The banking sector continues to face headwinds from low oil prices which pushed the government to cut expenditures. However multiple successful debt issues have provided the necessary support to plug the revenue shortfall.
In addition, the Saudi government’s expansionary fiscal policy since fiscal year (FY) 2019 has resulted in credit growth. It continued in FY20 at nearly the similar pace of 3%, as the government pushed nearly SAR 50 billion into deposits. A recovery in oil prices going forward will support the government finances, the research firm said.
In Q3-20, total banking deposits stood at SAR 1.88 trillion, a yearly jump of 10.7%, largely owed to a 25.1% annual growth in government deposits.
Loans growth has remained impressive throughout the year, rising by 15% on a yearly basis in the January-September period of the year, driven by triple-digit growth witnessed in mortgage loans.
On the other hand, other sectors have shown sluggish growth. For example, manufacturing and processing fell by 2.4% annually, whereas building and construction remained flat.
Moving forward, Aljazira Capital notes, “COVID-19 stimulus can provide support to corporate lending, albeit short term as the corporate sector looks to re-finance.”
The company expected Al Rajhi Bank to post 1.5% lower annual earnings in FY20 at SAR 10 billion. For FY21, it predicted earnings to remain flat at SAR 10.1 billion, primarily due to higher provisions.
It further updated its 12-month target price (TP) to SAR 68 with a “Neutral” recommendation.
Moreover, it forecast Alinma Bank to see a 15.6% yearly decline in earnings to SAR 2.1 billion and revised the lender’s TP to SAR 17 with a “Neutral” recommendation.
In addition, it expected Bank Albilad to record earnings of SAR 1.36 billion for FY20 and revised its TP to SAR 23 with a “Neutral” recommendation.