The Saudi banking sector has witnessed many developments that led to its transformation over the past decade.
This includes initial public offerings from leading lenders, such as Alinma Bank and National Commercial Bank. Furthermore, in 2017 and 2018, interest rates increased across the Kingdom, following rate increases by the US Federal Reserve.
As Riyadh gears up for the Financial Sector Conference 2019 this week on April 24, we take a look at main events that have helped the sector evolve over the past decade.
Combined assets of local banks continued to grow in the past 12 years to SAR 2.267 trillion by the end of 2018, compared to SAR 828.3 billion in 2006, at a compound growth rate (CAGR) of 10.6 percent.
Deposits grew by 175.6 percent to SAR 1.7 trillion in 2018 versus SAR 616.8 billion 12 years earlier, at a CAGR of 10.7 percent.
Loans
The sector’s aggregate loans increased by 186 percent to SAR 1.4 trillion in 2018, compared to SAR 492.4 billion in 2006. The compound growth rate reached 11.1 percent.
The loans-to-deposits ratio rose to 82.9 percent by the end of 2018 from 79.8 percent in 2006. For some banks including Alinma and SAIB, the loans-to-deposit ratio surpassed 90 percent in 2018.
Profits
The sector’s combined net profit in 2018 reached SAR 50 billion, while in 2006 it was 35.4 billion, a 41.2 percent increase.
Al Rajhi Bank accounted for 21 percent of the sector’s profit in the past 12 years, followed by NCB and SAMBA at 18 percent and 13 percent, respectively.
Branches
Lenders opened 781 branches in the past decade, bringing the total number of locations to 2,064 in 2018.
This is compared to 1,283 branches 12 years earlier.
Al Rajhi, the Kingdom’s largest Islamic bank, opened 551 branches during the period. NCB, the largest lender in terms of assets, opened 401 branches. Riyad bank opened 340.
Here’s a closer look at the sector’s developments over the years:
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2006 |
The loan-to-deposit ratio increased to 85% from 60% |
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2007 |
Statutory deposit raised to 9% |
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2008 |
Alinma Bank launched an IPO worth SAR 10.5 billion |
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The new Basel II standard was implemented. |
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Statutory deposits were raised to 12% in April. They increased in the same year to 13% of demand deposits and 4% of total savings deposits in May |
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Statutory deposits were reduced to 10% in October after the global financial crisis. By the end of November, it was reduced again to 8% |
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2009-2011 |
Several Saudi banks announced exposure to financially troubled Saad Group and Al-Gosaibi. |
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2014 |
Application of discount interest rates. |
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NCB listed 500 mln shares in the largest IPO ever for the Saudi market. It was 2,301% oversubscribed at the end of the last day. |
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2015 |
The US Federal Reserve raised its key interest rate by 25 basis points to 0.50 percent for the first time in 7 years. |
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2016 |
SAMA allows banks to lend 90% of deposits. |
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The Fed raised interest rates by 25 basis points to 0.75 percent. |
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SAIBOR reached high levels during the year to 2.37% (3 months) due to tight liquidity. |
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2017 |
With the US Federal Reserve raising the interest rate, reverse repo rate rose from 0.75% to 1 percent in Q1, and to 1.25% in Q2. (+1.50% in Q4) |
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2018 |
After Fed raised interest, reverse repo rate rose four times to 2.50% by the end of 2018, up from 1.50% a year earlier. The repo rate was raised 4 times to 3% by the end of 2018, up from 2% in 2017. |
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