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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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UN Predicts World Economic Growth to Remain at 2.8% in 2025

A vegetable vendor sits beside a bonfire on his handcart on a cold winter evening in New Delhi on January 6, 2025. (Photo by Sajjad HUSSAIN / AFP)
A vegetable vendor sits beside a bonfire on his handcart on a cold winter evening in New Delhi on January 6, 2025. (Photo by Sajjad HUSSAIN / AFP)
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UN Predicts World Economic Growth to Remain at 2.8% in 2025

A vegetable vendor sits beside a bonfire on his handcart on a cold winter evening in New Delhi on January 6, 2025. (Photo by Sajjad HUSSAIN / AFP)
A vegetable vendor sits beside a bonfire on his handcart on a cold winter evening in New Delhi on January 6, 2025. (Photo by Sajjad HUSSAIN / AFP)

Global economic growth is projected to remain at 2.8% in 2025, unchanged from 2024, held back by the top two economies, the US and China, according to a United Nations report released on Thursday.

The World Economic Situation and Prospects report said that "positive but somewhat slower growth forecasts for China and the United States" will be complemented by modest recoveries in the European Union, Japan, and Britain and robust performance in some large developing economies, notably India and Indonesia.

"Despite continued expansion, the global economy is projected to grow at a slower pace than the 2010–2019 (pre-pandemic) average of 3.2%," according to the report by the UN Department of Economic and Social Affairs.

"This subdued performance reflects ongoing structural challenges such as weak investment, slow productivity growth, high debt levels, and demographic pressures," Reuters quoted it as saying.

The report said US growth was expected to moderate from 2.8% last year to 1.9% in 2025 as the labor market softens and consumer spending slows.

It said growth in China was estimated at 4.9% for 2024 and projected to be 4.8% this year with public sector investments and a strong export performance partly offset by subdued consumption growth and lingering property sector weakness.
Europe was expected to recover modestly with growth increasing from 0.9% in 2024 to 1.3% in 2025, "supported by easing inflation and resilient labor markets," the report said.

South Asia is expected to remain the world’s fastest-growing region, with regional GDP projected to expand by 5.7% in 2025 and 6% in 2026, supported by a strong performance by India and economic recoveries in Bhutan, Nepal, Pakistan and Sri Lanka, the report said.

India, the largest economy in South Asia, is forecast to grow by 6.6% in 2025 and 6.8% in 2026, driven by robust private consumption and investment.
The report said major central banks are likely to further reduce interest rates in 2025 as inflationary pressures ease. Global inflation is projected to decline from 4% in 2024 to 3.4% in 2025, offering some relief to households and businesses.
It calls for bold multilateral action to tackle interconnected crises, including debt, inequality, and climate change.
"Monetary easing alone will not be sufficient to reinvigorate global growth or address widening disparities," the report added.