Stable Outlook for Saudi Banking System, Moody's

Stable Outlook for Saudi Banking System, Moody's

Thursday, 15 March, 2018 - 12:00
Man passing before Saudi Stock announcements (Faisal Al Nasser / Reuters)
Riyadh - Shujaa al-Baqmi
Future outlook for Saudi banking system is "stable" which is a positive indicator in light of the economic growth of the Kingdom in 2018, backed by increased public spending, according to Moody's Investor Services.

In its latest report, Moody’s expects Saudi economy to grow by 1.3 percent this year, after contracting by 0.7 percent in 2017, in addition to lending growth, driven by corporate and real estate lending, which is anticipated to rise by 4 percent in 2018.

Financial figures of Saudi banks listed on the local market, indicated that the gross profit last year rose by 8.7 per cent compared to profits achieved in 2016.

Over the past year, Saudi banks made a net profit of $11.9 billion last year, a very high profit rate that underscores the vitality of Saudi Arabia's financial sector.

“Recovering oil prices, record budget expenditure and government efforts to protect households from the impact of economic reforms will be the main drivers of credit demand in 2018 and 2019,” said Olivier Panis, vice president and senior credit officer at Moody’s.

Panis indicated that lending to corporate will recover only gradually, particularly in the construction, manufacturing and transport sectors, retail lending will remain supported by solid growth in mortgages.

Meanwhile, the report also found that Saudi banks’ profitability will remain the highest in the Gulf Cooperation Countries (GCC) region. Notably, net income-to-tangible assets stood at 2 per cent in 2017 versus 1.9 per cent in 2016.

“We expect their profitability to remain broadly stable at this level in the next 12-18 months thanks to higher interest rates, a gradual pick-up in credit growth and fee-based income. We also expect Saudi banking system’s profitability to remain above GCC peers," the vice president stated.

Moody's indicated that stable profitability and moderate loan growth will reinforce banks' already strong capital adequacy. It expects an average tangible common equity (TCE) ratio of around 17.8 percent by the end of 2019, up from 16.8 percent in September 2017.

The Saudi financial system is characterized by the high level of supervision imposed by the Saudi Arabian Monetary Agency (SAMA), which helped the banking sector avoid several financial crises that hit many of the global commercial banks during the past few years.

These developments come as the financial sector development program announced by Saudi Arabia as part of "Vision 2030" became an important step towards the development of the local capital market and placing it among the top 10 financial markets of the world.

The program aims to enhance Saudi capital markets and its status at the regional level "by making the Saudi capital market the main market in the Middle East" and globally "one of the top 10 international markets".

It also wants the Saudi market to attract foreign and local investments to enhance its role in supporting the development of the national economy and diversifying its sources of income.

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