By KPMG: GCC listed banks’ results, Embracing digital, end 2018
Of the 26 commercial banks operating in Saudi Arabia under the Saudi Arabian Monetary Authority (SAMA) regulatory regime, 12 are national banks and 14 are branches of foreign banks.
The total listed banking sector assets remained relatively stable year-on-year, showing only 2.1% growth. Home financing was a key driver in 2018, driven by government initiatives taken to develop affordable housing units and to facilitate the necessary legal and financing environment to encourage greater home ownership.
Profitability for the listed banks increased by 11.3% in 2018 as compared with the previous year. This was primarily driven by higher the Saudi Arabian Interbank Offered Rates (SAIBOR) during 2018, thereby improving margins, conflated with a slight reduction in operating expenses owing to banks taking active cost management initiatives such as branch rationalisation (following ramping up of digitization efforts) and restructuring of non-risk taking functions.
In 2018, total assets for the Saudi Arabian banks increased by$12.5 billion (2.1%). Islamic banking assets also increased, primarily within retail financing. In particular, home financing and personal financing were buoyed by a growing population (both generally and for ‘bankable’ segments), government initiatives and product development.
The year ahead promises to be an exciting one for the Kingdom's banking sector, resulting in many direct and indirect benefits for the industry.
Mega development projects such as NEOM and Al Qiddiya, which are likely to be launched this year, will create opportunities for finance providers. Foreign investment is also expected to increase in line with government initiatives such as the Financial Services Development Program (FSDP) that aims to develop an advanced capital market capable of encouraging investment, promoting transparency, enhancing market participants’ sophistication and facilitating the raising of capital for entities both in the public and private sectors.
Speaking about the report, Muhammad Tariq, the Head of Financial Services at KPMG Al Fozan & Partners, Saudi Arabia, commented, “Overall 2018 was a positive year for listed banks in Saudi Arabia. Average net profitability improved, underpinned by higher average SAIBOR rates, modest growth in assets and a slight decrease in costs."
Commenting on Saudi Arabia's efforts to embrace the digital agenda, Tariq stated that, “Financial institutions and SAMA are showing greater support for the FinTech sector, through various initiatives such as Fintech Saudi and the Sandbox regulatory environment. FinTech solutions have the potential to lower barriers of entry to the financial services market; and elevate the role of data as a key commodity to enhance the customer experience.”