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Banks in Saudi Arabia will maintain high deposit levels and enjoy strong liquidity despite the current environment, S&P said in a report on Sunday.
The global ratings agency also sees economic risk in the kingdom as stable despite a budget deficit and public debt accumulated over the past years.
“We think the country still has sufficient fiscal and external buffers to weather periods of low oil prices… We expect banks will maintain high levels of core deposits in their funding bases and their strong liquidity metrics will remain intact,” S&P said.
Saudi’s banking sector is classified as A-/Stable/A-2 and belongs to group ‘4’ under S&P’s Banking Industry Country Risk Assessment (BICRA). Other countries in the same group include Ireland, Kuwait, Malaysia, New Zealand, Poland, Slovenia, Spain and Taiwan.
The kingdom’s banking sector is experiencing an “expansionary phase” after posting low growth for years, according to S&P.
Low oil, property prices
However, it said that the current growth of mortgage portfolios and increasing leverage are being offset by low prices in the property market and a “developing legal framework”.
“Although we expect the lower-for-longer interest rate environment will put pressure on banks’ margins, it should remain high and allow banks to continue to outperform their regional peers in terms of profitability,” S&P said.
It said the banking sector’s strengths include strong funding profile dominated by deposits, protected customer franchise, as well as material yet gradually eroding fiscal buffers that enable the state to survive low oil prices.
(Writing by Cleofe Maceda; editing by Seban Scaria)
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