The Banking Executive Magazine - Issue 150, June 2021

Loan Growth Loan Growth HELPS KSA BANKS REPORT 34% JUMP IN Q1 PROFIT The top 10 banks in Saudi Arabia re- ported a 34 percent increase in first- quarter net profit on the improving macroeconomic conditions, the kingdom’s buoyant capital market, and a significant drop in impair- ments. According to Alvarez & Marsal (A&M) in its latest Saudi Arabia Banking Pulse for Q1 2021, lending growth more than doubled to 5 per- cent quarter-on-quarter (QoQ) com- pared to 2.3 percent in Q4 2020. Al Rajhi Bank reported the highest loan growth of 12.8 percent QoQ. Asad Ahmed, A&M Managing Direc- tor and Head of Middle East Finan- cial Services said: “Looking ahead, credit growth is likely to be driven by continuous strength in mortgage lending and a pick-up in corporate credit demand in H2’21, as the eco- nomic activity continues to im- prove.” Corporate lending is expected to rise as the Public Investment Fund’s (PIF) plans to invest $40 billion into the economy annually until 2025 to sup- port business activity, he added. However, deposit growth slowed to 2.2 percent QoQ in Q1’21, com- pared to 3.3 percent QoQ in the pre- ceding quarter. As a result, loan-to deposit ration (LDR) increased to 89.7 percent, as loan growth out- paced deposits growth. Total operating income increased by 1.2 percent QoQ to 24.2 billion riyals ($6.4 billion) as banks reported strong increase in their trading in- come. Aggregate net interest margin (NIM) fell by 13 basis points (bps) on the quarter to reach its multi-period low levels of 3.02 percent. NIM for seven of the top ten banks contracted dur- ing Q1’21. Riyad Bank, Arab Na- tional Bank and Bank AlJazira were the only lenders reporting a NIM ex- pansion. Yield on credit fell by 24 bps QoQ, while cost of funds remained largely unchanged at 0.4 percent. Meanwhile, total impairments de- clined by about 50 percent in Q1’21 to 2.5 billion riyals. The “improving macroeconomic situation could be the possible reason behind the de- cline in provisioning,” A&M said. Cost of risk fell to 0.62 percent, its lowest level in the last five quarters and reached pre-pandemic levels. Bank AlJazira reported the highest fall in cost of risk (-681.6 bps QoQ) to 1.1 percent in Q1’21 driven by an 86.1 percent decrease in impairment provisions to 153 million riyals. However, the outlook on cost of risk remains negative. “Our outlook on cost of risk remains negative for the near term, as Saudi Central Bank’s loan deferral program comes to an end by H1’21,” said Ahmed. ISSUE 150 JUNE 2021 the BANKING EXECUTIVE 29