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Saudi banks face slowdown as giga-projects take toll

Saudi banks slowdown giga-projects Creative Commons
The skyine in Riyadh: Saudi banks are facing a slowdown due to the pressures of funding its giga-projects, in addition to inflation and slowing GDP
  • Q2 top 10 bank profits fell
  • GDP slowing and inflation add to toll
  • Bank shares also down

Saudi banks are witnessing a slowdown, impacting liquidity, net profits and share price across the sector, as the pressure of funding the kingdom’s giga-projects takes its toll, analysts say. 

Growth in net profit at the top ten banks slowed to 0.3 percent in the second quarter and the Saudi index of bank stocks fell 18.8 percent in the year to September 6. 

“It’s the demands of the giga-projects. The loan-to-deposit ratio is very high, albeit easing. Deposits are growing, but banks are having to pay a lot to attract them,” said James Reeve, head of research at Jeddah-based Jadwa Investment. 

The total value of real estate and infrastructure projects is $1.25 trillion, in addition to $250 billion of commissioned projects – mostly in housing as the country plans to reach a population of 50 million by 2030, real estate consultancy Knight Frank said in a report this week

As a result, the loan-to-deposit ratio, or LDR, which is used to assess liquidity, edged even higher from 95.2 percent in the first quarter to 96.1 percent in the second. 

Among Saudi’s giga-projects are the city Neom, the Red Sea Project and Amaala tourist resorts, entertainment cities Qiddiyya and Seven, the Roshn and Jeddah Central housing projects, and five economic zones, as well as a series of infrastructure projects. 

Saudi banks slowdown giga-projectsUnsplash/Neom
Uphill struggle: The Hisma Desert is part of the tourism offering in Neom, one of Saudi’s giga-projects
GDP slowdown

Describing Saudi banks as “on a strong footing,” the International Monetary Fund’s latest Saudi report said giga-projects would continue to drive non-oil sector growth, despite a predicted slowdown in GDP growth to 1.9 percent from 8.7 percent last year due to ongoing oil production cuts. 

Anton Lopatin, senior banks analyst at Fitch Ratings, said the liquidity pressures caused by the huge development projects have eased for now but pointed to banks’ role in facilitating the kingdom’s mortgage market. 

“For the time being, we see only a moderate volume of giga-projects financing at Saudi banks, which is partially explained by a high appetite for mortgage financing in recent years,” Lopatin said, adding there would be “more Vision-related financing” in the medium term. 

The kingdom’s Vision 2030 project to diversify the economy away from oil revenue includes raising Saudi home ownership to 70 percent of the population. 

Saudi banks also underpin the expanding Islamic banking industry as its largest single player, with $830 billion of assets out of a global market estimated to be worth $3.3 trillion. 

Central bank governor Ayman Al-Sayari appeared to address the liquidity question this week, pointing to a strong liquidity coverage ratio – which measures ability to meet short-term financial obligations – of 188.3 percent at the end of the second quarter. 


Last year the central bank, or Sama, placed about 50 billion riyals ($13 billion) as term deposits with commercial lenders in a bid to ease the country’s worst liquidity squeeze since late 2008, when the price of crude oil slumped below $40 a barrel. 

Ratings agencies expect Sama to step in again if it has to, since the banks are the key cash engine behind Vision 2030. 

But other factors such as inflation, caused by the Ukraine war, and the fall-off in China’s economic growth – pushing up US interest rates – are also having an impact.  

“If the Saudi central bank continues to match policy rate hikes by the US Federal Reserve we expect banks to face a slowdown in credit growth and some pressure on the loan book,” said Asad Ahmed of Alvarez & Marsal financial consultants.

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