If the US Federal Reserve raises its interest rate by 1.5 percent by 2023 Saudi banks could see their earnings rise by 15.6 percent compared to 2020 levels, a Saudi investment bank said in a report.
Al Rajhi Capital said the increase in profits would be equivalent to SR8 billion ($2.1 billion). The firm assumed that the Fed would spike its interest rate by 0.25 percent on three different occasions in both this year and the next.
The Saudi riyal is pegged to the US dollar, so any changes in the North American country’s rate directly affect the Kingdom’s market.
Moreover, the rate hikes could push the profits of the Saudi non-banking sector to edge up by 4 percent, if Aramco is excluded from the equation. If included, the change in profitability would be a lower 1.3 percent.
The investment bank added that mortgage growth is set for a strong year in 2022, saying that the Al Rajhi Bank, Al Jazira and Albilad banks are expected to benefit the most due to their high exposure to mortgages.
In addition, assuming an oil production of 10.7 million barrels per day, the Riyadh-based firm expects Saudi Arabia to hit a surplus of SR100 billion this year, SR10 billion above the Ministry of Finance’s forecast. Oil sentiments are also projected to be favorable, inducing a more positive outlook in the local economy and market valuations.
The petrochemicals and health sectors are predicted to enjoy a strong year as well, Al Rajhi Capital indicated.
On the other hand, chip shortages are likely to mean bad news for retailers as disruptions in the supply of electronic devices are expected to persist this year.
