The ten Tadawul-listed banks in Saudi Arabia posted a robust performance in 2022, with net profit jumping 28%, reaching SR62.71 billion ($16.7 billion).
Total assets grew by 11.5% reaching to SR3.832 trillion, deposits were up by 8.34%, closing at SR2.296 trillion. Overall, the banking industry has continued capturing the benefits of economic expansion, according to KPMG, a leading provider of audit, tax and advisory services.
In its annual market update KPMG said the growth trajectory is expected to continue on account of consistent demand for public and private sector financing and the availability of non-interest-bearing deposits.
Challenges faced
The challenges faced by the global banking sector were particularly heightened by shockwaves sent by the failures of Silicon Valley Bank and Signature Bank in the US and the acquisition of Credit Suisse in Europe.
“We have seen the added liquidity requirements were fulfilled through Tier 1 capital and sukuk,” commented Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia.
Overall, the banking industry has continued to capture the benefits of economic expansion, evidenced by an increase in lending and reaching a loan-to-deposit ratio of approximately 95.5% at the end of December 2022 and an increase in loan books by 14.44% year-on-year.
Expected credit loss
The increase in net profit from last year is further marked by a substantial decrease in expected credit loss (ECL) allowances, which declined by 19.25% year-on-year to SR9.87 billion as the industry has successfully come out of Covid-19 and better managing portfolio performance across various industry segments.
The industry’s loan-to-deposit ratio of 95% is definitely more than desired and reflects some pressure on banks to improve their liquidity through raising deposits if they wish to fetch the benefits of economic growth funded by the government’s spending on key sectors and the roll-out of its giga projects.
“Banks are cognizant of anticipated pressures on liquidity and accordingly we have evidenced capitalisation of retained earnings, issuance of Tier I capital and customised solution to cater to future economic needs and shifting market dynamics,” added Shahab.
Core equity base
An upsurge in such Tier I capital issuance has been noted across the banking participants to support the core equity base and fulfil the financial and strategic needs. At present, SR28.14 billion has been issued, which is likely to increase further in the near future according to Shahab.
Going forward, risks seem more dynamic and interconnected than ever before; emerging technologies rise as a major disruptor in business and the greatest threat to organisational growth if they are not agile and fast enough to change. KPMG believes that operational excellence will remain a high priority while regulatory changes will only grow over the next few years.
“Sama has always extended support to the banking industry so that market participants can continue playing a crucial role in the ambitious economic expansion agenda of the kingdom,” Shahab concluded.
-- TradeArabia News Service
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