on raising Tier I capital in the form of debt issuances, notably sukuk. 

KPMG said there had been issuances of $3.8 billion in the first nine months of 2022, and this is expected to grow in the coming months, as banks are fuelling the increased demand in the public and private sector. 

Towards the year-end, banks will continue to mitigate enhanced market risk due to volatility in the interest rate, the accounting and auditing services company said, adding that over the next three years, risks will be more interconnected, as emerging technology rises. 

“An upsurge in Tier I capital issuance has been noted across the banking participants as banks are further strengthening their equity base,” said Khalil Ibrahim Al Sedais, office managing partner at KPMG in Saudi Arabia. 

KMPG also said the regulatory agenda is ensuring a robust capital base through the implementation of the Basel IV banking reforms, which are now progressing after a delay caused by the pandemic. 

“Banks could face significant challenges as they refresh their Basel IV programmes,” said Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia. 

In its Q3 2022 ‘Banking Pulse’ report, KPMG highlighted the latest developments in the kingdom’s banking sector. 

KMPG said the first nine months of 2022 had been robust for the kingdom’s banks, with a net profit increase of 26.21% year-on-year (YoY) to SAR 46.41 billion ($12.33 billion) and total assets rising 9.76% YoY to SAR 3.329 billion. 

“As we look to the next three years, risks are more interconnected than ever; emerging technology rises as the top risk and greatest threat to organisational growth, while operational risk, regulatory changes and reputational concerns are the other risks jumping in priority,” Shahab added. 

Advancing digitalisation and connectivity across the business is tied with attracting and retaining talent which is coming out as the top operational priority to achieve growth over the next three years, KPMG concluded, adding that this focus may drive increasingly flexible working arrangements and mitigating the heightened cyber security threats. 

(Writing by Imogen Lillywhite; editing by Cleofe Maceda)