The leading banks of the Kingdom of Saudi Arabia recently reported a 34 percent increase in net profit in the first quarter of 2021 due to loan growth, according to Alvarez & Marsal (A&M). The top 10 banks of the Kingdom have witnessed growth because of the improved macroeconomic conditions, increase in the capital market of the region and also a significant drop in impairments.
A&M recently released Saudi Arabia Banking Pulse for Q1 2021 report and highlighted that the lending growth has doubled to five percent quarter-on-quarter compared to the fourth quarter of 2020 with 2.3 percent. Al Rajhi Bank reported the highest loan growth of 12.8 percent quarter-on-quarter.
Asad Ahmed, managing director and head of the Middle East Financial Services at A&M, said, “Looking ahead, credit growth is likely to be driven by continued strength in mortgage lending and a pick-up in corporate credit demand in H2’21, as the economic activity continues to improve.” He further added that 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 support business activity.
The deposit growth has reduced to 2.2 percent in the first quarter of 2021 compared to 3.3 percent quarter-on-quarter in the preceding quarter. Thus, the loan-to-deposit ratio (LDR) has increased to 89.7 percent as loan growth outpaced deposits growth. As the banks reported a substantial increase in their trading income, the total operating income increased by 1.2 percent to $6.4 billion quarter on quarter. Even the aggregate net margin (NIM) fell by 13 basis points (bps) to reach its multi-period low levels of 3.02 percent.