Tadawul-listed banks continue to improve efficiency, cost optimization: report

The Saudi Stock Exchange (Tadawul)-listed banks continued to improve their efficiency, as the cost to income (C/I) ratio declined for the second consecutive quarter in Q2 2020, on the back of cost optimization and lower operational expenses amid lockdown, Alvarez & Marsal (A&M) said in a recent report.

Despite the decline, the C/I ratio still remains above the average achieved in 2019.

In addition, the profitability outlook remains subdued due to lower oil prices and COVID-19 lockdowns, which are likely to impact credit demand and asset quality.

The report is based on the analysis of the top 10 listed banks in the Kingdom including National Commercial Bank (NCB), Al Rajhi Bank, Riyad Bank, Samba Financial Group, Saudi British Bank (SABB), Banque Saudi Fransi (BSF), Arab National Bank (ANB), Alinma Bank, Saudi Investment Bank (SAIB), and Bank Aljazira.

The above-mentioned banks reported a marginal increase in deposits in Q2 2020, compared to the last quarter, which helped improve their funding position. Similarly, the loan to deposit ratio (LDR) saw a marginal rise in Q2 2020.

The report also indicated that the loan provisions grew significantly during the second quarter, continuing its quarter-on-quarter (QoQ) volatile trend.

In addition, the coverage ratio fell for the fifth consecutive quarter, given the rise in non-performing loans (NPLs).

“We believe that Saudi banks are still intent on paying dividends for 2020, despite their challenging stance on profitability,” A&M Managing Director and Head of Middle East Financial Services, Asad Ahmed, said.

He further clarified that the revenues of Saudi banks’ are being challenged by compression of the net interest margin, which limits their income growth.

However, the consultancy expects the banks to maintain similar risk appetites, as profitability and capitalization will persist for the coming quarters, while cost optimization measures will support their viability.