Fitch Ratings: Pandemic impact on Saudi Arabian banks has been contained

The impact of the pandemic on Saudi Arabian banks has been contained and pressures on the operating environment have largely eased. Economic activity is recovering well, supported by soaring oil prices that underpin government spending.

The banks’ financial metrics have stabilised for the most part and Fitch Ratings expects higher interest rates in 2022-2023 to support them further.

The positive trends were underpinned by government support measures, including interest-free deposits, but also by continued strong loan growth in 2020 and 2021 (14.9% and 15.5%, respectively) boosted by sustained growth in retail mortgages. The delayed recognition of impairments is no longer a key risk as deferral measures were terminated at end-1Q22.

Fitch revised the Outlooks on most Saudi banks’ Long-Term Issuer Default Ratings (IDRs) to Positive on 25 April 2022 to reflect the Positive Outlook on the sovereign rating. The two highest rated Saudi banks were exceptions as their IDRs are driven by their higher Standalone Credit Profiles.

Saudi banks’ weighted average Viability Rating (VR) of ‘bbb+’ remains the highest in the Gulf Cooperation Council (GCC). There has been a strong rebound in the operating environment following the shock of the pandemic, supported by higher oil prices, amid recovering global oil demand, and increasing non-oil economic activity. Some sectors remain under pressure but downside risks for the banking sector are contained.