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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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Lebanon's Bonds Rally as Parliament Elects 1st President since 2022

Lebanese Parliament Speaker Nabih Berri shakes hands with Lebanon’s army chief Joseph Aoun after he is elected as the country’s president at the parliament building in Beirut, Lebanon, Jan. 9, 2025. Reuters/Mohamed Azakir
Lebanese Parliament Speaker Nabih Berri shakes hands with Lebanon’s army chief Joseph Aoun after he is elected as the country’s president at the parliament building in Beirut, Lebanon, Jan. 9, 2025. Reuters/Mohamed Azakir
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Lebanon's Bonds Rally as Parliament Elects 1st President since 2022

Lebanese Parliament Speaker Nabih Berri shakes hands with Lebanon’s army chief Joseph Aoun after he is elected as the country’s president at the parliament building in Beirut, Lebanon, Jan. 9, 2025. Reuters/Mohamed Azakir
Lebanese Parliament Speaker Nabih Berri shakes hands with Lebanon’s army chief Joseph Aoun after he is elected as the country’s president at the parliament building in Beirut, Lebanon, Jan. 9, 2025. Reuters/Mohamed Azakir

Lebanese government bonds extended their three-month-long rally on Thursday as the crisis-ravaged country's parliament voted in a new head of state for the first time since 2022.

Lebanese lawmakers elected army chief Joseph Aoun as president. It came after the failure of 12 previous attempts to pick a president and boosts hopes that Lebanon might finally be able to start addressing its dire economic woes.

The country's battered bonds have almost trebled in value since September, when the regional conflict with Israel weakened Lebanese armed group Hezbollah, long viewed as an obstacle to overcoming its political paralysis.

According to Reuters, most of Lebanon's international bonds, which have been in default since 2020, rallied after Aoun's victory was announced to stand 1.3 to 1.7 cents higher on the day and at just over 16 cents on the dollar.

They have risen almost every day since late December, although they remain some of the lowest-priced government bonds in the world, reflecting the scale of Lebanon's difficulties.

With its economy and financial system still reeling from a collapse in 2019, Lebanon is in dire need of international support to rebuild from the conflict, which the World Bank estimates to have cost the country $8.5 billion.

Hasnain Malik, an analyst at financial research firm Tellimer said Aoun's victory was "the first necessary step on a very long road to recovery".

Malik said Aoun now needs to appoint a prime minister and assemble a cabinet that can retain the support of parliament, resuscitate long-delayed reforms and help Lebanon secure international financial support.

The 61-year old Aoun fell short of the required support in Thursday's first round of parliamentary voting and only succeeded in a second round, reportedly after a meeting with Hezbollah and Amal party MPs.

"That presents significant ongoing risk to any new PM and cabinet, which need to maintain the confidence of a majority of parliament," Malik said.