Saudi banks overcome COVID-19 pandemic worries, poised for growth in 2021: KPMG

The Saudi banking sector is headed for a promising year in 2021, having weathered the shaky outlook following the COVID-19 pandemic in the corresponding period last year, according to the latest report by KPMG, one of the Big Four accounting organizations.

Titled ‘Banking Perspectives 2021,’ the report records that the sector is seen moving positively, supported by the reforms in the Kingdom, halt in expected credit losses (ECL), stable liquidity, stronger Capital Adequacy Ratio (CAR), and transformational changes.

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KPMG reported that the 11 Tadawul-listed banks stayed resilient at the end of the year reflecting signs of recovery since uncertainties evolved in March 2020 and a promising outlook for 2021.

These 11 banks are Alinma Bank, Arab National Bank, Al Rajhi Bank, Bank Al Jazira, Bank Al Bilad, Banque Saudi Fransi, National Commercial Bank, Riyad Bank, Saudi British Bank, Saudi Investment Bank and Samba Financial Group.

The analysis revealed that Saudi banks concluded 2020 reflecting “cohesiveness” in outlook as well as playing a joint role along with the regulator in economic recovery.

Saudi Arabia's Central Bank Governor Ahmed al-Kholifey. (File photo: Reuters)

The Saudi Central Bank (SAMA) came out proactively with the stimulus program to support borrowers and simultaneously helped banks to accelerate their digital journey for ensuring the continuation of all banking services without physical interaction with customers.

In his forword to the report , Abdullah Hamad Al Fozan Chairman KPMG in Saudi Arabia, noted : “In Saudi Arabia, the government swiftly launched support programs to mitigate the economic impact of the pandemic on individuals and local businesses. Within these programs the SAMA played a pivotal role, extending liquidity support against payment deferral program, providing guarantees and other mitigation measures.”

“Banks facilitated the government and SAMA’s financial support mechanisms, while at the same time weathering their own storms though business continuity management systems.”

The financial performance of the 11 banks in 2020 reported a fall of only 6.32 percent in net income -- excluding the impact of a one-off goodwill impairment recorded by Saudi British Bank (SABB).

Meanwhile, total assets increased by 13.14 percent to Saudi riyal (SAR) 2,771 billion, against SAR 2,449 billion in 2019.

Total customer deposits saw a 9.18 percent spike amounting to SAR 1,975 billion, as compared to SAR 1,809 billion in 2019, whereas, expected credit loss (ECL) saw a sharp rise of 39.05 percent amounting to SAR 17.33 billion, as compared to SAR 12.46 billion in 2019.

Double-digit growth in mortgage finance

“A cursory glance at the financial highlights of the Saudi Arabian banking sector reveals the unmissable effects of Covid-19. However, there is absolute unanimity that the full-year numbers are a significantly better end to a year than many would have anticipated this time last year,” said Ovais Shahab, Head of Financial Services KPMG in Saudi Arabia.

“Banks are reporting a strong capital and liquidity base, and catering to increasing housing demand, mortgage financing witnessed double-digit growth.”

The KPMG report reflects on post-pandemic lessons learned in the field of operational resilience, digital transformation and internal control.

Shahab said the 2021 financial year will see the “evolution of important trends” like the rise of digital banking and fintech, “and how large banks compete with medium and smaller banks; how blue-chip corporates will have a better bargaining power in a low interest rate environment.”

Underlining the implications for the industry itself, he said: “The new working reality will affect the earnings and we expect to see more branch network rationalization.”

“In this report, we have encompassed a dynamic shift in society and preferences of people, regulatory and compliance measures and digital acceleration that was widely observed in last 12 months and expected to continue during the remaining 2021,” said Khalil Ibrahim Al Sedais, Managing Partner Riyadh at KPMG in Saudi Arabia.

“The Covid-19 era has demonstrated a renewed focus on the purpose of banks, manifested in diversity and gender inclusion issues and expanding ESG (Environmental, Social, and Governance) agendas.”

Looking forward, the KPMG report makes the argument that taking advantage of “the optimism generated by the introduction of various vaccines and overall improving fundamentals, it is up to the individual banks to sustain the asset growth without compromising credit quality while maintaining adequate liquidity and capital levels.”

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