The impact of the global coronavirus pandemic on Saudi banks has been contained, according to Fitch Ratings.
In a new research note, the ratings agency said that pressures on the operating environment have eased and economic activity is gradually recovering, supported by higher oil prices.
Deterioration in asset quality and profitability was limited and the banks’ financial metrics have stabilised, Fitch noted.
These have been underpinned by government support measures that included interest-free deposits, but also by the strong loan growth in 2020 and the first half of this year (14.9 percent and 19 percent, respectively) which was boosted by the sustained momentum in retail mortgages.
Delayed recognition of impairments remains a key risk but Fitch said it believes the impact on the sector’s asset quality and overall financial profiles will be contained.
Fitch revised the outlooks on all Saudi banks’ long-term issuer default ratings to stable in Q2 and Q3 to reflect reduced pressures on the operating environment and the stable outlook on the sovereign rating.
Saudi banks’ weighted average viability rating of ‘bbb+’ remains the highest in the Gulf region, Fitch noted.
“Pressures on the operating environment from the pandemic and lower oil prices are easing, helped by recovering global oil demand and increasing non-oil economic activity. Some sectors remain under pressure and the operating environment has not fully recovered but we believe the downside risk for banks has reduced,” Fitch added.
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