Profitability of Saudi banks will surpass GCC peers in 2021: S&P official

By Amirtha P S, Desk Reporter
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Saudi Arabia
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Despite the low-interest rates and the increased cost of risk, the banks in Saudi Arabia are expected to outperform its GCC peers in 2021, as per Roman Rybalkin, associate director at S&P Global Ratings.

After the pandemic-driven crisis last year, the Saudi economy is assumed to recover in 2021-2022 due to an uptick in global demand for oil and an increase in private consumption. “By 2022, we expect the expiry of OPEC+ quotas and higher oil prices to boost economic activity to close to 3 percent,” Mr.Rybalkin stated.

Even though the real gross domestic product (GDP) will not bounce-back to pre-pandemic levels until next year, the size of the economy, conservative regulation and lack of aggressive growth to the pre-2020 stage will make the Kingdom’s banking sector return to normal in the next 12 to 24 months.

In 2020, the banking sector of Saudi saw an increase in credit growth, on the back of stronger mortgage and small loan lending, and this trend is expected to continue strong into 2021-2022.

Roman Rybalkin
Roman Rybalkin
Associate Director
S&P Global Ratings

“The Public Investment Fund is expected to launch new programs and make additional domestic investments. This could increase the demand for corporate lending in the years to come as the fund will continue to award contracts for businesses and boost corporate credit growth in 2021-2022.”

Meanwhile, a new report by a global consultancy firm Boston Consulting Group (BCG) found that the revenue outlook for retail banks over the next few years in major GCC economies including the UAE, Saudi Arabia and Kuwait, will be relatively subdued compared to previous years.

“The pandemic has taken a toll on the retail banking sector, and we believe that a slow-recovery scenario is most likely to occur for GCC retail banks. The revenue pool of regional retail banks will approximately reach the 2019 level only by 2024, essentially a flat market,” said Godfrey Sullivan, managing director and partner of BCG.

The findings of the BCG study further reveals that consumer loans and deposit revenues are the most affected retail banking areas in regional banks as a result of the pandemic. Even though loans and deposits were valued for 80 percent of retail banking revenue in 2019, recent events show that payment, mortgage and investment products will now be the primary drivers of retail banking revenue growth.

“With shifting consumer preferences and increasing population growth, a lot more focus on better implementation of data and analytics in the organization and cross-selling their full breadth of products to their existing customer base is key to remain competitive,” Mr. Sullivan said.

Related: Saudi’s PIF investments to bolster corporate credit growth: S&P