RIYADH: Amid fears of a global banking crisis, Saudi lenders are expected to maintain profitability in 2023 with continued credit growth as the Kingdom’s top banks reported a 28.4 percent surge in aggregate net profit in 2022, revealed an analysis done by the global professional services firm Alvarez & Marsal.
The report shows that the aggregate net income of the 10 biggest listed banks increased to SR62.7 billion ($16.72 billion) in 2022 compared to SR48.83 billion in 2021 on the back of higher credit demand, better asset yield, and operating efficiencies amidst rising benchmark interest rates.
The report’s outcome is based on the comparative analysis of the financial results of 10 banks in 2022 against 2021, involving Saudi National Bank, Al Rajhi Bank, Riyad Bank, Saudi British Bank, Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad, Saudi Investment Bank and Bank Aljazira.
“We consider the Saudi banks’ capital position to be strong. Profitability improved due to an increase in operating income which was further supported by lower impairments,” stated Asad Ahmed, managing director of Middle East financial services at A&M.
In its report Saudi Arabia Banking Pulse for the fiscal year 2022, the firm showed that the credit growth of Saudi banks reached 14.4 percent year-on-year in 2022, whereas deposits only witnessed an 8.3 percent growth during the same period.
Its analysis showed that the banks’ loan growth outpacing deposits came from the rising demand in personal loans and real estate activities, and is expected to edge up further in 2023.
The report further noted that the Saudi Central Bank, known as SAMA, will continue to extend tenors for its support packages in 2023 in an effort to prevent a credit crunch.
As interest rates continue to mount, A&M expects current and savings accounts will migrate toward term deposits.
“Net interest income expanded as asset yield improvement surpassed changes in the funding cost,” stated the report.
Saudi banks’ net interest income received from lending activities, rose by 15 basis points in 2022, yet remained below pre-COVID levels.
“SAMA has increased its interest rates along with the US Federal Reserve (+425 basis points) in the financial year 2022 and we expect SAMA to continue matching monetary tightening by the Reserve, which will help boost the overall banking sector’s NIMs and in turn its profitability,” said Ahmed.
He added, “Corporate lending is likely to increasingly drive credit growth in the near term as Saudi Vision 2030 projects are implemented.”
The A&M report 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.