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22 March 2020

Saudi banking sector resilient despite economic headwinds

Capitalisation levels of Saudi banks are above regulators’ stringent requirements, leaving the potential for increased lending, while retail mortgages are likely to remain a key driver of credit

The anticipated increase in overall credit growth in 2020 is supported by an increase in project lending and the mortgage market

by Kudakwashe Muzoriwa

KPMG said that the Saudi Arabian banking sector is resilient despite economic headwinds and audit and advisory services firm expects profit growth owing to a proactive government and a range of initiatives driven by the regulators.

Despite subdued growth in recent years across credit underwriting and deposit acquisition, Saudi lenders will continue to be well-positioned to take advantage of the improving economic outlook and an evolving technological landscape.

Saudi Arabia’s central bank launched a SAR 50 billion financing package to support the private sector last week, especially SMEs to stem the impact of COVID-19 on the economy.

Khalil Al Sedais, KPMG KSA’s Office Managing Partner, said, “The Saudi government is committed to building a stronger financial sector, which is underpinned by the Financial Sector Development programme of Vision 2030, defining specific targets for the industry and providing incentives and infrastructure support to achieve these.”

Furthermore, the anticipated increase in overall credit growth in 2020 is supported by an increase in both project lending and the mortgage market that should counter any adverse effects to overall profits coming from margin compression and Zakat taxes.

Ovais Shahab, KPMG’s Head of Financial Services, said that regardless of a challenging global and regional operating environment, Saudi banks’ aggregate net profit before Zakat and tax rose by 4.5 per cent in 2019.

Total expected credit losses (ECL), however, registered an increase of 12 per cent due to organic growth in loan book and certain merger and acquisition activities.

Additionally, capital adequacy ratios reduced marginally by 0.9 per cent, but continue to be well above minimum regulatory requirements.






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