Saudi Arabia’s top listed banks have rebounded in the first quarter of 2021 to deliver “blockbuster” profits, according to new research from global professional services firm Alvarez & Marsal.
Its latest Saudi Arabia Banking Pulse for Q1 showed the aggregate income of the top 10 banks in the kingdom increased by 34.1 percent compared to the fourth quarter last year.
The strong earnings are riding on the improving macroeconomic conditions, the kingdom’s buoyant capital market, and a significant decrease in impairments, the report said.
In the traditional business of loans and deposits, the report indicated that loan growth increased by five percent in Q1 while deposit growth slowed to 2.2 percent in the same period.
The lending picked up on the back of mortgage financing in the retail sector driven by a variety of government initiatives to increase home ownership, Alvarez & Marsal said.
It added that the cost of risk across all the banks fell to its lowest level in the last five quarters to 0.6 percent in Q1 as total impairments declined by 50 percent.
Asad Ahmed, A&M managing director and head of Middle East Financial Services, said: “Looking ahead, credit growth is likely to be driven by continuous strength in mortgage lending and a pick-up in corporate credit demand in H2, as the economic activity continues to improve.
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“Corporate lending is expected to gain traction as the Public Investment Fund’s (PIF) plans to invest $40 billion into the economy annually until 2025, to support business activity. Our outlook on cost of risk remains negative for the near term, as Saudi Central Bank’s loan deferral program comes to an end.
“Furthermore, as the NCB-SAMBA merger comes into effect, other domestic banks could also look to consolidate their position. This is because merged banks have stronger capital bases, know-how and can grab a larger share in major project financing.”
Alvarez & Marsal examined the data of Saudi National Bank (SNB), Al Rajhi Bank (pictured above), Riyad Bank, Saudi British Bank (SABB), Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad, Saudi Investment Bank and Bank Aljazira.
Aggregate operating income increased for the third consecutive quarter while aggregate operating expenses decreased five percent.
According to the research, SABB saw the highest improvement in the cost to income ratio, decreasing from 60.5 percent in Q4 2020 to 45.2 percent in Q1 as the bank realised synergies from its merger. Five of the top ten banks witnessed improvement in cost to income ratio.
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