Saudi lenders to see robust growth on higher gov't spending, interest rates

Riyadh — Mubasher: Saudi Arabia’s banks are expected to double their earnings growth this year as higher government spending and rising interest rates would mitigate the risk of higher charges of non-performing loans (NPLs).

Loans also may grow faster after a four-year drop led to a contraction in 2017, Bloomberg News reported on Sunday.


Saudi Arabia’s 2019 budget boosted spending in spite of lower oil prices cast doubt on the GCC nation’s ability to attain its fiscal-deficit targets.

“More stimulus, business confidence, privatisation and a stronger economy will also support lending to the private sector,” Edmond Christou, a banking analyst at Bloomberg Intelligence in Dubai, told the New York-based news agency.

Christou forecast that robust mortgage lending to continue this year due to the Saudi government’s incentives, which in return may offset slower growth in personal loans and car leases.

More mergers

The potential merger between the National Commercial Bank (NCB), Saudi Arabia’s biggest lender, and Riyad Bank has made the outlook for the Saudi banking sector better, Bloomberg noted.

If completed, this deal will propel other firms to weigh potential mergers as the central bank and the Saudi sovereign investor Public Investment Fund (PIF), which owns stakes in some Saudi lenders, explore the possibility combining lenders in a bid to prop up their scale.

Earnings of 12 banks listed on the Saudi Stock Exchange (Tadawul) are projected to hike 10.1% in 2019, up from 9.8% growth seen in the first nine months of last year, according to data compiled by Bloomberg.

Over the course of the previous year, the Tadawul Banks Index jumped 31%, even after a 38% slippage in oil prices in the fourth quarter and as the economy struggles to recover from 2017’s contraction.

“Lower oil prices will impact if they result in lower government spending or payments,” Aqib Mehboob, an analyst at Saudi Fransi Capital in Riyadh, tld Bloomberg News.

He added that the shares were also advanced after the firms’ earnings statements showed stronger margins.

Moreover, the Saudi government’s projects have lent support to the banking sector.

However, Saudi banks are facing “some headwinds” as higher interest rates, the introduction of value-added tax, reduced fuel subsidies and higher utility bills have taken their toll on consumers.

In the same vein, eleven Saudi banks agreed in December 2018 to pay back taxes worth a combined SAR 16.75 billion ($4.5 billion) for a religious levy.

“The challenges for Saudi banks in 2019 include growing loan books outside of retail 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,” Aqib Mehboob, an analyst at Saudi Fransi Capital, said.

Mubasher Contribution Time: 06-Jan-2019 08:19 (GMT)
Mubasher Last Update Time: 06-Jan-2019 08:36 (GMT)