RIYADH: Saudi Arabia’s commercial banking sector will recover in 2018 and beyond, boosted by improving economic confidence leading to a rise in deposits, while lower interest rates and funding costs will lift the industry overall, according to two reports.
“The concomitant uptick in deposits will enable banks to expand their asset bases without posing risks to sector stability, which will also be supported by strong asset quality and capital adequacy,” said BMI Research, a Fitch Group company, report Agencies.The “worst is now past” for banks in the kingdom, which in April 2016 recorded the largest 12-month decline in deposits since August 1994 on the back of a slowdown in economic growth and fiscal adjustments amid persistent low oil prices.
Saudi banks, alongside their Arabian Gulf peers, suffered from a dip in profitability and asset quality in the last few years due to the slide in oil prices from the mid-2014 peak of $115 a barrel. As the economy faltered, loans turned into bad debt that prompted some banks to allocate more provisions, a move that hurt their earnings. But the recovery in oil prices that touched $80 a barrel last week is set to help lift profitability at Saudi and other regional banks.
Improving macroeconomic conditions and rising oil prices are supporting demand for consumer and private sector credit, and encouraging businesses to gradually resume expansion plans, BMI Research’s latest industry update said.
Commercial banks’ asset growth is forecast to accelerate to 3.5 per cent in 2018 from 2.2 per cent in 2017, and 4 per cent in 2019, the report said.