RIYADH: Top Saudi banks demonstrated strong performances in 2023, with operating income growing by 9.5 percent, driven by non-interest revenue, according to聽professional services firm聽Alvarez & Marsal.
The results of A&M鈥檚 fourth聽annual Kingdom of 黑料社区聽Banking Pulse聽for the 12-month period聽revealed a resilient and thriving financial sector with notable increases in key metrics.
鈥淭he performance of the top 10 banks in the Kingdom is largely robust and positive. Operating income grew by 9.5 percent, reflecting the effect of higher non-interest income,鈥 the firm said in a press release.
The institutes analyzed by in A&M included Saudi National Bank, Al-Rajhi Bank, and Riyad Bank, as well as聽Saudi British Bank, Banque Saudi Fransi, Arab National Bank, and Alinma Bank.
Additional financial institutions include Bank Albilad, Saudi Investment Bank, and Bank Aljazira.
The report highlighted a significant improvement in the net interest margin by 3.5 percent, contributing to a boost in the sectors鈥 profitability. Return on equity increased to 14.5 percent, showcasing the industry鈥檚 strong financial health.
A&M鈥檚 release indicated a slight decline in the cost of risk, suggesting a marginal decrease in total impairments, which positively impacted the sector鈥檚 overall stability.聽
Moreover, liquidity received a notable enhancement and attributed to record government-related entity deposits, which constituted 68.2 percent of total inflows, ameliorating liquidity conditions in the banking system.
Asad Ahmed,聽managing director and head of Middle East financial services at A&M, emphasized the industry鈥檚 resilience amid economic challenges, saying: 鈥淥ur fourth聽annual KSA Banking Pulse underscores the stability and growth potential of the Saudi banking sector, which has shown remarkable operating income growth and an uptick in return on equity.鈥
He added: 鈥淒espite some challenges in the economic landscape, the industry has adeptly navigated through, leveraging favorable credit conditions.鈥
The report provided a detailed analysis of key performance areas, including size, liquidity and income, as well as operating efficiency, risk, profitability, and capital.聽
Key facts
- Loans and advances experienced a growth rate of 10.6 percent year-over-year, outpacing the increase in deposits, which saw聽at 7.8 percent rise of the period. This led to a rise in the loan-to-deposit ratio by 2.5 percent year-on-year聽to 99.2 percent.
- Total operating income surged by 9.5 percent over the 12 months, primarily driven by a聽robust increase in net interest and non-funded revenue. Saudi British Bank reported a significant 31.7 percent year-on-year聽increase in operating earnings.
- Net interest margin improved to 3.1 percent and attributed to a higher spread between the yield on credit and cost of funds, coupled with a slower pace of loan growth compared to deposit increases.
- The cost-to-income ratio improved by 0.6 percent points to 31.9 percent, driven by the growth in operating earnings outpacing expenses.
- Rising interest rates bolstered profitability, with aggregate net income increasing by 11.8 percent year-on-yyear. Return on equity improved to 14.5 percent, reflecting the sector鈥檚 ability to capitalize on favorable credit conditions.
鈥淐onsidering Saudi鈥檚 Vision 2030, the banking sector in the Kingdom is expected to play a central role in achieving its objectives,鈥 Ahmed said, adding: 鈥淢oving forward, we expect a positive outlook for KSA banks with prospective loan growth, improving asset quality and well-capitalized books.鈥
The A&M report is the latest to highlight the strength of the Saudi banking industry, and comes just days after credit rating agency Moody鈥檚聽retained a positive outlook for the sector due to economic diversification efforts.
The company聽said that government-backed projects will boost loan performance and profits, whereas giga-projects backed by the Kingdom鈥檚 Public Investment Fund are set to drive corporate credit growth.
Emerging sectors like non-religious tourism and entertainment also contribute to the banks鈥 positive performance.
Similar to 黑料社区, A&M said in the UAE鈥檚 Banking Pulse report published in February that the country鈥檚 financial sector has had a 鈥減ositive year with most of the UAE banks showing increasing profitability and higher return ratios.鈥
The combined net income for UAE banks increased by 54.1 percent year-on-year for 2023 to 76.9 billion dirhams ($20.9 billion), primarily due to higher interest revenue and improved asset quality.
Looking ahead, A&M predicts a stable net interest margin of around 3 percent for Saudi banks聽in the face of anticipated cuts by the second half of 2024, underscoring the resilience and adaptability of the sector in navigating dynamic market conditions.
For the UAE, the firm also anticipated a shift in the second half of 2024 when rate reversals are expected to commence, as the Central Bank of the UAE continues to align its benchmark indicator with that of the US Federal Reserve, holding steady at 5.4 percent.
鈥淕iven that the UAE banks are mostly well capitalized, profitable, liquid, and well supported by regulators, we look forward to a stable 2024,鈥 A&M said.
