Deposits of the main Saudi banks grew at a faster pace than loans and advances (L&A) quarter-on-quarter, according to Alvarez & Marsal’s (A&M) Q1 2024 KSA Pulse Report.
The report, which examines the top ten listed KSA banks by assets, indicates significant growth across various financial metrics during the first quarter of 2024. Loans and advances (L&A) saw a 3.5% quarter-on-quarter increase, primarily driven by corporate and wholesale banking activities, which grew by 3.7%. Deposits surged by 5.9% quarter-on-quarter, outpacing L&A growth and fuelled primarily by an 8.2% rise in current and savings account (CASA) deposits.
Operating income for the sector rose by 3.8% quarter-on-quarter, bolstered by a notable 16.2% increase in non-core income and a marginal 0.8% growth in net interest income (NII). Despite a 10.7% rise in impairment charges, net income grew by 6.0% quarter-on-quarter. This performance was underpinned by improved cost efficiency, with the cost-to-income ratio dropping by 1.4% quarter-on-quarter to 31.6%.
Return on equity (RoE) climbed by 0.7 percentage points quarter-on-quarter to 16.1%, and return on assets (RoA) edged up by 0.1 percentage points to 2.0%. These improvements reflect the banks’ ability to enhance profitability and operational efficiency amidst a stable interest rate environment maintained by the Saudi Arabian Monetary Authority (SAMA).
“The positive tone on Q1 2024 performance follows a strong 2023 for bank profits,” said Asad Ahmed, Managing Director and Head of Middle East financial services at A&M. “Profitability ratios for the current fiscal improved as bank’s fees and non-interest income contributed to the growth.”
SAMA kept the repo rate steady at 6.0% and the reverse repo rate at 5.5% in Q1 2024, mirroring the US Federal Reserve’s unchanged stance. However, the overnight Saudi Interbank Offered Rate (SAIBOR) slightly decreased by 8 basis points to 5.7% at the end of the quarter.
The report also notes that the KSA economy remains heavily reliant on the non-oil sector, which now contributes 50% of the GDP. Despite regional tensions and reduced oil output, trade, hospitality, and tourism sectors continue to play a crucial role in economic growth.
Looking ahead, A&M anticipates potential challenges due to the expected reversal of the interest rate cycle in the latter half of 2024, which may impact margins. Banks should focus on boosting fee income to navigate the upcoming economic headwinds.
