Tuesday, 16 July 2024

KPMG: Upsurge in capital requirements expected to further fuel strong interim performance of Saudi banks


Banks in Saudi Arabia are expected continue to prioritizing their liquidity demands for the coming year despite enhanced earnings, through focus on raising Tier I capital in the form of debt issuances, notably Sukuk, according to KPMGa leading provider of audit, tax and advisory services in Saudi Arabia.


In the first nine months of 2022, issuances of US$3.8 billion have been conducted and this is expected to grow in coming months as banks are fuelling the increased demand in the public and private sector.

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“An upsurge in Tier I capital issuance has been noted across the banking participants as banks are further strengthening their equity base,” commented Khalil Ibrahim Al Sedais, Office Managing Partner – Riyadh at KPMG in Saudi Arabia.


The regulatory agenda is also ensuring a robust capital base through the implementation of Basel 4 as final rules have emerged. While the implementation was delayed due to the pandemic, global regulators are now pushing ahead for a ‘full and consistent’ framework implementation.


“Banks could face significant challenges as they refresh their Basel 4 programs,” said Ovais Shahab, Head of Financial Services at KPMG in Saudi Arabia, noting that banks in the Kingdom will need to ensure that they are well prepared to achieve compliance within the required timelines of Saudi Central Bank (SAMA) in a cost-effective manner.


In its Q3 2022 ‘Banking Pulse’ report, KPMG highlighted the latest developments in the Kingdom’s banking sector.


An analysis of the nine-month financial performance of the banking sector reflected a robust industry performance, particularly highlighted by an increase in net profit by 26.21% year-on-year, to SAR 46.41 billion in the first nine months of 2022, with total assets rising 9.76% year-on-year to SAR3,329 billion.


“We have witnessed a continued growth in the economic activities during the nine-month period in 2022. While global supply chains have been under pressure due to challenges including geopolitical apprehensions, oil prices being consistently on the higher side has helped the Saudi economy to thrive and expand on its Vision 2030 ambitions,” Al Sedais added.


In the recent KPMG CEO Outlook 2022, business leaders worldwide noted that pandemic fatigue and economic factors, including the threat of rising interest rates and inflation, top the list of most pressing concerns today.


“As we look to the next three years, risks are more interconnected than ever; emerging technology rises as the top risk and greatest threat to organizational growth, while operational risk, regulatory changes and reputational concerns are the other risks jumping in priority,” Shahab added. 


Furthermore, advancing digitalization and connectivity across the business is tied with attracting and retaining talent which is coming out as the top operational priority to achieve growth over the next three years. This focus may drive increasingly flexible working arrangements and mitigating the heightened cyber security threats.


“Towards the year-end, banks will continue to mitigate enhanced market risk due to volatility in the interest rate and resolve on disclosures of ESG and Basel reforms,” concluded Shahab.