Most Saudi banks to pay 10% of income as zakat: Al Rajhi Cap

Most Saudi banks will end up paying the lower limit of 10 percent of income as zakat after the GAZT published its Zakat formula for 2019 and onwards, Al Rajhi Capital said in a new report on Sunday.

Though uncertainty over Zakat is resolved, the average total effective tax will increase from 10.6 percent to 11.2 percent of net income, the report said, adding banks with large foreign ownership will have higher effective tax rates than local ones.

The new Zakat is based on the source of a bank's funding adjusted for the proportion of their assets that are taxable. The regulator has set a floor for the Zakat base of four times net profit (Zakat rate: 10 percent of net income) and a cap of eight times net profit (Zakat rate: 20 percent of net income).

Meanwhile, margin expansion continued for all Saudi banks in 2018 as SAIBOR rose. Larger banks such as Saudi British Bank, Banque Saudi Fransi, Arab National Bank and Al Rajhi will see higher net interest margin (NIM) increases, while Samba and National Commercial Bank will report lower increases.

"While the average yield for the sector has increased in line with SAIBOR, the magnitude of increase differs for each bank, with asset yields of some banks increasing faster than the others," the consultancy added.

Additionally, Saudi banks reported solid net income growth of 15.1 percent Year-on-Year (YoY) in Q4 2018, driven by continued rise in SAIBOR, significant reduction in provisions for the sector and controlled increase in operating expenses and ex-provision.