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High Interest Rates to Boost Profitability of Saudi Banks

Saudi Arabia is working to create the appropriate environment to ensure the durability of financial banks and the diversity of their products (Asharq Al-Awsat)
Saudi Arabia is working to create the appropriate environment to ensure the durability of financial banks and the diversity of their products (Asharq Al-Awsat)
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High Interest Rates to Boost Profitability of Saudi Banks

Saudi Arabia is working to create the appropriate environment to ensure the durability of financial banks and the diversity of their products (Asharq Al-Awsat)
Saudi Arabia is working to create the appropriate environment to ensure the durability of financial banks and the diversity of their products (Asharq Al-Awsat)

Fitch Ratings predicted that higher oil prices and interest rates will enhance the profitability of Saudi banks during 2022-2023.

This comes at a time when the loan-to-deposit ratio of Saudi banks is at its highest level in 15 years.

Fitch said that a 200bp increase in interest rates would boost Fitch-rated Saudi banks’ operating profit by 14%.

Fitch also expected that the costs of financing Saudi banks will decline after SAMA pumped 50 billion riyals into the banking system last June.

In other news, Saudi Arabia’s finance companies have demonstrated outstanding performance as their total assets reached SR67 billion ($17.85 billion) in 2021, a 26 % increase from 2020, according to a report by the Saudi Central Bank, also known as SAMA.

Aggregate capital surged 37% to SR19.6 billion in 2021 from SR14.3 billion in 2020.

Net profits also skyrocketed by 114% in 2021, achieving SR1.9 billion, the report stated.

The credit portfolio stood at SR68.1 billion at the end of 2021, a 26 % rise from its value in 2020.

New financing provided during 2021 amounted to SR25.4 billion, a 47 % increase from 2020.

Shareholder’s equity increased 30% to SR25.5 billion in 2021 compared to SR19.6 billion in 2020, the report added.

Looking at net profits breakdown by type of finance company, the non-real-estate ones have recorded SR1.4 billion while real estate finance companies received a net profit of SR0.4 billion in 2021.

Moreover, the share of non-real-estate finance companies in the total credit portfolio was 62% versus 38% for real estate finance ones.

The breakdown of credit portfolio by customer segment is 75% for retail customers, 22% for micro, small and medium enterprises, and 3% for corporates.

In the case of credit portfolios as per primary sectors, residential real estate made up 32%, followed by auto-finance loans at 27% and personal credit at 21%.

Evaluating the credit portfolio breakdown by economic activity, the top three sectors with the highest shares were trade at 21%, construction at 20%, services at 14%, and transportation and telecommunications at 9%.

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Business

Oil Prices Steady as Markets Weigh Demand against US Inventories

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
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Oil Prices Steady as Markets Weigh Demand against US Inventories

FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)
FILE - Pump jacks extract oil from beneath the ground in North Dakota, May 19, 2021. (AP Photo/Matthew Brown, File)

Oil prices were little changed on Thursday as investors weighed firm winter fuel demand expectations against large US fuel inventories and macroeconomic concerns.

Brent crude futures were down 3 cents at $76.13 a barrel by 1003 GMT. US West Texas Intermediate crude futures dipped 10 cents to $73.22.

Both benchmarks fell more than 1% on Wednesday as a stronger dollar and a bigger than expected rise in US fuel stockpiles pressured prices.

"The oil market is still grappling with opposite forces - seasonal demand to support the bulls and macro data that supports a stronger US dollar in the medium term ... that can put a ceiling to prevent the bulls from advancing further," said OANDA senior market analyst Kelvin Wong.

JPMorgan analysts expect oil demand for January to expand by 1.4 million barrels per day (bpd) year on year to 101.4 million bpd, primarily driven by increased use of heating fuels in the Northern Hemisphere.

"Global oil demand is expected to remain strong throughout January, fuelled by colder than normal winter conditions that are boosting heating fuel consumption, as well as an earlier onset of travel activities in China for the Lunar New Year holidays," the analysts said.

The market structure in Brent futures is also indicating that traders are becoming more concerned about supply tightening at the same time demand is increasing.

The premium of the front-month Brent contract over the six-month contract reached its widest since August on Wednesday. A widening of this backwardation, when futures for prompt delivery are higher than for later delivery, typically indicates that supply is declining or demand is increasing.

Nevertheless, official Energy Information Administration (EIA) data showed rising gasoline and distillates stockpiles in the United States last week.

The dollar strengthened further on Thursday, underpinned by rising Treasury yields ahead of US President-elect Donald Trump's entrance into the White House on Jan. 20.

Looking ahead, WTI crude oil is expected to oscillate within a range of $67.55 to $77.95 into February as the market awaits more clarity on Trump's administration policies and fresh fiscal stimulus measures out of China, OANDA's Wong said.