Saudi commercial banks continue to rank among the world’s most profitable banks, said Standard & Poor’s Ratings Services in a new report.
“Through a unique combination of supportive features, the Saudi banks we rate continue to demonstrate their ability to generate solid, sustainable core earnings, in turn fuelling high profits,” said Standard & Poor’s credit analyst Nicolas Hardy.
“Prospects for sound earnings and profits are bright,” he added.
He said that the kingdom’s banks operated in a “potentially volatile but favourable environment”, with high oil prices and vast spending plans under the aegis of the Saudi government.
S&P said it did not foresee a general deterioration of asset quality in the near future.
“Because of the prolonged low interest rates, these banks have streamlined their existing sources of noninterest revenues. Consequently, the banks appear well-positioned to capture growth opportunities in the developing local retail and corporate segments and continue to post solid profits,” the report added.
Following the poor performance of international financial markets since 2008, banks in Saudi Arabia have revised their strategies to strengthen their risk management practices.
“They have allocated their robust operating revenues both to build up capital positions and to increase provisions for coverage of bad loans to conservative levels above 100 percent,” Hardy added.
He said these cushions and the banks’ resilient revenue generation underpinned their credit quality and would enable them to face both “expected and unexpected losses”.
“Apart from geopolitical risks and the challenges associated with operating in a potentially volatile economic environment, concentration risk in corporate loan books remains the main risk that the Saudi banks face, in our opinion,” Hardy said.
Earlier this month, it was reported that Saudi Arabian bank lending was climbing the most among the six Gulf Cooperation Council nations this year.
Bank credit to the private sector expanded 4.6 percent in the five months through May, according to data from the Saudi Arabian Monetary Agency.
The rate ranged from a 4 percent drop in Bahrain to a 2.7 percent increase in the other five GCC countries.
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