As many as 10 Indicators, Supported Saudi Banks Historically Record Profits’ Achievement

Tadawul stock exchange listed companies began announcing their business results, in Q4, 2021, amid expectations that many of them will achieve good growth rates and historical profits, supported by the economic growth the Kingdom experienced, last year, and the volume of liquidity available in the economy, posting record levels, in general, since.

Maaal, the leading Saudi business daily follow up unit, have found that as many as 10 indicators have supported the historically unprecedented record profits for banks, especially, those listed on the financial market, in the whole Year 2021, following achieving good margins, all through the first 9- month of the year, and moreover by the end of November 2021.

The banking sector is among the most crucial basic sector, in the economy, largely reflecting the economic situation in the country, due to its significant role in mobilizing domestic and foreign savings and financing investment, as that is the backbone of economic activities.

The financial indicators during the first 9-month of the Year 2021 showed that the sector overcame the negative effects, as it was impacted by 2020, like other sectors, due to the pandemic, a fact that was not constricted only to the Kingdom, but also inflicted the whole world.

That cluster of indicators have continued their upward trend, during the Q4 of the year, as they rose by 12% on a quarterly basis and by 14% on year over year (YoY) basis, to end the year at a level of 0.91%.

Therefore, banks are expected to record a rise in their net profits, especially out of the commission income, on an annual as well as quarterly basis.

The first and foremost indicator is the SIBOR (Saudi Interbank Borrowing Overnight Rate) is the interest rate offered among Saudi banks for 3-month, however SIBOR rates vary, according to the borrowing time-terms, ranging from one month to a year.

When SIBOR rates rise, the profit margins of banks would follow the suit, as they provide clients with variant interests’ loans.

The 2nd indicator is the total deposits of all banks, operating in the Kingdom, reaching as much as SR2.07 trillion by the end of November, which is their highest level ever, supporting banks in lending operations.

The overall volume of loans with these banks reached SR2.05 trillion, at the end of the same period, which is their highest value, at all, as well.

With the volume of loans rising to record levels, their ratio to total deposits reached 99%, the highest percentage ever reached by banks, operating in the Kingdom, according to SAMA data.

The 5th indicator was the cumulative profits of banks, operating in the Kingdom, before zakat and taxes (locally imposed “IBTDA”)  amounted to SR48.76 billion, by the end of November 2021, which is the highest on an annual basis ever, and higher than the profits achieved by those banks, in the whole Year 2020.

Subsequently, if these banks have managed to post profits in December 2021, taking into account the average profits’ margins achieved during the year, these profits are expected to exceed theirs, in 2019, which stood at SR50.3 billion, and thus will be the highest, too, in the history of banks.

Among the factors that support the achievement of record profits for banks in 2021, is that the retained earnings of listed banks amounted to SR64.11 billion by the end of the first 9-month of 2021, with an increase of 31.4%, which have supported the banks, increasing the volume of investments or dividends’ distribution.

Retained profits help support the cash dividends distribution of the banks, on the one hand, and it would have helped the banks, in the event that the Central Bank decided to lift the support for the installment deferral program, which, in turn, would have affected the default rate, but with the Saudi Central Bank’s announcement of extending the period of the payment deferral program to support private sector financing for an additional 3- month from January 1 to March 31, 2022, and therefore the profits will not be used by banks.

The 7th indicator is that the expected profits of the banks, will set at an average in the Q4 amounted to SR12.9 billion, and therefore it is expected that banks’ overall profits in 2021, would reach SR49.21 billion, which is the highest ever banks had achieved, with a net Profits in the first 9-month of 2021 amounted to SR36.3 billion.

The 8th indicator is the decline in the volume of provisions, in the first 9- month of 2021 by 9.4%, at an amount of SR996.4 million, and with the extension of the program for deferring payments for an additional 3-month, these provisions are not expected to have been increased, in the last quarter, and thus this will reflect positively on the profits.

Regarding the 9th indicator, the real GDP increased by 2.9% in 2021, according to the preliminary estimates of the Ministry of Finance, and this would have a positive impact on the rate of return on assets, as the improvement of economic activity shall contribute to improving the cash flows of individuals and companies, as well, henceforth enhances their ability to repay their debts, thus reducing default rates, and enhancing the profitability of banks.

The 10th and final indicator is the inflation rate, and as there is a positive impact of inflation rates on the profitability of banks, this can be explained by the fact that high inflation rates reduce the income available to individuals, and thus increase their need to borrow (according to a previous study by the Arab Monetary Fund).

The Kingdom recorded a positive inflation rate, all through the first 11- month of the previous Year 2021.