Saudi banks’ profitability shows substantial improvement in Q1 2020: report

Top banks in Saudi Arabia showed mixed performance in Q1 2020 as improved operating efficiency and lower provisioning were offset by the effect of reduced interest rates, global professional services firm Alvarez & Marsal (A&M) said in its recent report.

The report, titled “KSA Banking Pulse”, stated that the Saudi government and the central bank have introduced a series of support measures for the economy and banking industry, adding that the government has also announced plans that could rationalize public finances.

“We have seen that profitability of the top Saudi banks in Q1 2020 showed substantial improvement,” Dr. Saeeda Jaffar, A&M MD and head of Middle East, said.

Elsewhere, loans & advances (L&A) and deposits of the top 10 banks in Saudi Arabia increased even with tough macroeconomic conditions. Cost-to-income ratio improved after rising in Q4 2019.

Profitability improved as cost efficiency measures and reduced provisioning helped in offsetting the effect of reduced interest rates, in addition to substantial increase annually in provisioning.

However, decline in net interest income weighed on operating income of the top 10 Saudi banks. This was partially offset by an increase in non-interest income, as certain banks reported strong trading income during the quarter.

“The banking sector is likely to face a challenging environment due to COVID-19 headwinds. In the medium- to long-term, banks are likely to focus more on rationalizing their costs to hedge against the uncertain conditions,” Asad Ahmed, A&M managing director, said.

The banks analyzed in A&M report are National Commercial Bank (NCB), Al Rajhi Bank, Riyad Bank, Samba Financial Group, Saudi British Bank (SABB), Banque Saudi Fransi, Arab National Bank, Alinma Bank, Saudi Investment Bank (SAIB), and Bank Aljazira.