Saudi banks stay resilient amid pandemic, backed by new regulations: KPMG report

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The banking sector in Saudi Arabia has reported strong capital and liquidity base, with mortgage finance continuing to record significant growth for the first time.

The analysis report based on the disclosure of third-quarter 2020 financials by listed banks by KPMG notes that the Kingdom’s banks have been experiencing a range of regulatory changes, including the value-added tax (VAT) reforms and the institutionalization of the real estate transaction tax (RETT).

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“The lending space in the Saudi banking sector has been rife with continued growth in mortgage financing throughout the COVID-19 environment. It is an endorsement of the housing demand in the country and testament of government support measures,” commented Khalil Ibrahim Al Sedais, Office Managing Partner – Riyadh KPMG in Saudi Arabia.

As per the latest available statistics, house ownership levels climbed well over 50 percent which was previously identified as a milestone point by the end of 2020 financial year as part of the Vision 2030.

The mortgage loan books across the banking sectors witnessed a period-on-period double-digit growth during the nine months ended September 30, 2020.

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“Retail property buyers have welcomed the step-down of the tax rate from 15 percent back to 5 percent being a non-claimable component of the purchase cost in general. If these past trends are representative for the last quarter, then the introduction of RETT and sale drives witnessed each year-end, it is quite likely that the overall banking sector will end the 2020 financial year without major impact on profitability,” Al Sedais noted.

Loan growth

The overall loan growth contributed towards a total asset increase of 9.8 percent since December 2019 reaching to $716.17 billion. Moreover, the customer deposit base during the same period rose by 5.7 percent and closed at $509.80 billion.

Overall net profitability declined by 6 percent for the nine months period, relative to the corresponding period of 2019, mainly due to higher expected credit losses of $3.19 billion -- a period-on-period increase of 41 percent.

“We foresee that the final quarter of this already eventful year is likely to be a nexus of several divergent themes and the closure would depend on the continued tenacity and resilience of the sector founded on measures already taken by both the Saudi Central Bank (SAMA) and individual banks,” said Ovais Shahab, Head of Financial Services KPMG in Saudi Arabia.

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