“The Saudi government is committed to building a stronger financial sector, which is underpinned by the Financial Sector Development Program of Vision 2030, defining specific targets for the industry and providing incentives and infrastructure support to achieve these,” Khalil Al Sedais, Office Managing Partner at KPMG, Saudi Arabia.
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“Despite subdued growth in recent years across credit underwriting and deposit acquisition, banks in Saudi Arabia continue to be well-positioned to take advantage of the improving economic outlook and an evolving technological landscape,” he said.
Overall credit growth for the sector is expected to rise in 2020, supported by an increase in both project lending and the mortgage market that should counter any adverse effects to overall profits coming from margin compression and zakat taxes, KPMG said.
Capitalisation levels are above regulators’ stringent requirements, leaving potential for increased lending, while retail mortgages are likely to remain a key driver of credit, the report said.
“The challenges for Saudi banks in 2020 include growing loan books outside of SME lending and mortgages, containing any increase in cost of funds if oil prices remain weak, driving cost efficiency through digitization, and countering competition from digital payment platforms,” Kashif Zafar, Senior Director, Audit at KPMG, Saudi Arabia said.
“Saudi banks are well-positioned to take advantage of opportunities arising from the recovery in the oil prices and the anticipated acceleration of economic growth,” Zafar said.
The report titled, “Kingdom of Saudi Arabia Banking Perspectives 2020” includes an analysis of the 2019 performance of all eleven Tadawul-listed banks and addresses trends in the global banking industry, and their possible impact on the sector.
Capital adequacy ratios were reduced marginally by 0.9 percent but continue to be well above minimum regulatory requirements, the report said.
Customer deposits rose 10.5 percent as an improving economic environment contributed towards a healthy growth in deposit base.
“Regardless of a challenging global and regional environment, Saudi banks performed reasonably well in 2019,” Ovais Shahab, Head of Financial Services, at KPMG, Saudi Arabia said.
“The aggregate net profit before Zakat and tax of banks rose 4.5 percent last year, reflecting impressive growth in bottomline and demonstrating the sector’s resilience despite prevailing global challenges. Total assets edged up 12 percent to $652 billion fueled by strong growth in loan book,” Shahab said.
While the banks remained profitable, the loan book growth was limited, and the banks were more focused on retaining and restructuring existing credits rather than expanding the credit base to more risky avenues, the report said.
According to KPMG, 2019 loans with significant increase in credit risk and those which were credit impaired represented 7 percent and 2 percent of the total loan book respectively.
Total assets increased 12 percent to $652 billion while the coverage ratio saw an 8 percent drop on improving credit quality.
Total expected credit losses (ECL) allowance for loans, saw a 7.5 percent increase in 2019 due to organic growth in the loan book and certain merger and acquisition (M&A) activities according to KPMG.
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