June 4, 2020 / 12:06 PM / a month ago

Saudi banks face tough few quarters but are well capitalised, say CEOs

RIYADH (Reuters) - Saudi Arabia’s banks face a tough few quarters as the coronavirus crisis and weak oil prices put pressure on profitability and loan growth, banking executives told Reuters.

General view of SABB bank as the government eases lockdown restrictions amid the coronavirus disease (COVID-19) outbreak, in Riyadh, Saudi Arabia June 3, 2020. REUTERS/Ahmed Yosri

But they said strong capital buffers would help them weather the storm.

“This crisis is not going to be over in a very short period of time,” David Dew, managing director of Saudi British Bank (SABB) 1060.SE, the kingdom’s third-biggest lender by assets, told Reuters.

“The second and probably third quarters will remain challenging and 2020 will be a tough year.”

Ammar Alkhudairy, chairman of the country’s fourth biggest bank, Samba Financial Group (1090.SE), said profitability would be pressured by lower net interest margins, and possibly higher non-performing loans (NPLs), among other things.

“The margin compression will cause us, as well as all other banks, some profitability deterioration,” he said, adding that the bank made extra NPL provisions in the first quarter.

Central bank data shows Saudi banks’ profit declined by an annual 38.4% in April to 2.9 billion riyals ($773 million), while Rating agency Moody’s said they face a weakening operating environment and cut the outlook on those lenders it rates to negative.

The central bank has provided 50 billion riyals to support banking sector liquidity, and both executives said the proactive measure would help them support private sector companies, especially those facing disruption from the pandemic.

However, bank lending to the private sector is expected to grow just 1% during 2020, Al Rajhi Capital said in a recent report.

“Given the economic situation, maybe loan growth is not the number one priority for banks right now,” Samba’s Alkhudairy said, adding that he expected mortgage financing to continue growing strongly.

Reporting by Marwa Rashad; Editing by Kirsten Donovan

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