Global professional services firm Alvarez & Marsal (A&M) has released its latest Saudi Arabia (KSA) Banking Pulse for Q1 2023. The report highlights profitability for the top 10 lenders in the Kingdom continues to be affected by slower growth in operating income and higher impairment charges. Despite improvement in the cost-to-income (C/I) ratio by 146 basis points (bps) QoQ, higher impairment charges of 14.4 percent QoQ resulted in only marginal growth in profitability, with net profit increasing by 2.7 percent from Q4’22 to SAR 17.3 billion ($4.6 billion).
Read more: Saudi banks’ net profits increased to SAR62.7 bn in 2022
Return on equity (RoE) declined by 67 bps QoQ to 15.2 percent, while return on assets (RoA) remained stable at 2 percent. Loans & advances (L&A) increased by 3.2 percent QoQ mainly driven by growth in corporate/wholesale banking (+4.2 percent QoQ). Deposits increased by 4.7 percent QoQ, reporting the highest growth in time deposits (+6.1 percent QoQ). Operating income increased by 4.1 percent QoQ, primarily driven by growth in non-core income (+19.0 percent QoQ) but the full impact was lower given the slower growth in total net interest income (+0.5 percent QoQ).
Mr. Asad Ahmed, A&M Managing Director and Head of Middle East Financial Services, commented: “We consider the Saudi banks’ capital position to be strong.”
Prevailing trends
- L&A and deposits increased by 3.2 percent and 4.7 percent QoQ, respectively, faster than the previous quarter.
- Total operating income increased moderately by 4.1 percent QoQ in Q1’23.
- Aggregate Net Interest Margins (NIM) contracted by 7 bps in Q1’23.
- KSA banks delivered improved cost efficiency in Q1’23. Cost-to-income (C/I) ratio increased by 146 bps QoQ to reach 30.8 percent.
- Cost of risk (CoR) increased on the escalation in impairment charges. Total CoR deteriorated by 6 bps QoQ to settle at 0.5 percent in Q1’23.
- Aggregate return on equity (RoE) increased by 67 bps QoQ to 15.2 percent in Q1’23.
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