An analysis of the nine-month financial performance of the banking sector reflects a robust industry performance, particularly highlighted by an increase in net profit for this nine-months period by 26.21% as compared to nine-month period of 2021, and with a total assets growth of 9.76% since 31 December 2021. We have witnessed continued increase in the economic activities during the nine-month period post emergence from lockdowns and movement restrictions. While global supply chains have been under pressure due to challenges on multiple fronts including geo-political apprehensions, oil prices being consistently on the higher side has helped Saudi economy to thrive and expand on its Vision 2030 ambitions.
The banking industry has continued to capture the benefits of economic expansion, evidenced by increase in lending and reaching a loan-to-deposit ratio of approximately 96% at the end of September 2022 and noticing increase in loan book by 12.78% while witnessing increase in deposits by 7.27%. Further, a declining trend was observed in estimated credit losses (ECL) period after period. The ECL charge for the nine-months period ended 30 September 2022 has declined by 24.66% when compared with respective period ended 30 September 2022.
Banks continue to strategize their plans for the year-end and years ahead, focusing on raising Tier I capital in the form of debt issuances, notably Sukuk, and tailoring its banking products that can cater to future economic needs and consistently shifting market dynamics. An upsurge in such Tier I capital issuance has been noted across the banking participants with the aim to support core equity base and fulfil the financial and strategic needs. In the first nine months of 2022, 3.8 billion worth of issuances have been conducted and are expected to increase for the near future.
Global risk perspective
In the newest KPMG CEO Outlook 2022, business leaders around the world noted that pandemic fatigue and economic factors — including the threat of rising interest rates and inflation — top the list of most pressing concerns today. As we look to the next three years, risks are more interconnected than ever; emerging technology rises as the top risk and greatest threat to organizational growth, while operational, regulatory and reputational concerns are the other risks jumping in priority. Furthermore, advancing digitalization and connectivity across the business is tied — with attracting and retaining talent — as the top operational priority to achieve growth over the next three years. This focus on digital transformation may be driven by increasingly flexible working arrangements and heightened awareness of cyber security threats, exacerbated by geopolitical uncertainty.
Sustainable finance framework
Sustainability has been at the heart of Vision 2030 since its inception, while there is increased momentum across the global financial services industry for the social aspect of environmental, social and governance (ESG) priorities. Awareness is key, and banks can play a powerful role in helping lead and drive the ESG agenda in the years ahead.
Towards the year-end, banks will continue to mitigate enhanced market risk due to volatility in the interest rate and resolve on disclosures of ESG and Basel reforms.
In this newest publication, we have further analyzed the industry performance of the ten Tadawul-listed banks in Saudi Arabia according to the latest available financial information. We hope you find this useful for your organization and look forward to discussing trends in the banking industry in greater detail.