Top 10 Saudi banks show improvement in profitability

Top 10 Saudi banks show improvement in profitability
Saudi banks’ strong capitalization levels ‘will provide some cushioning against potential challenges.’ (Shutterstock)
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Updated 21 December 2020

Top 10 Saudi banks show improvement in profitability

Top 10 Saudi banks show improvement in profitability
  • The Saudi government’s announcement to cut budget spending by 7.5 percent in 2021 could have a spill-over effect in other sections of the economy

RIYADH: Saudi Arabia’s top 10 banks have shown signs of improvement in profitability, as lenders saw an increase in operating income and a reduction in provisions, according to a new report published on Sunday.

Net interest margins continued to decline reaching multi-year lows, while loans and advances grew at a faster pace despite the challenging economic circumstances, as the Kingdom’s easing of lockdown measures contributed to growth in lenders’ income levels.

The research, from global professional services firm Alvarez & Marsal (A&M), examined data from the 10 largest listed banks in the Kingdom and compared the third quarter of 2020 (Q3 2020) against the previous quarter (Q2 2020). 

A&M’s Saudi Arabia Banking Pulse used independently sourced published market data and 16 different metrics to assess the banks’ key performance areas, including size, liquidity, income, operating efficiency, risk, profitability and capital. The data said that Saudi banks continued to improve their efficiency, as the cost to income ratio declined for the third consecutive quarter. Although operating expenses increased this quarter (up 4.6 percent quarter-on-quarter), the cost to income ratio fell, as operating income increased at a quicker pace (up 6.5 percent quarter-on-quarter).

The country’s 10 largest listed banks analyzed in the report were: National Commercial Bank, Al Rajhi Bank, Riyad Bank, Samba Financial Group, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Saudi Investment Bank, and Bank Albilad. The report was co-authored by Dr. Saeeda Jaffar, A&M managing director and head of Middle East, and Asad Ahmed, A&M managing director and head of Middle East financial services. Ahmed said that while there was an overall improvement in profitability in Q3, the near-term outlook for Saudi banks looked “bearish.”

“The Saudi government’s announcement to cut budget spending by 7.5 percent in 2021 could have a spill-over effect in other sections of the economy. We also expect interest rates to remain at current record low levels, which could limit NII (net interest income) growth.”

He also said that Saudi banks’ strong capitalization levels would provide some cushioning against potential challenges.

“Furthermore, the Saudi central bank’s extension of the loan deferral program until the end of the first quarter of next year is expected to provide some relief for the economy to recover from the effects of COVID-19.”


Saudi Arabia meeting water scarcity challenge with innovation

Saudi Arabia meeting water scarcity challenge with innovation
Updated 25 January 2021

Saudi Arabia meeting water scarcity challenge with innovation

Saudi Arabia meeting water scarcity challenge with innovation
  • Kingdom is third biggest consumer per capita in the world, after US and Canada

RIYADH: Saudi Arabia’s National Water Co. (NWC) this month signed a $5.36 million two-year contract with a French utilities company to reduce the amount of water lost during the Kingdom’s water production process, known as non-revenue water in the industry.

This is a positive step forward, as a report released late last year by global consultancy firm Oliver Wyman found that while water usage is rising, supply is diminishing. The study estimated that 25 percent of the world’s population lives in areas that suffer extremely high water stress, and by 2050 that portion of the population will more than double.

“With water resources becoming increasingly scarce globally, the Middle East region is addressing the critical issues, with governments increasingly adopting new strategies for balancing their scarce water resources and growing demand for fresh water,” said Bruno Sousa, a partner in the Energy Practice at Oliver Wyman. “This has led some countries in the Middle East to turn to options such as desalination and
treatment, and reuse of wast water,” he added.

Saudi Arabia is the third biggest consumer of water per capita in the world, after the US and Canada. The Kingdom has implemented a series of measures to rationalize water consumption as part of its Vision 2030 program, with the aim of reducing consumption by 24 percent in 2021 and by up to 43 percent by the end of the decade.

The Saudi Ministry of Environment, Water and Agriculture has developed a unified water sector reference framework that includes a comprehensive water strategy, which integrates national water sector trends, policies, legislation and practices with the main objective of addressing these key challenges and restructuring the sector. Dr. Ibrahim Aref, director of the rehabilitation of agricultural terraces initiative at the ministry, told Arab News that most of the Arabian Peninsula’s water resources comes from rainfall. Yet, rainfall in the Kingdom, especially in the center of the Arabian Peninsula, is very weak compared to any other place in the world, thus causing water scarcity.

New technology has been developed over the years to minimize the environmental impact of desalination.

Bruno Sousa

Aref pointed out that even though the Arabian Peninsula, in general, experiences dry seasons that last for two, four or up to seven years, the Kingdom has been blessed with a strong economy and therefore has been able to work on many solutions that might be unusual elsewhere in the world, such as desalination.

According to Oliver Wyman’s Sousa, desalination can be achieved through two main technologies: Thermal and electric.

He told Arab News that thermal technology consists of heating water and collecting the resulting evaporated pure water. “This is a very energy-intensive process, requiring both electricity and thermal energy to heat the water. As part of the process, electricity is also generated that can be injected into the electric grid.

“Electric consists mainly in reverse osmosis, where water is forced through membranes that remove salt ... it is also an energy-intensive process, but only requires electricity to run,” he said.

“Although thermal desalination is still used, reverse osmosis is the mainstream technology, adopted mainly because of lower costs (including with energy) and a higher rate of potable water conversion from seawater,” he added. Sousa said that new technology has been developed over the years to minimize the environmental impact of desalination. Spanish firm Acciona last year completed the construction of the Al-Khobar I desalination plant in Saudi Arabia, and since Dec. 26, it has produced 210,000 cubic meters of drinking water per day, which will supply a population of 350,000. It is one of the biggest desalination plants in Saudi Arabia in terms of capacity.

Desalination is not the only way the Kingdom is looking to address the issue of water shortages. One of the largest programs being undertaken by the Ministry of Environment, Water and Agriculture is the rehabilitation of agricultural terraces in the southwest of the Kingdom.

The project aims to increase the efficiency of water use for agricultural purposes and to rely on renewable sources that contribute to food security, rural development and increased productivity of strategic crops.