The profits of the top banks in Saudi Arabia were up by 17.6 percent in Q1 2022 compared to the previous quarter as better cost efficiencies and lower impairment charges supported growth, according to Alvarez & Marsal (A&M).

An operational income growth of 5.6 percent between the fourth quarter of 2021 and the first quarter of 2022 drove the profit increase, the management consultant said in its Saudi Arabia Banking Pulse, Q1 2022.

A&M attributed the growth to a range of factors to the growing profits, including a buoyant energy market.

Higher net interest margin (NIM) could be attributed to increased focus on retail lending, as compared to corporate lending, which can provide better asset yields than corporate loans, it said.

“Return ratios witnessed a rise in the current quarter as compared to Q4’21, with improved profitability and higher return on equity (ROE),” the report noted.

Loan growth also reflected increased market confidence, which may have been driven by the economic rebound, increased consumer expenditures and higher oil prices.

Loans and advances (L&A) and deposits of the top banks increased by 5.2 percent and 3.9 percent QoQ, respectively.

The 10 top banks analysed by A&M 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.

Asad Ahmed, managing director and head of Middle East financial services, A&M, said the first quarter saw broad-based profitability improvement across the banking industry, and that the recent interest rate increases in the kingdom are likely to provide an impetus to banking sector profitability given Gulf currencies’ linkages to the dollar.

“A buoyant energy market, interest rate hike, and increase in consumer spending bode well for a continued a positive outlook for the Saudi banking sector.

A&M expects the Saudi Central Bank (SAMA) to continue matching rate hikes by the US Federal Reserve, which will help boost the sector’s net interest margins (NIMs) and reflect broad-based profitability improvements.

(Writing by Imogen Lillywhite; editing by    Seban Scaria)

imogen.lillywhite@lseg.com