The Saudi banking sector is moving towards a better year backed by government reforms, halt in credit losses, stable liquidity, stronger capital adequacy ratio, and transformational changes, according to KPMG’s latest report titled Banking Perspectives 2021. 

According the to the report, the 11 Tadawul-listed banks stayed resilient at the end of 31 December 2020 reflecting signs of recovery and shows a promising outlook for FY 2021. These 11 banks are Alinma Bank, Arab National Bank, Al Rajhi Bank, Bank Al Jazira, Bank Al Bilad, Banque Saudi Fransi, National Commercial Bank, Riyad Bank, Saudi British Bank, Saudi Investment Bank and Samba Financial Group. 

The financial performance of the 11 banks in 2020 reported a fall of only 6.32 percent in net income--excluding the impact of a one-off goodwill impairment recorded by SABB. Meanwhile, total assets increased by 13.14 percent combining 2.771 billion riyals, against 2.449 billion riyals in 2019. 

Total customer deposits saw a 9.18 percent spike to 1.975 billion riyals, as compared to 1.809 billion riyals in 2019, whereas, expected credit loss (ECL) saw a rise to 39 percent involving 17.33 billion riyals, as compared 12.46 billion riyals in 2019. 

While 2020 started as a challenging year due to pandemic, for the banking industry in Saudi Arabia, it concluded as a year of reflecting “cohesiveness” of industry and how the banks and the regulator can play a joint-role in economic recovery, the report said. 

The Saudi Central Bank came out proactively with the stimulus program to support borrowers and simultaneously helped banks to accelerate their digital journey for ensuring the continuation of all banking services without physical interaction with customers. 

“A cursory glance at the FY2020 financial highlights of the Saudi Arabian banking sector reveals the unmissable effects of COVID-19. However, there is absolute unanimity that the full year numbers are a significantly better end to a year than many would have anticipated this time last year”, said Ovais Shahab, Head of Financial Services KPMG in Saudi Arabia. “Banks are reporting a strong capital and liquidity base, and increasing housing demand, house mortgage is witnessed double-digit growth.” 

The KPMG report looked at the lessons learned in the field of operational resilience, digital transformation and internal control. “The financial year 2021 is bound to have a different landscape where we are expected to see the evolution of important trends, including the value digital banks will bring on the table, how fintech could be the enablers in the ecosystem, and how large banks compete with medium and smaller banks; how blue-chip corporates will have a better bargaining power in a low interest rate environment,” Shahab said. 

He added that the new working reality will affect the earnings of the sector while branch networks rationalization may be seen. 

(Writing by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com 

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© ZAWYA 2021