Saudi Arabia banking sector witnessed robust growth in 2023: A&M report

Saudi Arabia banking sector witnessed robust growth in 2023: A&M report
Return on equity increased to 14.5 percent, showcasing the industry’s strong financial health. Shutterstock
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Updated 18 March 2024
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Saudi Arabia banking sector witnessed robust growth in 2023: A&M report

Saudi Arabia banking sector witnessed robust growth in 2023: A&M report

RIYADH: Top Saudi banks demonstrated strong performances in 2023, with operating income growing by 9.5 percent, driven by non-interest revenue, according to professional services firm Alvarez & Marsal.

The results of A&M’s fourth annual Kingdom of Saudi Arabia Banking Pulse for the 12-month period revealed a resilient and thriving financial sector with notable increases in key metrics.

“The performance of the top 10 banks in the Kingdom is largely robust and positive. Operating income grew by 9.5 percent, reflecting the effect of higher non-interest income,” the firm said in a press release.

The institutes analyzed by in A&M included Saudi National Bank, Al-Rajhi Bank, and Riyad Bank, as well as Saudi British Bank, Banque Saudi Fransi, Arab National Bank, and Alinma Bank.

Additional financial institutions include Bank Albilad, Saudi Investment Bank, and Bank Aljazira.

The report highlighted a significant improvement in the net interest margin by 3.5 percent, contributing to a boost in the sectors’ profitability. Return on equity increased to 14.5 percent, showcasing the industry’s strong financial health.

A&M’s release indicated a slight decline in the cost of risk, suggesting a marginal decrease in total impairments, which positively impacted the sector’s overall stability. 

Moreover, liquidity received a notable enhancement and attributed to record government-related entity deposits, which constituted 68.2 percent of total inflows, ameliorating liquidity conditions in the banking system.

Asad Ahmed, managing director and head of Middle East financial services at A&M, emphasized the industry’s resilience amid economic challenges, saying: “Our fourth annual KSA Banking Pulse underscores the stability and growth potential of the Saudi banking sector, which has shown remarkable operating income growth and an uptick in return on equity.”

He added: “Despite some challenges in the economic landscape, the industry has adeptly navigated through, leveraging favorable credit conditions.”

The report provided a detailed analysis of key performance areas, including size, liquidity and income, as well as operating efficiency, risk, profitability, and capital. 

Key facts

  • Loans and advances experienced a growth rate of 10.6 percent year-over-year, outpacing the increase in deposits, which saw at 7.8 percent rise of the period. This led to a rise in the loan-to-deposit ratio by 2.5 percent year-on-year to 99.2 percent.
  • Total operating income surged by 9.5 percent over the 12 months, primarily driven by a robust increase in net interest and non-funded revenue. Saudi British Bank reported a significant 31.7 percent year-on-year increase in operating earnings.
  • Net interest margin improved to 3.1 percent and attributed to a higher spread between the yield on credit and cost of funds, coupled with a slower pace of loan growth compared to deposit increases.
  • The cost-to-income ratio improved by 0.6 percent points to 31.9 percent, driven by the growth in operating earnings outpacing expenses.
  • Rising interest rates bolstered profitability, with aggregate net income increasing by 11.8 percent year-on-yyear. Return on equity improved to 14.5 percent, reflecting the sector’s ability to capitalize on favorable credit conditions.

“Considering Saudi’s Vision 2030, the banking sector in the Kingdom is expected to play a central role in achieving its objectives,” Ahmed said, adding: “Moving forward, we expect a positive outlook for KSA banks with prospective loan growth, improving asset quality and well-capitalized books.”

The A&M report is the latest to highlight the strength of the Saudi banking industry, and comes just days after credit rating agency Moody’s retained a positive outlook for the sector due to economic diversification efforts.

The company said that government-backed projects will boost loan performance and profits, whereas giga-projects backed by the Kingdom’s Public Investment Fund are set to drive corporate credit growth.

Emerging sectors like non-religious tourism and entertainment also contribute to the banks’ positive performance.

Similar to Saudi Arabia, A&M said in the UAE’s Banking Pulse report published in February that the country’s financial sector has had a “positive year with most of the UAE banks showing increasing profitability and higher return ratios.”

The combined net income for UAE banks increased by 54.1 percent year-on-year for 2023 to 76.9 billion dirhams ($20.9 billion), primarily due to higher interest revenue and improved asset quality.

Looking ahead, A&M predicts a stable net interest margin of around 3 percent for Saudi banks in the face of anticipated cuts by the second half of 2024, underscoring the resilience and adaptability of the sector in navigating dynamic market conditions.

For the UAE, the firm also anticipated a shift in the second half of 2024 when rate reversals are expected to commence, as the Central Bank of the UAE continues to align its benchmark indicator with that of the US Federal Reserve, holding steady at 5.4 percent.

“Given that the UAE banks are mostly well capitalized, profitable, liquid, and well supported by regulators, we look forward to a stable 2024,” A&M said.


