SABB to boost SME potential; sees promising opportunities in green, sustainable finance: Official

Yasser Al-Barrak, SABB's Chief Corporate and Institutional Banking Officer

Saudi British Bank's (SABB) net interest margin (NIM) increased from an average of 2% in 2021 to 2.5% during the third quarter of 2022, Yasser Al-Barrak, SABB's Chief Corporate and Institutional Banking Officer, told Argaam in an interview.

He added that SABB is one of the most sensitive banks to changes in benchmark rates.

Almost three-quarters of the bank's total loan book is related to companies. They are repriced based on SAIBOR, which led to increasing net special commission income (NSCI) from SAR 1.4 - 1.5 billion in Q1 2022 to SAR 2 billion in Q3 2022.

There are promising opportunities for SME owners to develop and grow their businesses, Al-Barrak said, adding that SABB will boost the sector's potential further in the future.

He shed light on SABB's strategy in the digital field and its launch of some initiatives in 2022, in addition to the growth sectors it targets, and its participation in financing major projects in the Kingdom.

Here are details of the interview:

Q: SABB's net profit increased to nearly SAR 3.5 billion in Q3 2022, with growth of 26% compared to a year earlier. How much does the corporate and facility financing segment contribute to revenue and profitability?

A: Corporate and institutional banking services contribute a significant proportion to the bank’s financials, as 48% of SABB’s net income before Zakat and tax, 50% of total operating income, 76% of customer lending and 57% of customer deposits are generated through the lender's corporate business. During the first nine-months of 2022, net income before Zakat and tax from corporate and institutional banking soared by nearly 100%. Meanwhile, the corporate business saw 9% growth year-on-year (YoY) in lending balances and a 20% rise in deposit balances.

Q: How was the performance of the corporate and SME financing portfolios during the third quarter 2022 compared to a year before?

A: Overall corporate balances, including SMEs, grew by 9% YoY and was at a faster pace than the market at 4% during the third quarter.

The SME portfolio grew significantly in Q3 2022, driven by the accelerated investment we have been making to this segment during 2022.

The SME segment has been highlighted as a key growth area for SABB; hence it rose by 13-19% in the third quarter, although it grows from a relatively small base. Thus, we intend to participate in this area more than we have previously.

Q: What is the size of corporate and SME financing portfolios? And what is your market share of these activities?

A: We are among the Kingdom's top three banks, as our total institutional loans stood at SAR 142.6 million at the end of September 2022, with a market share of 12.4%, based on our Q3 2022 financials.

SABB's gross lending to SMEs exceeded SAR 7 billion at the end of 2021, and it has increased nearly 20% so far in 2023. We expect further growth this year.

Q: What is your assessment of interest-rate hike and its impact on the profit margins of financing portfolios and attractiveness of financing for companies and SMEs?

A: SABB is one of the most sensitive banks to changes it benchmark rates, as a large proportion of our corporate contracts are based on SAIBOR. Given that three-quarters of our total loan book are related to companies, and of which the huge majority is re-priced fairly, we expect to be one of the main beneficiaries of the interest-rate hike.

This can be seen in the expansion of our NIM from 2% in 2021 to 2.5% in Q3 2022. This translates into NSCI increasing from SAR 1.4 - 1.5 billion in the first quarter to SAR 2 billion in Q3 2022.

The bank’s return on gross loans portfolio grew as a result of interest-rate hike, but this of course means that the borrowing costs for our customers also increased.

Given the Kingdom's strong macroeconomics, loan growth is expected to remain strong for both corporates and SMEs, driven by the key pillars of Vision 2030 National Transformation Program.

We expect the bank to grow at least in line with the market during 2023, whilst building on our strengths such as large corporates and multinationals, as well as maximizing the SME potential.

Q: How do you evaluate the credit level of corporate and SME portfolios as well as the risk of non-performing loans?

A: We relay on strong bases in risk evaluation, which helps us make our lending decisions.

As the economy aligns to Vision 2030 goals, there will be significant opportunities for SME owners to develop and grow their businesses in to the large corporate businesses of tomorrow. Thus, we are very optimistic for the prospects of SMEs in the Kingdom.

We focus on working with our clients to help them take decisions that support the long-term health of their businesses, for example in the way they manage interest rate risks. This helps us manage our own non-performing loan (NPL) rates.

Q: What are the opportunities in the sectors and activities that the corporate finance portfolios at SABB will focus on?

A: SABB is fully aligned to Vision 2030 goals, and its key growth sectors include tourism, entertainment, hospitality and technology.

SABB is also proud to be working with many of the giga projects. We also see an emerging opportunity in green and stainable finance.

Q: How much was the value of SABB financing for major government projects and new sectors such as entertainment, tourism and technology?

A: We are actively participating in the funding requirements of various giga projects owned by the Public Investment Fund, such as NEOM, Qiddiya and Red Sea.

We were the lead arranger for the SAR 14 billion syndicated loan of Red Sea, and our partner HSBC structured the deal into a green format.

Entertainment, tourism and technology are key growth sectors for us and especially for the SMEs segment. A collaboration agreement was signed with Tourism Development Fund (TDP) in order to start approaching the SMEs of this segment in alignment with Vision 2030.

SABB also launched a program for the financing of micro, small and medium enterprises (MSMEs) operating in the information technology sector, in cooperation with the National Technology Development Program and Kafalah.

Q: Could you elaborate SABB's products and investments in financial technologies?

A: At SABB, we have an ambitious strategy to be a digital innovation leader in Saudi Arabia. As part of our aim to introduce innovative digital propositions for our corporate and SME customers, we have rolled out this year several initiatives, including the launch of a Digital Account Onboarding platform for businesses, mobile banking app for businesses "SABBcorp Mobile" that offers online banking services to customers. In addition, we collaborated with Monsha’at, and successfully integrated Monsha'at platform with our own CRM system through APIs to automate MSME financing requests, making it easier for MSMEs to access lending.

Further, the bank launched new digital trade solutions aimed at enhancing our letter of credit and guarantee procedures working in collaboration with Fintechs, including block-chain-based Contour and Bwatech, which is a local Fintech.

This makes SABB the first bank in the Kingdom to allow the exchange of commercial documents digitally and facilitate the letter of credit procedures using a decentralized technology. This reduces dependency on paper documents and time required for document settlement in commercial transactions.