Saudi banks shake off pandemic impact
Financial metrics are stabilising, further assetquality deterioration will be contained
The impact of the pandemic on Saudi Arabian banks has been contained, while pressures on the operating environment have eased according to Fitch Ratings. “Operating environment pressures from the pandemic have reduced, helped by recovering oil prices, high credit growth and resuming economic activity,” said Amin Sakhri, Director Fitch Ratings.
“Saudi banks have absorbed the shock for the main part and financial metrics are stabilising. Further asset-quality deterioration will be contained.”
According to the rating agency, deterioration in asset quality and profitability was limited and the banks’ financial metrics have stabilised. These have been underpinned by government support measures that included interest-free deposits, but also by the strong loan growth in 2020 and 1H2.
Fitch revised the Outlooks on all Saudi banks’ Long-Term Issuer Default Ratings to Stable in Q2 2021 and Q3 2021 to reflect reduced pressures on the operating environment and the Stable Outlook on the sovereign rating.
Improving economy
Pressures on the operating environment from the pandemic and lower oil prices are easing, helped by recovering global oil demand and up-ticking non-oil economic activity.
While some non-oil sectors remain under pressure, with corporates’ ability to service their debts weakened as some are still absorbing the shock of 2020, Fitch analysts believe these pressures are already captured by the banks’ adequate provisioning and classification. “The pandemic has put pressure on sovereign’s financial flexibility and ability to spend in the economy, although this has been less than anticipated and recovering oil revenue continue to mitigate it,” said Sakhri.