Banking & Finance

Saudi Arabian banks see profits up 17.6% in first quarter

June 8, 2022, 2:14 PM

Saudi banks are performing better than their counterparts in the United Arab Emirates

Saudi Arabia’s top banks saw profitability increase by 17.6 percent quarter-on-quarter in the first three months of the year, on the back of a buoyant energy market, interest rate hikes in line with the US, and an increase in consumer spending.

“The first quarter saw broad-based profitability improvement across the banking industry,” Asad Ahmed, managing director and head of Middle East financial services at global firm Alvarez and Marsal (A&M) said, adding that the first quarter of the year also saw improved profitability, with the cost-to-income ratio declining by 3.9 percentage points over the same period.

The A&M report deduced that loan growth, which was up 5.2 percent in the quarter, reflected the increased market confidence, driven by the rebound in the post-pandemic economy.

During the quarter, deposit growth has not kept pace, growing by 3.9 percent, meaning the loan-to-deposit ratio for the kingdom’s top ten banks increased marginally to 92.7 percent, from 91.5 percent in the last quarter of 2021.

However, looking forward, a report by David Owen, economist at S&P Global Market Intelligence, this month found that during the second quarter confidence in the Saudi non-oil sector has been waning as a result of the financial impact of the war in Ukraine.

“Global supply chains remain under considerable pressure from lockdowns in China and the Russia-Ukraine war.

“Reflecting these risks, the outlook for future activity remained notably weak, with just 11 percent of respondents signalling expectations of a rise in output by May 2023,” Owen said.

Despite these economic headwinds, Ahmed said that in the short-term increased interest rates by the US Federal Reserve, which are mirrored by the Saudi Central Bank, “are likely to provide an impetus to banking sector profitability given the Gulf currencies’ linkages to the dollar”.

On top of this, the fact that Saudi Arabia posted a budget surplus of $15.33 billion in the first quarter of the year, its first since 2014, bodes well for the sector.

Saudi banks are also performing better than their counterparts in the United Arab Emirates.

A&M’s UAE Banking Pulse quarterly report for the first quarter of 2022, released last month, concluded that, in general, the profitability of the top ten largest listed banks in the country has deteriorated marginally in the last quarter.

The report found that net profit for UAE banks during the quarter was, on paper, up 24.3 percent quarter-on-quarter.

However, when the AED 2.8 billion ($760 million) gain made by First Abu Dhabi Bank (FAB) is removed from its sale of a 60 percent stake in payment provider Magnati, the overall aggregate net profit for the top ten banks actually decreased by 2.6 percent quarter-on-quarter.