Saudi banking sector outlook stable in 2018, says Fitch

Fitch Ratings' outlook on the Saudi banking sector is stable for next year, as liquidity pressures have partially eased amid expectations for further improvement in 2018, the rating agency said in a recent report.

Saudi banks are forecast to see better profit, driven by higher margins despite a slight potential weakness in asset quality.

Domestic and dollar-denominated sukuk issues, along with the repayment of contractors' delayed dues, have helped achieve stability and boost confidence in the local banking system.

Economic activity, however, remains depressed amid modest growth in loans across the sector, the rating agency added.

Real gross domestic product (GDP) growth is forecast to be a negative 0.4 percent for 2017, with only modest growth thereafter to 0.8 percent and 1.3 percent in 2018 and 2019, respectively.

Credit growth slowed to 0.6 percent in the first nine months of 2017, compared to 2.8 percent in 2016 and 8.9 percent in 2015. It is projected to be in the low-single-digit range in 2018.

Meanwhile, the banking sector outlook for the overall GCC region is negative for 2018, with asset-quality metrics likely to slightly deteriorate amid slow credit due to weak economic growth.

"We have negative outlooks on 30 percent of GCC bank ratings. Around half are a consequence of the boycott of Qatar. The remainder are driven by continued low oil prices, which constrain government spending (affecting banks' financial metrics) and weaken sovereign ability to support banks,” Fitch added. 

The ratio of impaired loans is projected to see mild deterioration. Deterioration in certain corporate segments, particularly contractors and SMEs, is already filtering into other segments, including retail.

Credit concentration remains the key risk in the region, the report said.

Meanwhile, GCC banks' capital ratios are high by international standards and unlikely to change much in 2018, given lower loan growth, Fitch Ratings said.