Saudi Arabia’s banks are likely to remain on a profitable path in 2023 with continued credit growth, and higher interest rates resulting in migration of current and savings accounts towards term deposits.
The Saudi Central Bank (SAMA) will also continue extending tenors for its support packages and other facilities to avoid a credit crunch, according to Alvarez & Marsal’s (A&M) 2022 Saudi Arabia Banking Pulse 2022.
Higher credit demand, better asset yield and operating efficiencies drove the top Saudi lenders’ profitability in 2022 amidst rising benchmark interest rates, the bank said, with the aggregate net income increasing by 28.4% year on year (YoY) to SAR 62.7 billion ($16.7 billion).
Banks saw high credit growth during the year, with deposits inching up further on strong economic momentum and investments, pushing the loan-to-deposit ratio to 96.7%.
This can largely be attributed to demand for personal loans and real estate activities, the report said, adding that the banks’ credit growth stood at 14.4% YoY, while deposits grew by 8.3% YoY.
The growth of loans and advances (L&A) significantly outpaced that of deposits, with the total growth for the top 10 banks growing at 14.4% YoY, whereas aggregate customer deposits increased by 8.3%.
Nine out of the top 10 banks reported growth in deposits. Consequently, loan-to-deposit-ratio (LDR) improved by 5.1% YoY to 96.7%.
Operating income grew because of increased net interest income (NII) and non-funded income, A&M said.
Strong capital position
Asad Ahmed, managing director, head of Middle East financial services for A&M, said: “We consider the Saudi banks’ capital position to be strong.
“Profitability improved due to an increase in operating income which was further supported by lower impairments.
“SAMA has increased its interest rates along with the US Federal Reserve (+425bps) in FY22 and we expect SAMA to continue matching monetary tightening by the reserve, which will help boost the overall banking sector’s NIMs and in turn its profitability.
“Corporate lending is likely to increasingly drive credit growth in the near term as Saudi Vision 2030 projects are implemented.”
A&M analysed the kingdom’s 10 largest listed banks for the report, which are Saudi National Bank, Al Rajhi Bank, Riyad Bank, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad, Saudi Investment Bank and Bank Aljazira.
(Writing by Imogen Lillywhite; editing by Cleofe Maceda)