Oil Updates – prices rise as US crude, fuel inventories seen shrinking

Oil Updates – prices rise as US crude, fuel inventories seen shrinking
Updated 14 sec ago
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Oil Updates – prices rise as US crude, fuel inventories seen shrinking

Oil Updates – prices rise as US crude, fuel inventories seen shrinking

NEW YORK/SINGAPORE: Oil prices rebounded on Wednesday, snapping three straight sessions of decline, as falling US crude inventories and growing supply risks from wildfires in Canada boosted prices.

Brent crude futures for September rose 40 cents, or 0.5 percent, to $81.41 a barrel by 8:50 a.m. Saudi time. US West Texas Intermediate crude for September also increased 40 cents, or 0.5 percent, to $77.36 per barrel.

WTI had lost 7 percent over the previous three sessions, while Brent shed nearly 5 percent.

US crude oil, gasoline and distillate inventories fell for the fourth straight week in the previous week, according to market sources citing the American Petroleum Institute, reflecting steady demand in the world’s largest consumer of oil.

Wildfires in Canada were also supporting prices. The fires have forced some producers to curtail production and were threatening a large amount of supply, ING analysts said.

“Market is nearing oversold territory and we still believe that the fundamentals support prices moving higher from current levels over the remainder of the third quarter on the back of a deficit environment,” ING analysts said in a note.

The API figures showed crude stocks falling by 3.9 million barrels in the week ended July 19, the sources said, speaking on condition of anonymity. Gasoline inventories fell by 2.8 million barrels and distillates shed 1.5 million barrels.

That would be the first time crude stocks in the US fell for four weeks in a row since September 2023.

Official government data on oil inventory data is due for release on Wednesday.

Oil prices fell to a six-week low on Tuesday, with Brent closing at its lowest level since June 9 on ceasefire talks between Israel and Hamas in a plan outlined by US President Joe Biden in May and mediated by Egypt and Qatar.

Prices also suffered due to continued concern that the economic slowdown in China, the world’s biggest crude importer, would weaken global oil demand.


Saudi Arabia issues $856m of sukuk in July

Saudi Arabia issues $856m of sukuk in July
Updated 54 min 23 sec ago
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Saudi Arabia issues $856m of sukuk in July

Saudi Arabia issues $856m of sukuk in July

RIYADH: Saudi Arabia completed its riyal-denominated sukuk issuance for July at SR3.21 billion ($855.7 million), according to the National Debt Management Center.  

The level once again remained above SR3 billion, following a June issuance level of SR4.4 billion, SR3.23 billion in May, SR7.39 billion in April, and SR4.4 billion in March. 

NDMC revealed that the Shariah-compliant debt product in July was divided into five tranches. 

The first tranche is valued at SR612 million and is set to mature in 2029, while the second amounted to SR159 million maturing in 2031. 

The third tranche’s value stood at SR961 million, maturing in 2034, and the fourth was a SR1.25 million tranche with a maturity date in 2036. 

The fifth tranche had a size of SR226 million maturing 2039. 

This is part of the Kingdom’s Sukuk Issuance Program, which started in 2017, with the aim of establishing an unlimited riyal-denominated sukuk initiative under the NDMC. 

The announcement from NDMC came as Kuwait’s financial center Markaz published its own figures for bond and sukuk issuance across the Gulf Cooperation Council region for the first half of 2024.

The analysis showed that Saudi Arabia was the leading player in the six months to the end of June, raising $37 billion through 44 issuances.

A report released by S&P Global in April said that sukuk issuance globally is expected to hover between the $160 billion to $170 billion mark in 2024, holding steady compared to the $168.4 billion seen in 2023 and $179.4 billion in 2022. 

According to the US-based firm, the issuance of this Shariah-compliant debt product began on a “strong footing” in 2024, with Saudi Arabia becoming a key contributor to the performance. 

The credit rating agency also noted that the sukuk market will continue to grow in the near term driven by financing needs in core Islamic finance countries, along with the ongoing economic transformation programs which are currently underway in nations like Saudi Arabia. 

It added: “The drop in issuance volumes in 2023, which mainly resulted from tighter liquidity conditions in Saudi Arabia’s banking system and Indonesia’s lower fiscal deficit, was somewhat compensated by an increase in foreign currency-denominated sukuk issuance.” 

In April, another report released by Fitch Ratings also echoed similar views and noted that global sukuk issuance is expected to continue growing in the coming months of this year. 

Fitch noted that economic diversification efforts and the rapid development of the debt capital market in the Gulf Cooperation Council region will propel the growth of the sukuk market in the coming months. 


Flydubai in early talks for largest ever airplane order

Flydubai in early talks for largest ever airplane order
Updated 23 July 2024
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Flydubai in early talks for largest ever airplane order

Flydubai in early talks for largest ever airplane order

FARNBOROUGH, United Kingdom: Government-owned airline flydubai is in early talks with planemakers Boeing and Airbus to place its largest-ever airplane order, CEO Chief Executive Ghaith Al-Ghaith said on Tuesday.
“The last order we did was 175 and this (next one) is going to be the biggest, I’m sure,” Al-Ghaith told Reuters in an interview at the Farnborough Air Show. Flydubai announced the purchase of 175 Boeing 737 MAX airplanes in 2017. 


