How secure are Saudi banks? The answer lies in their performance
Although two years have passed since the outbreak of the COVID-19 pandemic, the global economy is still suffering from its repercussions despite the international efforts made to contain it.
The recent conflict between Russia and Ukraine, which has coincided with a severe global wave of inflation, has compounded the effects of the economic downturn globally.
Despite these challenges and difficulties, the Saudi banking sector remains financially strong, evidenced by the reported financial results in the first quarter of 2022.
Total assets posted SR3,370 billion ($898.7 billion) in the first quarter of 2022, against SR3,035 in the same period last year, representing an 11 percent increase.
This increase is due to the growth in banks’ credit offered to the private sector and is also linked to the rise in real estate loans to achieve Vision 2030’s target of reaching 70 percent housing ownership.
Loans offered to the private sector amounted to SR2,134 billion in the first quarter of 2022, posting a 14 percent increase over the same period last year.
Likewise, real estate loans rose 26.7 percent in the first quarter of 2022 to SR605.5 billion compared to last year’s corresponding period.
Also, the rise in bank loans to micro, small and medium enterprises, the increase in customers’ deposits, and the improvement in government bonds portfolio have contributed significantly to the improved financial results.
MSME loans amounted to SR203 billion. Total customers’ deposits increased 16.9 percent to SR2,167 billion, while the government’s sukuk and bonds clocked a 12 percent rise to SR478 billion in the first quarter of 2022.
Banks’ profits surged 32.5 percent to SR16.3 billion in the first quarter of 2022 against SR12.3 billion in the same period last year.
The most alarming threat the Saudi banking sector should be prepared to deal with consistently is financial fraud
Talat Zaki Hafiz
It is worth noting that the recent interest rate hike by the US Federal Reserve and the Saudi Central Bank, meant to avoid currency speculation, will not significantly impact the Saudi banking sector’s financial performance in the near term.
It is simply because the interest rate rise was consecutive and fast. Thus, the impact will be evident during the coming periods, especially as the Fed is expected to raise the interest rate repeatedly during this year.
There is no doubt that the Saudi banking sector financially is strong and sound. It is also evidenced by the soundness of the sector’s financial indicators, such as the risk-weighted asset regulatory capital, which stood at 19.9 percent or 2.5 times the Basel I requirement of 8 percent.
However, the sector will continue to face challenges in the future. It will be exposed to unforeseen risks associated with the increased regional and international competition, changes in regulatory compliance, the rise of digital and banking technologies, broad economic uncertainty and other hazards.
The most alarming threat the Saudi banking sector should be prepared to deal with consistently is financial fraud, which unfortunately is becoming a constant hazard, especially with the heavy use of digital banking and electronic payments.
Fraudsters are becoming very professional in using social engineering to commit financial crimes. Thus, it requires Saudi banks to proactively invest in technology to protect their internal systems from potential cyberattacks and their customers from financial fraud so that electronic transactions are executed in a secured and reliable financial environment.
• Talat Zaki Hafiz is an economist and financial analyst.