Saudi Arabia’s banking sector set for further gains

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    Following last year’s boom, Saudi Arabia’s banking sector is expected to see further growth in the coming years, according to forecasts by the Boston Consulting Group.

    Banking revenue reached 57 billion SAR last year, up from 50 billion SAR the year before, according to a Boston Consulting Group market assessment. Operating expenses increased as well, but at a (much) slower pace than revenues, resulting in profit windfall. In total, Saudi banks recorded a profit increase of 14% compared to the last 12 months.

    The researchers noted that Saudi after-tax profits have grown at an average CAGR of 7.9% annually since 2016, despite significant fluctuations during that period due to global events such as the pandemic. ing.

    The report attributes last year’s revenue and profit growth to a combination of many factors. “The economic situation in the Gulf Cooperation Council (GCC) countries is significantly brighter than the global backdrop,” said Marcus Massi, managing director and senior partner at Boston Consulting Group.

    “High energy prices and an increase in tourism due to global events have created what could be described as a booming economy.”

    “Furthermore, Saudi Arabia is accelerating its economic transformation in line with its ambitious Vision 2030 initiative. Not only that, but we are also working hard to develop a number of mega-projects, modernization efforts that have never been attempted before.”

    “These trends are reflected in the performance of the Saudi banking sector, which is entering a much-needed period of profitability,” Massi said.

    Drivers of Saudi Banking Sector Earnings Growth 2016-2022

    Over the period 2016-2022, the retail banking segment recorded the highest revenue growth, with loans (home loans, credit cards, corporate loans), payments and investment products being the biggest drivers of growth.

    Meanwhile, non-performing loans (NPLs), which clearly increased during the pandemic due to pandemic-induced default risk, have declined over the past two years given the rapid economic recovery.


    Looking ahead, the Boston Consulting Group says the Saudi banking sector is “well-positioned for growth over the next few years.”

    Overall lending volume is projected to grow at a CAGR of 8.5% from 2022 to 2027, with personal lending (11.3% CAGR) being primarily driven by residential mortgages and corporate lending (6.2% CAGR). ) and the public sector (CAGR 6.2%).

    Corporate borrowing, which accounts for the second largest share of the market, is performing well as improving economic conditions, higher oil prices, progress towards Vision 2030 and the start of large construction projects drive overall credit growth is expected to continue to

    Saudi bank lending and deposit volumes expected to grow from 2022 to 2027

    The mortgage sector will benefit greatly from the second phase of the Saudi housing program, which will run until 2025, and the Real Estate Development Fund’s plan to provide financial support for over 420,000 mortgage contracts. This segment is estimated to grow at a CAGR of 16.3% from 2022 to 2027.

    Credit card loans are expected to be the second largest driver of personal loan volumes. Considering the low market penetration of this product, growth is expected at his CAGR of 10.2%. Installment loans are also expected to continue to increase as consumer spending recovers.

    “Saudi Arabia’s Vision 2030 initiative is driving an economic boom in the GCC countries, along with higher energy prices and increased tourism, and Saudi Arabia is at the forefront of this trend. Combined with Saudi efforts to do so, it bodes well for the future of the banking sector,” Massi said.

    The report identifies four opportunities for banks looking to further strengthen their position to consider. “Saudi banks should manage their funds effectively, review and balance product strategies, invest for growth and leverage partnerships, the authors note.


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