Closing Bell: Saudi main market slips to close at 12,105

Closing Bell: Saudi main market slips to close at 12,105
Updated 23 July 2024
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Closing Bell: Saudi main market slips to close at 12,105

Closing Bell: Saudi main market slips to close at 12,105

RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Tuesday, losing 69.22 points, or 0.57 percent, to close at 12,105.54.        

The total trading turnover of the benchmark index was SR6.8 billion ($1.8 billion) as 55 of the listed stocks advanced, while 173 retreated.    

The MSCI Tadawul Index also dropped 10.49 points, or 0.69 percent, to close at 1,512.94.    

The Kingdom’s parallel market Nomu gained 123.53 points, or 0.47 percent, to close at 26,164. This comes as 33 of the listed stocks advanced, while 32 retreated.  

Sumou Real Estate Co. was TASI’s best-performing stock as the company’s share price surged 9.98 percent to SR47.95.        

Other top performers included Kingdom Holding Co. as well as Perfect Presentation for Commercial Services Co., whose share prices soared by 9.93 percent and 4.04 percent, to stand at SR7.86 and SR15.96 respectively.        

Other top gainers included Nayifat Finance Co. and Gulf Union Alahlia Cooperative Insurance Co.      

Miahona Co. was the worst performer, wth its share price dropping by 6.82 percent to SR39.60.    

Nama Chemicals Co. and Jadwa REIT Saudi Fund saw their share prices drop by 3.39 percent and 3.22 percent to SR27.10 and SR12.02, respectively.

Other poor performers included Rasan Information Technology Co. and National Medical Care Co.

On the announcements front, First Mills Co. reported a net profit of SR45.5 million in the second quarter of the year, representing a rise of 30.3 percent compared to the same period in 2023.

Revenue also saw an annual increase of 13 percent in the second quarter of this year to reach SR242.3 million.

The company announced that it will distribute cash dividends of SR1.55 per share to shareholders for the first half of 2024.

The total dividend distribution amounts to SR86.03 million, to be allocated across 55 million shares.    

Saudi telecom Etihad Etisalat Co., also known as Mobily, reported a 33 percent increase in profits, reaching SR661 million in the second quarter of 2024, compared to SR497 million in the same period last year.  

The company attributed the rise in net profit to higher operating profits and a 26.2 percent reduction in financing expenses, which decreased to SR130 million due to a reduced debt portfolio.    

Lower zakat and income tax expenses also contributed to the improved financial performance, it added.  

Saudi Telecom Co. also reported a 9 percent increase in profits, reaching SR3.3 billion in the second quarter, compared to SR3.0 billion in the same period last year.  

The company attributed the rise in net profit to a revenue increase of SR828 million, which was partially offset by a SR272 million rise in the cost of revenues, resulting in a gross profit increase of SR556 million.    

Operating expenses decreased by SR48 million, and zakat and income tax expenses fell by SR23 million, it added.


Fitch Ratings withdraws from Lebanon 

Fitch Ratings withdraws from Lebanon 
Updated 23 July 2024
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Fitch Ratings withdraws from Lebanon 

Fitch Ratings withdraws from Lebanon 

RIYADH: The unavailability of certain key data has led Fitch Ratings to withdraw from categorizing Lebanon, as the agency no longer has sufficient information to maintain its assessment of the nation. 

The global credit rating agency has affirmed Lebanon’s long-term foreign and local-currency issuer default ratings as restricted and has subsequently withdrawn the nation’s IDR and country ceiling. 

Restricted default indicates a country has neglected specific financial obligations while continuing to meet others. 

This means that the agency has confirmed Lebanon’s long-term debt ratings as restricted and ceased providing assessments and analysis for the country due to insufficient data. 

Lebanon has been in default on its foreign-currency obligations since March 2020, significantly influencing its rating assessment. 

The government’s failure to repay the Eurobond, which was due on March 9, 2020, led to its categorization as restricted default.

“The government has stopped servicing its outstanding stock of Eurobonds pending a debt restructuring,” the agency said.  

The local-currency IDRs remain in restricted default due to the government’s failure to resume interest payments on Banque du Liban’s holdings of local-currency securities despite continuing to serve local-currency debt to private creditors. 

Fitch also stated that the authorities have not initiated a local-currency debt restructuring. 

The agency’s decision to withdraw Lebanon’s ratings was driven by the issuer’s cessation of publishing national accounts and fiscal data, which are now only available up to 2021. 

This lack of up-to-date financial information has made it unfeasible for Fitch to maintain accurate ratings. 

The agency added that Lebanon’s environmental, social, and governance relevance score for political stability and rights and for the rule of law, institutional and regulatory quality, and control of corruption stands at five. 

This reflects the high impact of the World Bank Governance Indicators in Fitch’s Sovereign Rating Model. 

“Lebanon has a low WBGI ranking at 14.8, reflecting the absence of a recent track record of peaceful political transitions, relatively weak rights for participation in the political process, weak institutional capacity, uneven application of the rule of law and a high level of corruption,” the agency added.