Saudi banks stable despite oil price decline: S&P

Saudi banks are expected to have sufficient capacity to absorb the stress caused by lower oil price and COVID-19-related restrictions, despite a decline in net interest margins, S&P Global Ratings said in a report.

“Notwithstanding the expected decline in profitability, most Saudi banks will remain profitable in 2020 and 2021 under our base case scenario,” the ratings agency noted.

S&P added that its stable trend for economic risk remains largely contingent on its oil price assumptions and resumption of economic activity globally in the third quarter of 2020 as pandemic-related restrictions started to be lifted.

However, it noted it may revise its assumptions if the recession would have a more significant effect on Saudi Arabia, or there will be a significant delay in economic recovery.

Over the past few years, the Saudi Arabian Monetary Authority (SAMA) has relaxed capital requirements for mortgage lending and increased the loan to value ratio in order to help more nationals become homeowners, which falls within Vision 2030 objective.

These changes have led to a significant increase in mortgage lending, a trend expected to continue over the next couple of years.