Alvarez & Marcel releases the banking sector performance report in the Kingdom of Saudi Arabia for the 2021 financial year

Significant increase in loans and advances driven by strong performance in the mortgage sector

Net income increased by 15.5% year-on-year to SAR 48.8 billion. Supported by higher operating income and lower provisions for financing losses

The top ten banks recorded a decrease in net interest margin

Kingdom of Saudi Arabia – Company announced Alvarez and Marsalthe global company specializing in the provision of consulting services has announced the release of its latest version of Performance report of the banking sector in the Kingdom of Saudi Arabia for the financial year 2021In which she indicated a significant recovery in the profitability of the banking sector in the Kingdom of Saudi Arabia during the fiscal year 2021, coupled with the continued recovery of the economy from the repercussions of the Covid-19 pandemic. Total loans and advances recorded a growth of 14.2% on an annual basis in line with the growth seen by the ten largest banks in the Kingdom, while deposits experienced a slowdown during the same financial year.

The report on the performance of the banking sector in the Kingdom of Saudi Arabia for the fiscal year 2021 shows a growth in net income by 15.5% on an annual basis, mainly due to an increase in operating income by 3.5 % on an annualized basis, in addition to a decrease in provisions for financing losses by 28.9%. The net interest margin fell by 18 basis points y / y to 2.9% in FY21 as interest rates reached their lowest level in 15 years. Although the net interest margin is lower, the increased profitability of banks again shows higher efficiency across the sector.

This banking sector performance report analyzes the data of the 10 largest listed banks in the Kingdom of Saudi Arabia, and compares the results of the fiscal year 2021 with the results recorded in the previous year. The report, based on published market data from independent sources and 16 different benchmarks, assesses the key performance areas of banks, including size, liquidity, income, operating efficiency, risk, profitability and capital.

The list of the ten banks included in the report includes the National Bank of Saudi Arabia, Al Rajhi Bank, Riyad Bank, Saudi British Bank (SABB), Banque Saudi Fransi, Arab National Bank, Alinma Bank, Bank Albilad , The Saudi Investment Bank, and Al Jazira Bank.

The most prominent trends in the results of the financial year 2021:

  1. The strong increase in loans and advances continued, with 14.2% y / y compared to 12.8% in FY2020, supported by a recovery in consumer spending while deposit growth slowed during FY21. This was driven by the strong performance in the mortgage sector across the banking sector. sector, recorded The total mortgage for individuals in the Saudi banking sector increased by 47.8% to 413 billion Saudi Riyal.

While deposit growth was slower at 7.2% y / y compared to 9.2% y / y in fiscal year 2020. Consequently, the gross loan-to-deposit ratio increased to 91.5% from 86.0%, emphasizing the increase in consumer spending as the economy. continues In recovery from the epidemic.

  1. Total operating income increased by 3.5% year-on-year. This growth is mainly due to a 4.0% JoJ increase in net interest income, due to higher cost efficiency at lower interest rates and a 9.9% JoJ increase in net fee and commission income. However, this growth was partially hampered by a decrease in currency conversion losses and a decrease in operating income of 8.3% on an annual basis.
  2. The total net interest margin fell by 18 basis points y / y in fiscal 2021 to 2.9%, largely due to lower interest rates. The Saudi Central Bank had previously reduced repurchase rates by 125 basis points to 1.0% in March 2020, the lowest interest rate since 2007, with the goal of economy during the pandemic. Gross return on credit decreased by 74 basis points on an annual basis, while financing costs decreased by 23 basis points on an annual basis.
  3. The cost-to-income ratio fell by 0.2 basis points / y to 35.2% as banks’ administrative expenditure rose at a slower pace. Total operating income increased by 3.5% on an annualized basis at a higher rate compared to operating expenses which increased by 2.9% on an annualized basis.
  4. Total provisions for financing losses decreased by 28.9% year-on-year to 12.4 billion Saudi Riyal, announced by Saudi banks in conjunction with the economic recovery, due to the increase in consumer spending, the increase in oil prices and spending. on infrastructure. As a result, the cost of risk increased by 39 basis points year-on-year to 0.7%..
  5. Gross net profit increased by 15.5% on an annualized basis due to higher operating profit and lower provisions. This led to an increase in profitability ratios such as return on equity and return on assets to 11.4% and 1.7% from 10.9% and 1.6% respectively.

Overview
The table below indicates the most important criteria used during the preparation of the report:

Category

the scale

2020

2021

the size

Growth in loans and advances (on a quarterly basis)

12.8%

14.2%

Deposit growth (on a quarterly basis)

9.2%

7.2%

Liquidity

loan to deposit ratio

86.0%

91.5%

revenue and operating efficiency

Operating income growth (quarterly basis)

3.2%

3.5%

Operating income / assets

3.9%

3.6%

Non-interest income / operating income

23.4%

23.0%

Return on credit

5.6%

4.9%

The cost of funding

0.6%

0.4%

net interest margin

3.1%

2.9%

Cost to income ratio

35.4%

35.2%

Risks

Coverage ratio

148.2%

164.4%

risk costs

1.1%

0.7%

profitability

return on equity

10.9%

11.4%

return on assets

1.6%

1.7%

Return on risk-weighted assets

1.9%

2.1%

capital

Capital adequacy ratio

20.3%

19.9%

Source: Financial Data, Investor Offers and Alvarez & Marsal Analysis

Commenting on this subject, he said: Assad Ahmed, General Manager and Head of Middle East Financial Services at Alvarez & Marsal: “We expect corporate and mortgage lending to see significant growth during 2022, mainly due to massive government initiatives such as the Red Sea, Qiddiya and NEOM project. In addition, higher crude oil prices in the wake of the Russian-Ukrainian conflict should support the overall government. spending in the Kingdom of Saudi Arabia “.

He added, “We also expect that the price increase announced by the Saudi Central Bank, in line with the interest rate hike policy pursued by the US Federal Reserve, will improve the net interest margins of the Saudi banking sector and thus its profitability. reach. “

#companydata

– is over –

About Alvarez & Marsal:

Alvarez & Marsal provides its advisory services to companies, investors and government agencies around the world to help them achieve leadership, take appropriate action and achieve the desired results.. Founded in 1983, Alvarez & Marsal is one of the world’s leading consulting services for improving business performance and transformation management phases.. When traditional methodologies fail to transform and bring about desired change, customers turn to the company’s in-depth expertise and ability to provide practical solutions to their unique problems..

Alvarez & Marsal employs more than 5,500 elite senior consultants with global expertise spread across four continents, Alvarez & Marsal provides leading advisory services to companies, boards, private equity firms, law firms and government agencies facing complex challenges about tangible results.. Alvarez & Marsal experts and their experienced teams build on the company’s legacy to help companies make critical decisions and grow quickly and achieve results.. The company includes a group of high-level experts and consultants in the sector, as well as former employees of regulators and specialized bodies in the sector who are committed to keeping up with clients’ needs related to the transformation of change into a strategic business. asset, through risk management, and providing value at all stages of their business growth.

For more information, please visit the website: AlvarezandMarsal.com or follow our pages on social media FBon LinkedIn on Twitter.

Leave a Comment